Meretz Investments NV & Anor v ACP Ltd. & Ors

The parties to this appeal were parties to various complex arrangements which were made in the period 1996 to 2002 to facilitate the construction of penthouses on the roof of an existing block of flats, known as Albert Court, Prince Consort Road, London SW7, overlooking the south east aspect of the Royal Albert Hall, and to establish the division of the anticipated profits from that development. In brief, the events leading to these proceedings were as follows. The second appellant (“Britel”) granted the first respondent (“ACP”) (now in creditors’ voluntary liquidation) a lease to undertake the development (“the development lease”) and the profits were to be shared between Britel, ACP and the first appellant (“Meretz”). There were financial and other difficulties. Eventually, one of the mortgagees, namely the second respondent (“FP”), took possession of the lease and sold it to the third respondent (“Mr Tamimi”). This prevented ACP from fulfilling a further contractual obligation to Britel to grant to it a sublease of undeveloped parts of the development lease (“the leaseback option”). The major issues on this appeal arise out of (1) the appellants’ claim that ACP, and FP under a guarantee of ACP’s obligations, are liable in substantial damages for breach of the leaseback option and (2) the appellants’ claims against all the respondents for damages for conspiracy and for inducing breach of contract. There is also a subsidiary matter, namely (3) the appellants’ attack on the basis of an account ordered by the judge, Lewison J, in favour of Meretz as against ACP. The judge gave a careful and comprehensive judgment ([2007] Ch 177), extending to 435 paras. He dealt with some important points of law. Not all of them fall for reconsideration on this appeal. However, this is the first opportunity that this court has had to consider the recent decision of the House of Lords in OBG v Allan [2007] 2 WLR 193 on economic torts and this judgment addresses (among other matters) issues about economic torts left open by that decision.

In my judgment, this appeal should be allowed on issue (1) only for the following reasons, which are developed more fully below:

As to (1) above, on the true interpretation of the parties’ arrangements, ACP is liable for damages for non-performance of the leaseback option, once performance had been made impossible by virtue of FP’s exercise of its power of sale. It follows that FP is liable under its guarantee of ACP’s obligations for the failure of ACP in those circumstances to execute the development sublease ([46] to [83] below).

As to (2) above, the respondents did not have the intention to cause harm to Britel and Meretz for the purposes of the tort of inducing breach of contract or the tort of conspiracy to cause harm by unlawful means. They had a firm belief, based on the legal advice that they had received, that Britel's rights under the leaseback option would be overreached by the exercise by FP of its power of sale. This reasoning differs from that of the judge who found that the requisite intention to cause harm was negated by legal advice on which the respondents acted that the leaseback option was discharged when certain site payments referred to below were made to Britel: I accept the appellants’ argument that there was no firm legal advice on this. Furthermore, I conclude that the actions of FP and Mr Tamimi could not amount to inducing a breach of contract or unlawful means for the purposes of the tort of conspiracy ([84] to [148] below).

As to (3) above, in my judgment, the judge correctly concluded that, in determining whether Meretz was entitled to damages for the loss of commission, there was no issue to be determined as to whether certain deductions ought not to have been made from the net proceeds of sale since those proceeds formed the basis of the judgment of HHJ Seymour QC ([149] to [152] below).

The judgment sets out the full details of the factual background. This judgment sets out only the facts that are essential to deciding the points at issue on this appeal. Numbers in brackets in this judgment preceded by J (for example, J36) are references to paragraphs in the judge’s judgment.

I start with the parties. The freeholder of Albert Court was Britel. Meretz is a sister company of Britel. Mr William Stern was London agent for both companies. The first respondent is ACP. FP, one of the mortgagees of the development lease, is also the parent of ACP. Mr and Mrs Olsson, third and fourth defendants in the action (but not parties to this appeal), were respectively the managing director of ACP and FP and his wife. As already explained, Mr Tamimi was the purchaser of the development lease from FP.

The problems in this case all stem from the funding of the project and the parties’ contractual relationships. FP became interested in the commercial opportunity offered by the development, and it formed ACP as a special purpose vehicle for the purpose of entering into an agreement with Britel. Thus, ACP took the development lease pursuant to an agreement, called “the preliminary agreement”, dated 7 March 1996. Under this agreement, Britel agreed to grant the development lease to ACP, when so requested by ACP, for a nominal sum of £1 and a nominal ground rent of £1 per annum. In due course, ACP made that request and the development lease was granted on 4 November 1996.

The construction of the penthouses had, of course, to be financed. The plan was to develop the flats in phases and to use the proceeds of sale from one phase to finance the next one. So what had to be found was finance for the first phase. Cl 5.2 of the preliminary agreement provided that the development lease should be in such form as would enable ACP to execute a first legal mortgage in favour of any commercial lender to secure up to £1.5 million. ACP only paid a nominal sum for the grant of the development lease. It was to take the risks involved in construction and the risk of obtaining and repaying the finance for the development. The reward for Britel was a share of the proceeds of sale. Under the preliminary agreement, ACP agreed to make payments to Britel, called “site payments”, equivalent to 22.5% of the net proceeds of sale of the penthouses up to £5.4 million; Britel’s profit share was capped at £1.215m. Britel was given the right to require a second charge to secure these site payments, and if a second charge was executed the parties were to enter into a deed of priority to regulate the priorities between the first and second charges.

Clause 12 laid down a timetable for completion of the penthouses. The obligation that ACP undertook was not an absolute obligation to develop the roof space but an obligation to use all reasonable endeavours to do so within an agreed timetable. This allowed 54 months for completion of the works. But the timetable was itself subject to extension if circumstances occurred beyond ACP's control or if Britel agreed to give an extension. However, if ACP failed to fulfil its obligations, then, by virtue of cl 12.4.2, Britel had the option to serve on ACP notice requiring ACP to grant it a development sublease of the undeveloped part of the demised property at a nominal premium of £1 and a nominal ground rent of £1 per annum. This was the leaseback option referred to above. The obligation to use all reasonable endeavours to complete the works by the longstop date was subsequently breached so that Britel became entitled to exercise the leaseback option. The provisions of the leaseback option were as follows:

As I explain below, Britel was entitled to exercise the leaseback option even if it had received its full entitlement to payment out of the proceeds of sale of the penthouses. It was, therefore, inserted to provide an incentive to ACP to complete the development within the agreed timetable. This impression is reinforced by a provision in the preliminary agreement for the deemed disposal at the end of 12 months of penthouses actually constructed but not sold at the date of the exercise of the leaseback option and for the site payments to be calculated accordingly. Upon payment of the site payments and the grant of the development sublease, Britel was to have no further claim against ACP as a result of any breach of the preliminary agreement.

It was said that the leaseback option created an estate contract. Nothing turns on this point. If it was an estate contract, it was not registered (see J [99]).

A further agreement, called the "introduction agreement", was made between ACP and Meretz on 7 March 1996. This gave Meretz a share in the profits of the development. On the face of it, it was unclear why Meretz, as well as Britel, should get a profit share but the judge held that the commercial motivation for the introduction agreement was a desire to conceal from NUBBH Ltd (“NUBBH”), to which Britel and Meretz owed some £2m, the existence of the additional potential receipts from the development (J [40]). NUBBH is not a party to these proceedings, and we are not concerned with this apparent impropriety so far as it is concerned. Specifically, ACP agreed to pay Meretz 70% of the net proceeds of sale between £5.4 million and £6 million and 50% of net proceeds of sale over £6 million. (These figures were subsequently varied, but nothing turns on that.). The introduction agreement deemed the preliminary agreement to have been incorporated into it, save as varied by the introduction agreement itself. By this means, Meretz obtained the benefit of many of the covenants in the preliminary agreement, to which it was not a party. The development timetable provisions, however, were excluded from the introduction agreement. The judge held (J [36]) that the exercise of the leaseback option terminated Meretz’s right to future commission. Sometime later, that is on 19 September 1997, ACP charged the development lease to Meretz to secure the profit share due to it under the introduction agreement. ACP covenanted in this charge to observe and perform its covenants in the development lease.

The freehold of Albert Court was charged to NUBBH to secure the sums due from Britel and (apparently) Mr Stern. NUBBH required Britel to obtain a guarantee from FP of the obligations of ACP to Britel under the preliminary agreement and the development lease. This was done by a guarantee, called the FP guarantee, also dated 7 March 1996. NUBBH also required ACP to charge the development lease to secure the sums due from it to Britel under the preliminary agreement. The charge originally given was not registered at Companies House, and accordingly, a further charge was executed by ACP in favour of NUBBH over the development lease on 23 December 1997. This was registered.

As to the funding of the development, any earlier plan to involve a commercial lender was put aside by FP in about December 1996 and ACP and FP then decided that FP would be the funder. On 11 August 1997, ACP charged the development lease to FP to secure repayment to it of this development finance. By 2002, FP had advanced some £1m to ACP for the development of the penthouses. It made further advances but it was subsequently agreed (in the 1999 deed of priorities referred to below) that on completion of the third penthouse the amount secured by the FP charge would forthwith be reduced to £1 million. I refer to this below as “the cap”. In addition it was also agreed in the 1999 deed of priorities that the FP charge would forthwith be discharged on the sale of the fourth penthouse. At that point, the debt owed to FP, which had already been reduced, would become unsecured, just as, in the Cinderella story, the fairy godmother’s spell was to be automatically broken at the stroke of midnight. I will thus call this provision “the Cinderella provision”.

In 1998, Varlet International Ltd (“Varlet"), the prospective purchaser of two penthouses, agreed to provide finance to fund the construction of those penthouses. This led to a deed of priorities, executed in April 1999 (“the 1999 deed of priorities”). The parties included FP, NUBBH, ACP, Meretz, Britel and Varlet. This deed provided for the execution of a first charge over the development lease in favour of Varlet. This charge was repaid and it is unnecessary for me to say anything more about the Varlet charge save to observe that it was expressly provided that (subject to matters which are not relevant to this point) the FP charge was, on the discharge of the Varlet charge, to be automatically reinstated as the first charge over the development lease, but so that the amount secured should not exceed £1.5 million. By cl 13 of the 1999 deed of priorities, the date for completing the development of the roof space was extended to 7 September 2002, and FP confirmed that this variation did not affect its obligations under the FP guarantee. Under cl 22 of the 1999 deed of priorities, ACP undertook to observe the provisions of the deed, the development lease, the preliminary agreement and the introduction agreement, save as varied by the deed. The date of completion of the development was extended to 7 September 2002.

On 17 May 2001, a further deed of priorities (“the 2001 deed of priorities”) was made between (among others) FP, NUBBH, ACP, Meretz, Britel and National Westminster Bank plc. This provided for ACP to execute a first legal charge over the development lease in favour of the National Westminster bank plc as short-term finance. This was to have priority over the FP charge. It also imposed certain restrictions on the charge executed in favour of FP, in particular that the maximum amount secured by that charge should not exceed £1.5 million. By cl 14, ACP agreed with each of the other parties to observe the provisions of other agreements, including the preliminary agreement and the introduction agreement. Accordingly, or so Meretz submits, ACP’s undertaking to observe the contractual timetable for the development was extended to Meretz. The judge accepted this contention. (J [284] to [285]). The 2001 deed of priorities also contained an acknowledgement by FP that the variation of the timetable set out in the preliminary agreement would not affect the FP guarantee.

By late 2001, the development had run into various construction problems. It was thought that the development was no longer profitable. ACP forecast a loss of £400,000. The directors of ACP and FP came to the view that they should use the FP charge “to avoid a loss”. The idea was to appoint a receiver or exercise the power of sale under the FP charge so that the profits would go to FP and ACP. It was anticipated that on this basis there would be profits from the development.

Meanwhile, Mr Tamimi emerged as the prospective purchaser of one of the penthouses, namely penthouse A. The agreed price was £2.75 million, and the contract was signed on 8 January 2002. The contract gave Mr Tamimi “step in rights” to take over the construction of penthouse A if ACP failed to complete it. Mr Tamimi agreed to advance money towards the building costs of penthouse A. In January and February 2002, he paid £140,000 and £280,000 respectively towards the purchase price of penthouse A, thus becoming financially committed to his purchase. He appointed a solicitor, Mr Peter Ware, to act on his behalf.

FP took legal advice from counsel as to whether it could exercise its power of sale. Counsel advised in March 2002 that “the leaseback option had not been registered and that it might anyway be void under the Landlord and Tenant Act 1954 as being tantamount to an offer to surrender." (J [99]).

Britel realised that the leaseback option had not been registered and on 2 March 2002 sought to protect its interest by registering a caution. However, the Land Registry refused to register the caution immediately because there was a priority period running in favour of a prospective buyer of the development lease. On 28 March 2002, Britel threatened to bring proceedings against this buyer for inducing breach of contract (J [103]). Litigation, or threats of litigation, have been commonplace in this development since 1996, and I will need to refer to two judgments of this court dealing with some of the agreements to which I have already referred.

In April 2002 meetings took place between FP and Mr Tamimi. FP proposed that the development lease would be sold by it under its power of sale to a company controlled by Mr Tamimi for £1.15 million, and that FP would reinvest the proceeds of sale in the development (J [121]).

Throughout this period, the appellants were aware of FP's proposal to exercise its power of sale and they adopted a strategy of threatening litigation and attempting to deter potential purchasers of the development lease by threatening proceedings against them too (J [131]). By May 2002, ACP owed FP over £1m. The judge thought that the total amount probably exceeded £3m.

By May 2002, Mr Tamimi, through Mr Ware, was in discussion with FP on a proposed agreement which would require FP to complete Mr Tamimi’s penthouse, pay the sums due to Meretz and remove Britel’s opposition by buying in the NUBBH charge (J [133]).

On 27 May 2002, by order of HHJ Seymour QC, Meretz obtained a judgment against ACP for £326,000 approximately, being sums due under the terms of the introduction agreement. ACP did not have the money to pay. Accordingly, the proposed arrangements with Mr Tamimi were expanded to include a loan of the monies needed to pay off the judgment. Mr Olsson informed Mr Tamimi that ACP could no longer complete his penthouse. Mr Tamimi's “step in rights” to take over the construction of penthouse A were now triggered. On 31 May 2002, ACP, FP and Mr Tamimi entered into an agreement called the “wrap around agreement”. This agreement provided for Mr Tamimi to finance the payment of the judgment. It also provided for the payment off of the NUBBH charge over the development lease. It also provided for Mr Tamimi to purchase the development lease from FP when it took possession of the lease following the exercise of its power of sale. It further provided for Mr Tamimi to appoint FP as his agent to complete the development and to procure the sale of the penthouses.

Cl 10 of the appendix to the wrap around agreement recognised that the exercise of the power of sale might lead to litigation. Cl 10.3 thus provided for the sale proceeds of penthouses A, D and F and the Loft (as defined) to be applied in:

Cl 18.2 of the agreement for the sale of the development lease stated that:

On 19 July 2002, FP as mortgagee entered into a contract for the sale of the development lease to Mr Tamimi for £1.2 million, subject to reduction in certain circumstances. The contract acknowledged that the parties were familiar with the preliminary agreement and the leaseback option. By the date of the wrap around agreement, Mr Tamimi or trusts established by him had already advanced over £2 million for completion of the development. In the event, the development lease was not transferred to Mr Tamimi until March 2003 but nothing turns on that for the purposes of this appeal (See J 255).

On 10 September 2002, Britel attempted to exercise the leaseback option but by then FP had exercised its power of sale and so ACP was unable to grant the development sublease required by cl 12.4.2 of the preliminary agreement. That event was the catalyst that has led to the claims made in this litigation.

In the maelstrom of litigation and threats of litigation that have characterised the development, two judgments of this court are particularly important to the analysis of the issues on this appeal. They have given rise to various issues, including estoppel. Accordingly, I will now summarise them. The first judgment was in the case of Britel Corporation NV v First Penthouse Ltd [2002] EWCA Civ 1350 (Chadwick and Jonathan Parker LJJ) in which the appellants sought and failed to obtain an injunction against FP, ACP and NUBBH to prevent FP from selling the development lease. I will call this "the injunction application". The judge (HHJ Seymour QC) held that the sale by FP did not result in any breach of the preliminary agreement. Britel and Meretz sought permission to appeal but this was refused by Chadwick and Jonathan Parker LJJ.

Jonathan Parker LJ held that if Britel was right in its submission that FP could not realise its security by exercising its power of sale, the effect of FP's charge was "plainly seriously compromised" ([48]). Having, however, considered the terms of the 1999 deed of priorities, and in particular clause 2, he held that FP was entitled to exercise its power of sale according to its tenor:

Chadwick LJ was prepared to assume that by granting the FP charge ACP was in breach of its obligations under the preliminary agreement and the introduction agreement. However, he too held that, by agreeing to the 1999 deed of priorities, the appellants had agreed that the FP charge would be reinstated as a first charge when the Varlet charge was repaid. Following the 1999 deed of priorities, it was:

The second action to which the judge made reference at this point was Channel Hotels & Properties (UK) Ltd v First Penthouse Ltd [2004] EWCA Civ 1072 (Peter Gibson, Keene and Maurice Kay LJJ). The claimant (“CHAPS”) held an overriding lease of Albert Court on behalf of Britel and others. Britel had created the overriding lease before transferring the freehold interest in 2000 to a residents’ company. CHAPS claimed forfeiture of the development lease on the grounds of breach of covenant including a covenant against assignment without consent as a result of the exercise of the power of sale. I will call this "the forfeiture application". CHAPS also contended that the power of sale was exercised with the object of injuring CHAPS, Britel and Meretz by depriving Meretz of its entitlement to commission payments and denying Britel (among others) the benefit of the leaseback option. Lightman J rejected this claim. He held that the leaseback option was part of "machinery set up for the payment by ACP to Britel of a premium for the grant of” the development lease (J[190]). CHAPS appealed to this court, which rejected the appeal. Counsel for the appellant is recorded as having submitted that the 1999 deed of priorities indicated that there was no intention that FP should exercise its rights as chargee of the development lease in disregard of its obligations as guarantor under the guarantee. Peter Gibson LJ (with whom Keene and Kay LJJ agreed) took the view that that argument was close to an abuse of the process of the court given the earlier ruling of this court. Peter Gibson LJ accepted that the 1999 deed of priorities was effected to create a valid security over the development lease, according to its terms, including the power of sale. He held that the guarantee did not alter this conclusion. By virtue of cl 13 of the 1999 deed of priorities, Britel agreed to an extension of the cut-off date for completion of the works to 7 September 2002 and the tailpiece to that clause provided that FP acknowledged that that variation did not affect the FP guarantee. Peter Gibson LJ held that the variation referred to in this tailpiece was merely to the extension of time referred to earlier in the clause.

I take only the holdings of the judge that are relevant to this appeal.

The judge held that FP was entitled to exercise its power of sale because this was inherent in the structure of the interests in the property. Moreover, he held that in earlier litigation this court had twice held that the effect of the 1999 deed of priorities was to enable FP to exercise its power of sale notwithstanding the existence of contractual obligations and contracts. He held that the same applied to the 2001 deed of priorities. Accordingly, he held that FP was justified in interfering with the leaseback option. Alternatively Britel and Meretz must be taken to have consented to the risk that FP would exercise its power of sale, and thus override the leaseback option and Meretz’s right to commission.

The judge dealt with a large number of detailed arguments about issues concluded in earlier proceedings. He held that in consequence of the earlier litigation the appellants were prevented by cause of action estoppel from alleging that the assignment to Mr Tamimi involved any breach of the preliminary agreement, the introduction agreement or the FP guarantee, but not the deeds of priorities (J [236]). The judge rejected an argument that the failure by the appellants to claim damages in lieu of an injunction in the earlier injunction proceedings prevented a claim for common law damages in these proceedings (J [251] to [252]).

The judge held that it would be an abuse of process for Britel or Meretz to assert that the 1999 deed of priorities conferred on them a right to prevent a sale in exercise of FP's power of sale. He held that the same conclusion applied in relation to the 2001 deed of priorities, because there was no material difference between their terms in this respect (J [257]). However, he accepted that it was still open to the appellants to make submissions about the precise character of the leaseback option, and that that matter had not been determined by Lightman J on the forfeiture application.

On abuse of process and cause of action estoppel, the judge concluded that it was not abusive for the appellants to advance the claim that the exercise of the power of sale had been for improper purposes, or to make a claim against ACP for damages for breach of contract in failing to complete the development on time, or to comply with the leaseback option (J [259] to [260]). The judge considered the issues of law affecting the question whether FP had exercised its power of sale improperly. We are not concerned with those issues but with the judge’s factual findings relevant to this issue. The judge concluded that at least one of the purposes (and a significant purpose) of FP's exercise of its power of sale was to recover what money it could out of the project. He also held that FP's decision to exercise its power of sale was to avoid the loss that would occur if Britel successfully exercised the leaseback option. But he held that neither purpose was improper.

Mr Tamimi relied on the protection for purchasers in s 104(2) of the Law of Property Act 1925. The judge held that the purchaser would not be entitled to this protection if he had actual or “shut eye" knowledge of any impropriety in the exercise of the power of sale. However, mere constructive knowledge, meaning knowledge of matters of which a person would have acquired knowledge if he had made all the usual and proper enquiries, was not enough. The judge held that on the facts knowledge of any impropriety on FP’s part would not have been imputed to Mr Tamimi (J [340] to [343]).

The judge rejected the argument that the leaseback option was a penalty (J [350]) or constituted a void agreement to surrender the development lease (J [351] to [352]).

The judge further rejected the argument that the leaseback option had been transferred to FP under s 114 of the Law of Property Act 1925 because it had been charged to NUBBH, who had been paid off by FP and had transferred its charge to FP. He accepted that the leaseback option had been vested in NUBBH by way of charge but, applying the decision of this court in Paragon Finance v Pender [2005] 1 WLR 3412, he held that s 114 did not apply to registered charges (J [361]). I refer to this below as the “Pender point”.

The judge then turned to the claims based on the torts of conspiracy by unlawful means, unlawful interference with contractual relations and unlawful interference with business. He relied on the decision of this court in Douglas v Hello! Ltd [2006] QB 125, where it was held that the gist of unlawful interference with business was the intentional infliction of economic harm. He further held that a mistake of law could negate the existence of the requisite intention. He applied the statement of the ingredients of a conspiracy to injure by unlawful means set out in Kuwait Oil Tanker v Al Bader [2002] 1 All ER 271, 311. Unlawful means could include the breaches of contract relied on. The judge held that there would be no liability for interference with a contract if the interference was in law justified, citing Edwin Hill & Partners v First National Finance Corporation [1989] 1 WLR 225.

The judge held that ACP was in breach of contract for failing to complete the development by 7 September 2002 and for failing to grant the development sublease pursuant to the leaseback option and that by virtue of the FP guarantee FP was liable in damages for these failures on the part of ACP (J [279] to [282]). However, Britel suffered no loss as a result of the failure to adhere to the development timetable (J [419]).

The judge held that Mr Tamimi had sufficient knowledge of the existence of the material provisions of the arrangements between ACP, FP, Britel and Meretz, and that his solicitor's knowledge could in any event be attributed to him. As to the state of mind of FP and ACP, the judge held that the predominant state of mind was a concern to protect their own interests, rather than to cause harm to Britel or Meretz. Both FP and ACP were aware that if the power of sale was exercised Britel and Meretz would suffer loss but they were concerned to act lawfully. The judge further held that they believed that the leaseback option was a security for the payments due to Britel under the preliminary agreement and those all those payments were paid. They believed that the leaseback option would fall away if the power of sale was invoked. He held that there was no necessary intention to injure (J [389]). He also held that Mr Tamimi lacked any necessary intention to injure (J [390]).

The judge held that the exercise of the power of sale was not tortious, alternatively was justified. The consequence of the power of sale was inherent in the legal structure of the estates and interests in, and the contracts relating to, Albert Court and which Meretz and Britel had created or allowed to be created. He held that this court had twice held that the effect of the 1999 deed of priorities was to enable FP to exercise its power of sale notwithstanding the existence of contractual obligations in other contracts. In the judge's view, the same conclusion applied to the 2001 deed of priorities. Alternatively, Britel and Meretz must be taken to have consented to the risk that FP would exercise the power of sale, and in so doing would override Britel's contractual entitlement to the leaseback option and Meretz’s contractual entitlement to commission. The relevant paras of the judgment are [395] and [396]:

The judge further held that Britel had suffered no loss since it had received the maximum payments to which it was entitled under the preliminary agreement. (He went on to fix the damages for breach of contract for failure to complete the development on time at £5). As far as Meretz was concerned, the failure to build out might have caused it loss but the failure to grant the development lease did not, because the sale of the lease would have precluded Meretz from receiving any further payment under the introduction agreement. The same point is applied to the allegation of failure to complete the development by September 2002 and the allegation of breach by FP of its guarantee of ACP’s obligations under the preliminary agreement. In fact ACP had been prevented by lack of finance from meeting the development timetable before any negotiations with Mr Tamimi began and accordingly the appellants failed to establish causation of loss (J [398] to [399]).

The judge’s consideration of the loss to Britel and Meretz continued as follows. The judge held that Britel's claim for damages for loss of the leaseback option was an alternative claim to Meretz’s claim for loss of commission payments, which would not survive any grant of the leaseback. The judge held that Meretz’s claim arose under the deeds of priorities. He further held that the leaseback option only arose if there was default, and that accordingly Meretz’s claim should be treated as having priority over Britel’s claim to damages. This is, on the face of it, a somewhat curious point, and Mr Alan Boyle QC, for the appellants, took full advantage of it by making it the starting point of his argument on this appeal. This point is referred to below as “the election point”.

The judge further held that he should consider Meretz’s claimed loss by comparing the actual position with the position that would have obtained if ACP had completed the development by 7 September 2002. He held that there was a sufficiently realistic prospect of Meretz recovering more than nominal damages against ACP for the loss of the chance of being paid commission on completion by ACP of the sale of Mr Tamimi’s penthouse and of one other penthouse. He therefore made an order for damages to be assessed by accounts and inquiries. Issue (3) on this appeal addresses one aspect of the assessment of these damages.

Mr Boyle seeks to build on the judge’s conclusion that ACP was liable in damages to Britel and Meretz for its failure to perform its part of the leaseback option by granting the development sublease. It was unable to do this because FP had exercised its power of sale over the development lease. Having reached that conclusion in favour of Britel and Meretz, the judge, as already explained went on to hold that Meretz’s claim should be treated as having priority over Britel’s claim to damages. It was this part of the judge’s conclusion which Mr Boyle challenged. Indeed, he made concentrated attack on the judge's holding that Meretz and Britel had alternative claims for loss incurred as a result of non-performance by ACP of the leaseback option.

Mr Boyle submits that it was not intended that the leaseback option should be defeated by a commercial lender exercising his power of sale. While it was agreed that ACP could borrow money, that did not mean that it could get out of its obligation to perform the leaseback option if the lender exercised the power of sale. It could not suffer the enforcement of the charge and allow the lease to be taken from it. That would result in a breach of cl 12.4.2 which could give rise to a claim for damages. The judge failed to separate out the obligation to construct the penthouses from the obligation to hand back the undeveloped property pursuant to the leaseback option. Any interpretation other than that of the appellants would be nonsensical as a commercial matter, and it is not necessary to imply any term. There would need to be express words to exonerate ACP from the obligation to perform the leaseback option, which was a core obligation under the preliminary agreement. The previous decisions of this court had not dealt with the liability of ACP and FP in damages.

On Mr Boyle's submission, the words at the end of cl 12.4.2 (quoted above) support the appellants’ interpretation. These words implied that the mortgage would still be in existence. ACP was contractually bound to procure the consent of the mortgagee to the grant of the leaseback. It was a confusion of thought to suppose that simply because circumstances prevented performance there was no longer any liability for non-performance of the leaseback option. ACP could not thereby be exonerated.

The judge was correct to accept that both ACP and FP were liable for damages for breach of cl 12.4.2 but he did not take that holding to its necessary conclusion.

Mr Boyle then submits that the judge was wrong to conclude that the Britel’s and Meretz’s remedies in damages were alternative. He submits that the judge was wrong to hold that there had to be an election between the two claims. That particular point had not been fully argued and arose only in the judgment. Mr Boyle submits that the judge was concerned about double recovery but he submits that the preliminary agreement avoided this in any event because the exercise of the option was to be in full and final satisfaction of all claims against ACP. The judge was wrong to conclude that he had to dismiss the claim for breach of the failure to perform the leaseback as the point went only to quantum of damages for the breach.

Mr Boyle relies on clause 4 of the FP guarantee:

Mr Boyle submits that there needs to be an express release if FP’s obligations are to be changed. Mr Boyle submits that, there being no release executed by Britel, nothing which happened after 7 March 1996 could affect the liability under the FP guarantee.

As to the deed of priorities, Mr Boyle submitted that Britel accepted that the FP charge would have effect as a valid first charge on the discharge of the Varlet charge and that that meant that FP could exercise its power of sale as a mortgagee. But that did not mean that that would alter the effect of the preliminary agreement which contemplated the use of the development lease as security but did not relieve ACP of its core liability to build timeously the five penthouses and to grant the sublease back to Britel. That was untouched by the deed of priorities. All the 1999 deed did was to permit FP to be the lender rather than a commercial lender. It did not follow from cl.2 that the parties were agreeing to vary the fundamental terms of the preliminary agreement.

Mr Boyle does not accept that he is precluded from submitting that ACP is liable in damages for failure to perform its obligations under the leaseback option. He submits that this point was not decided in either of the two sets of proceedings which led to the two decisions of this court referred to above.

As to the Pender point, Mr Boyle points out that the effect of this argument is that Britel did not have the benefit of the leaseback option at all. This is a point on which FP relies. It was rejected by the judge on the basis of binding Court of Appeal authority (the Pender case), and so Mr Boyle submits that that is the end of that point.

For FP, Mr Timothy Dutton primarily relies on (1) the true interpretation of the leaseback option; (2) estoppel and (3) the judge’s decision on election. He submits that the lease back option is contingent on ACP having title to the development lease so as to be able to perform the leaseback option. Furthermore, by agreeing to the creation of the FP charge, the parties must have agreed that there should be no claim under the FP guarantee if ACP was unable to grant the development sublease as a result of the exercise by FP of its power of sale. The underlying contractual arrangement between Britel and ACP was that ACP was to construct and sell the penthouses. Mechanisms were inserted for what was to happen if there was a failure to construct the penthouses. That would be a breach of contract which would sound in damages. Britel would also have the right to substitute itself for the developer and hence it had the right to the leaseback option.

Mr Dutton relies on the judge's conclusion at the end of [395] of his judgment. It was inherent in the relationship between the parties that a charge would be granted over the development lease. The value of this charge lay in the ability of the chargee to develop in the roof space. There was an inevitable conflict between the charge and the leaseback option. Mr Dutton accepts that this argument is contrary to the argument run in the previous litigation. If the development were not completed, certain consequences would flow. In particular, the freeholder would have the right to claim the development sublease in respect of the undeveloped parts pursuant to cl 12.4.2. The grant of such sublease would give the right to possession to Britel so that Britel could carry out the rest of the development. However, the sublease would have to rank behind the charges and the concluding words support the respondents’ case. The object of those words was so that ACP could obtain the mortgagee’s consent to the grant of the sublease in exercise of a mortgagor’s statutory power to grant a sublease with the consent of the mortgagee. It supported the respondents’ case that the lease back option would come to an end if the mortgage had been enforced so that it was not open to the mortgagor to apply for this consent and to grant the sublease.

Mr Dutton submits that cl 12.4.2 means that the leaseback option would only be capable of being exercised if ACP had not created a charge or, alternatively, if it had created a charge but the chargee had not exercised the power of sale. He further submits that the leaseback option was security for the site payments, and accordingly it was not exercisable if the site payments had been duly paid. Mr Boyle dismisses this argument as untenable on the true interpretation of the preliminary agreement. Alternatively, on Mr Dutton’s submission, the leaseback option was a penalty and unenforceable. Mr Boyle rejects that argument and submits that all that happens when the option is exercised is that the right to develop the roof space not then developed terminates.

Mr Dutton further submits that it is an abuse of process to the appellants to contend that Britel has a claim to damages under cl 12.4.2. He submits that this claim was dealt with in the decisions of this court on the injunction application and the forfeiture application. Mr Boyle submits that all this court decided on those two occasions was that Britel had agreed to the creation of charges over the development lease and could accordingly not prevent the sale by the mortgagees pursuant to those mortgages. Mr Dutton seeks to uphold the judge's holding in [419] of his judgment dismissing Britel's claim against FP under the FP guarantee.

Mr Michael Pryor submits that the judge did not go far enough on estoppel. Contrary to the conclusion the judge in [235], the judge should have held that cause of action estoppel prevented any claim for damages under the preliminary agreement. Accordingly, the judge was wrong to hold that there was any breach of the leaseback option by ACP.

I would allow the appeal on issue (1). I proceed by the following steps, which I amplify below:

The judge assumed that, if ACP was disabled from performing its obligations under the leaseback option because FP had exercised its power of sale pursuant to the FP charge, it was liable in damages to Britel and Meretz.

The question whether there was such a liability was not decided by this court in the two judgments of this court referred to above.

The holdings in those decisions as to the effect of enforcement of the FP charge on the leaseback option, with which I agree, do not preclude the existence of a liability on the part of ACP in damages for failure to grant the sublease once the mortgagee of the development lease had taken steps to enforce its charge.

The other grounds relied on for saying that ACP has no liability in damages for failure to execute the development sublease pursuant to the leaseback option, namely that the leaseback option was only security for the site payments which had been paid in full, that the leaseback option was a penalty, that title to the option vested in FP and the Pender point, do not afford ACP a defence to Britel's claim in damages.

On the election point, that is, the question whether Britel and Meretz had to elect between their claims in damages, the judge was wrong to say that they had to elect between their respective remedies.

Britel’s agreement to the FP charge having priority over the leaseback option means that the only remedy to which it would be entitled as against ACP if the FP charge was enforced was in damages.

At [251] to [252] of his judgment the judge rejected an argument advanced by FP that it was an abuse of process to claim damages in these proceedings when it could have claimed damages in lieu of an injunction when it sought the injunctions refused by HHJ Seymour QC (see [29] above). At [281] to [287] the judge held that ACP and (by virtue of the FP guarantee) FP were liable to both Britel and Meretz for failure to grant the development sublease pursuant to the leaseback option. When he dealt with FP’s submissions that there was no liability for conspiracy or inducing breach of contract because FP’s actions were justified by the terms of the 1999 deed of priorities and that Britel and Meretz gave their consent in that deed to the exercise of the power of sale, the judge held that the rights conferred by the FP charge were “equal to or superior” to Britel’s right to enforce the leaseback option or that alternatively Britel and Meretz were to be taken to have consented to “the risk” of the exercise of the power of sale and that that would override its right under the leaseback option and Meretz’s right to its commission ([395]). However, when he came to summarise his findings he held that ACP and FP were liable in substantial damages to Britel and Meretz in respect of the failure to perform the leaseback option (J [417] (4) and (5)]). Notwithstanding his conclusion in [395], he did not at any stage consider whether the terms of the deeds of priorities also meant that ACP could not be liable in damages if the power of sale was exercised and it became impossible for ACP to perform its obligations under the leaseback option. He therefore assumed that there was such liability. I shall consider whether his assumption was correct under (iii) below.

Mr Dutton informs us that he made submissions in closing before the judge at least that as a matter of construction no such liability arose. The judge stated correctly in [282] of his judgment: "It is not disputed that ACP failed to give effect to the option; nor that FP's guarantee extended to that failure.” However, Mr Dutton submits that the judge was in error because he should also have stated that it was disputed that ACP was liable in damages for failure to give effect to the option or that FP’s guarantee extended to such failure, and because he failed to deal with the respondents’ submissions on this point. It is unnecessary to make any finding about this as the point arises in any event in response to Britel’s and Meretz’s appeal. But, if there was such argument, the judge appears not to have dealt with it.

It is clear from [27] to [30] above, where I describe the earlier judgments of this court on the injunction application and on the forfeiture application, that this court has not previously decided the question whether ACP or (by virtue of the FP guarantee) FP is liable in damages for the failure by ACP to grant the development sublease in accordance with the terms of the leaseback option. What is material is that this court has decided that FP was entitled to exercise its power of sale notwithstanding the rights, including the leaseback option, conferred on Britel. Both those decisions are binding on the appellants. I agree with the judge that, even though Britel and Meretz were not parties to the forfeiture application, they were to be treated as privies to it in their capacity as beneficiaries of the trusts on which CHAPS held the overriding lease of Albert Court, and are thus bound by the judgment of this court on that application (see Halsbury’s Laws of England, Vol. 16(2), Estoppel, para. 1004).

I respectfully agree with the conclusions come to by this court on the injunction application as to the relationship between the leaseback option and FP’s power of sale. It will be recalled that the first proposal was that there would be a commercial lender. It is inconceivable that a commercial lender would have taken a charge and agreed that the rug could be pulled from under its security by the exercise by Britel of the leaseback option. Moreover, the 1999 deed of priorities provided that the FP charge was to "come into full force and effect" on discharge of the Varlet charge (cl 2). Britel and Meretz could not, consistently with this provision, prevent FP from exercising its rights as a secured creditor.

Unlike the injunction application or forfeiture application, these proceedings raise the question whether ACP is liable in damages if it cannot perform its obligations under the lease option because FP has exercised its power of sale conferred by the FP charge. The mere fact that the leaseback option was not binding on the first mortgagee or that Britel had no right to require the first mortgagee to execute the development sublease or that its rights therefore did not have priority over the development lease does not mean that ACP is not liable in damages for failure to execute the development sublease pursuant to the leaseback option.

An appropriate place to start is by considering the effect of the exercise of the power of sale. When a power of sale is exercised, the interests of the mortgagor in the mortgaged property is transferred to the proceeds of sale. That happens when the mortgagee enters into an unconditional contract of sale in pursuance of its power of sale: Property & Bloodstock v Emerton [1968]1 Ch 94. From that moment, therefore, ACP would have been unable to execute the development sublease.

The argument for the appellants is undoubtedly a powerful one. There is nothing in the preliminary agreement to qualify ACP's obligation to deliver the development sublease. Mr Dutton sought to meet the appellants’ argument by drawing a parallel between the provisions of cl 12.4.5 and the effect of the exercise of the power of sale. The effect of cl 12.4 5 is as follows: if the development sublease is granted on exercise of the leaseback option, there is what might be called a "drop hands" (by which I mean, a settlement whereby each side agrees not to make any claim against the other). Thus cl 12.4.5 provides that on grant of the sublease and discharge of any outstanding site payments, Britel would have no further claim against ACP in respect of (for example) non-timeous completion in breach of clause 12.2.5 of the preliminary agreement. Mr Dutton submits, at this point in my judgment correctly, that the grant of the sublease would have the same effect on Meretz’s claim because no more penthouses would be completed by ACP. Mr Dutton submits that clause 12.4.5 does not provide for the "drop hands" to occur. If the leaseback option is exercised, and ACP, being unable to execute a sublease because the mortgagee has exercised its power of sale, is liable to pay damages, it would on Mr Dutton’s submission be odd if Britel’s right to claim damages from non-timeous completion remains unaffected. On this submission, the interpretation put forward by the appellants is therefore inconsistent with the “drop hands” feature of the leaseback option.

I am not ultimately persuaded by this argument. There must be some circumstances in which ACP could be sued for damages for failure to complete the sublease pursuant to the leaseback option. Suppose, for example, that the mortgagee had not exercised its power of sale and ACP simply failed to obtain the mortgagee's consent to its executing the sublease. In those circumstances, there would be a liability in damages. Clause 12.4.5 would not apply. However, the fact that there would have been a “drop hands” if the leaseback option had been honoured would be a factor to be taken into account in assessing those damages.

The preliminary agreement proceeds on the basis that ACP will be free to execute a first mortgage in favour of a commercial lender. Accordingly, ACP might argue that it would be a derogation from grant by Britel and Meretz if ACP were to be liable in damages simply because the mortgagee had exercised its power of sale. As the level of general principle, there is force in that point. However, cl 12.4 (set out in [7] above) opens with the words "notwithstanding anything to the contrary contained" and those words therefore introduce the leaseback option. Accordingly, any argument on derogation from grant has to be approached with caution.

There is no reason in principle why ACP should not be liable in damages if it fails to execute the sublease, whatever the circumstance. Moreover, at the time of the preliminary agreement there was nothing circular in the secondary liability for those damages vesting in FP. At a later point, FP became the first mortgagee, and thus the imposition on it of secondary liability under the FP guarantee for the damages for which ACP is liable to pay looks circular but equally it could have been the fault of FP to realise that the circumstances had changed and that it should have obtained some qualification to its guarantee liability. The preliminary agreement does not give the reader much confidence that the implications of ACP’s secured borrowing had been worked out. I note for example that cl 9.5 provides that Britel should have a second charge over the development lease “ranking behind in priority to the first mortgage” [sic].

Furthermore, Mr Boyle argues that it is singularly uncommercial for Britel to enter into an agreement whereby its valuable leaseback option becomes of no value simply because ACP has been unable to repay its secured borrowing. There is force in that point but it can also be argued that in view of its profit share it should also make sacrifices if ACP could not pay its debts. Thus appeals to the commercial reality cannot be decisive.

Mr Dutton suggests that it may be that cl. 12.4.5 should be read on the basis that ACP must implicitly have title to the development lease in order to be able to grant the development sublease. He relies on the final words in brackets that ACP shall procure that any necessary consent in this regard is granted by any first mortgagee in respect of the development lease. That is a powerful argument. Again, however, I am not ultimately persuaded by it. Those words could cover the situation where the mortgagee has gone into possession of the development sublease but not actually sold it. There would be no reason why ACP should not go to the first mortgagee and ask it to withdraw its charge from the undeveloped parts of the roof space so that the development sublease can be granted. The grant would be by ACP, as the leaseback option contemplates. No doubt, when the mortgagee had gone into possession it will be difficult to persuade the mortgagee to give up any part of its charge. However, that is nothing to the point because ACP assumes an obligation to procure that its consent is given.

However, by the date on which Britel exercised its leaseback option, the mortgagee had both gone into possession and agreed to sell the development lease. It would therefore be impossible for ACP to procure its consent so that ACP could itself grant the development sublease. It is arguable that for Britel to have the right to require the delivery of the development sublease in this situation is inconsistent with other features of the scheme of the preliminary agreement. In particular, Britel has a right to the site payments whenever penthouses are sold by ACP, but that right ceases once ACP ceases to be in charge of selling the penthouses. So there would be no further right to site payments once the mortgagee has exercised its power sale. Likewise, under the preliminary agreement, Britel takes the right to call for a charge to secure the site payments. But such charge is only a second charge. It never takes priority over the first charge. Moreover, it is limited to the site payments and it does not cover any obligation of ACP to pay damages. That is arguably a recognition that Britel's “profit-sharing” rights under the preliminary agreement terminate on enforcement of the first charge and are thus subject to that charge.

However, it would in my judgment be wrong to approach the preliminary agreement on the basis that its provisions all follow some carefully considered and logical scheme. The fact is that the leaseback option is by its terms exercisable in the event of ACP being in breach of cl 12.2.5. The condition does not impose an additional requirement that ACP should have title to the development lease. No one has suggested the condition that is actually provided for was not satisfied. There is thus no way of avoiding the conclusion on the wording of the leaseback option that ACP is liable in damages if it cannot discharge its obligations under the leaseback option, whatever the reason. There is no way of making an exception for a situation in which ACP is unable to execute the development sublease because it is impossible for it to do so following the enforcement of the first charge.

The first argument is that the leaseback option is only exercisable if the site payments were unpaid. I do not consider that this can be the correct interpretation of cl 12.4.5 because as I have said, the leaseback option is exercisable in the event of ACP being in breach of clause 12.2.5. I do not consider that this court can write in additional words.

The second argument is that the leaseback option was a penalty. I do not accept this argument. ACP was entitled to the development lease on the terms of the preliminary agreement and those terms included the leaseback option. Accordingly, it never obtained the development lease free of the leaseback option. ACP had paid only a nominal consideration for the grant of the development lease. The method of development provided for penthouses to be moved on to the roof space in modular form shortly before they were to be completed, and so it is difficult to see that ACP would lose fixtures or fittings of any value when the leaseback option was exercised. In those circumstances I do not consider that the fact that no consideration was paid by Britel on exercise of the leaseback option meant that the leaseback option was a penalty. I accordingly would reject the argument based on a penalty.

The next argument is that the right to the option was vested in FP and not Britel. This argument is raised by FP and Mr Tamimi. It is contended by them that the NUBBH charge extended to the preliminary agreement and accordingly that the effect of the assignment of that charge was by operation of law ( the Pender point) to vest the benefit of the leaseback option in FP by virtue of the Pender point. This argument, if correct, was said in argument to cut off the claims in this litigation “at the knees”. For my own part, I do not consider that it is correct.

As to the Pender point, I agree with the judge. FP sought to rely on s 114(1) of the Law of Property Act 1925. That provides that a deed executed by mortgagee purporting to transfer his mortgage operates to transfer the right to demand the mortgage money and the benefit of all securities. In Pender, Jonathan Parker LJ, with whom Ward and Carnwath LJJ agreed, held that s 114 only applied to transfers of mortgages of unregistered land (see [113] of his judgment). This was one of the grounds on which in the Pender case a challenge to the claimant’s title to sue failed. That decision is binding on this court. Accordingly, the Pender point does not avail the respondents to this appeal. S 114 of the Law of Property Act 1925 would not therefore apply to a charge over the development lease, which was registered land.

As explained above, the question of the correctness of the judge’s conclusions in [419] to [421] do not now have to be decided, but it has been argued and I therefore propose to deal with it.

The judge held that Britel’s claim for non-performance of the leaseback option and that of Meretz for failure to complete the project within the development timetable were alternative claims. The judge's reasoning was that Meretz claim depended upon failure to observe the development timetable and that if completion and sale of the penthouses, on which its right to commission depended, did not occur before 7 September 2002, Britel would exercise the leaseback option. The judge reasoned that, since the primary obligation on ACP was to complete the project, the leaseback option being merely an ancillary provision, Meretz’s claim should have priority over that of Britel.

I accept Mr Boyle’s submission that both claims can be pursued. There are separate covenants in the preliminary agreement for the leaseback option in favour of Britel and in the introduction agreement for the payment of the commission payments to Meretz. Britel and Meretz are separate parties. There is nothing to prevent both claims from being enforced at the same time, even though as the judge showed the likelihood of the exercise of the leaseback option would be relevant to the computation of any loss suffered by Meretz. The contrary, however, is not true. Britel was not a party to the introduction agreement and its loss would not be affected by Meretz’s claim to commission.

Before leaving issue (1), it is important to pull together my conclusions about the effect of the FP charge on the leaseback option and the conclusion that ACP is liable in damages to Britel if it is unable to deliver the development sublease because FP has made it impossible for it to do so by enforcing the FP charge. It may seem an obvious conclusion but it is worth stating because it has a role in my analysis under issue (2). The point is simply this. It was an inevitable consequence of the fact that Britel had given its agreement to the FP charge having priority over the leaseback option that the only remedy which Britel could have as against ACP if FP enforced the FP charge was a remedy in damages. If it had made a claim for specific performance of the leaseback option after FP had exercised its power to sale its claim would have been dismissed. It follows that Britel must be treated as having accepted and agreed to this consequence, namely that its only remedy against ACP for failure to deliver the development sublease, on exercise of the leaseback option subsequent to the exercise by FP of its power of sale, was a remedy in damages, and damages alone. The further consequence of that is that, if FP in the proper exercise of its powers as first mortgagee enters into a contract of sale with a third party, those contractual arrangements do not conflict with either its contractual obligations or those of ACP to Britel but rather interlock with those obligations.

ACP, FP and Mr Tamimi conspired together with intent to injure Britel by unlawful means; and

Mr Tamimi and FP procured/or induced breaches of contract by ACP?

No claim is made under this head by Meretz (appellants’ supplemental skeleton [48]). In framing the issue, I have not mentioned a further claim that Mr Tamimi procured and or induced breaches of contract by FP. In my judgment, this adds no new legal issue since the contract in question was the FP guarantee, which related to the obligations of ACP. A breach of ACP’s obligation to grant the leaseback option was within the FP guarantee.

The appellants rely on two of the torts known as economic torts, namely, conspiracy and inducing breach of contract. There is no doubt (a) that ACP had contractual obligations under the preliminary agreement and deeds of priorities to Britel and Meretz; (b) that FP had contractual obligations to Britel under the FP guarantee; (c) that those contractual obligations were broken when ACP failed to perform the leaseback option and FP did not make good the loss to Britel under the FP guarantee.

The tort of inducing a breach of contract is committed when a person, with the requisite knowledge and intention (which I consider below), procures or persuades another person to breach his contract with a third party. The ingredients of the tort of conspiracy to injure by unlawful means were set out by this court in Kuwait Oil Tanker Co. v Al Bader [2002] 1 All ER (Comm) 271, 311:

In OBG v Allan [2007] 2 WLR 920, which was decided after the judge handed down his judgment in this case, the House of Lords considered the torts of inducing breach of contract and causing loss by unlawful means. Lord Hoffmann emphasised that a person is held liable for inducing breach of contract as an accessory to the liability of the contracting party. This point is material to the question of inducement, which I consider below.

In relation to issue (2), it is important to recall that the judge held that FP had exercised its power of sale for a proper purpose. At least one of FP’s purposes had been to recover amounts secured by the FP charge, and accordingly FP was not in breach of duty to ACP. It is also important to recall the features of the FP charge. FP could not recover all the monies it had lent because of the ‘cap’. Moreover, unless it acted quickly, it would lose its security because of the “Cinderella” provision or because Britel would seek to assert the exercise of the leaseback option against it.

In part, Britel’s grounds of appeal under this issue are against the judge’s findings of fact regarding the legal advice received by ACP, FP and Mr Tamimi.

In my judgment Britel’s grounds of appeal under issue (2) fail for the following reasons, which I expand below:

In my judgment, the judge was wrong to hold that the respondents believed that Mr Hawkins had advised that there would be no breach of contract as Mr Hawkins did not give definitive advice on this. However, Mr Hawkins had given firm advice that the exercise of the power of sale would overreach the leaseback option.

The tort of inducing breach of contract requires an intention to induce a breach of contract (OBG v Allan) and it follows from the findings of fact that there was no such intention.

FP and Mr Tamimi did not by entering into the wrap around agreement induce any breach of contract by ACP. The breach was the pre-agreed consequence of FP’s exercise of the power of sale.

The tort of conspiracy by unlawful means requires an intention to cause loss by unlawful means (see OBG v Allan) and it follows from the judge’s findings of fact that there was no such intention.

There was, moreover, no unlawful means because FP was entitled to exercise its power of sale and ACP’s breach of contract was an unavoidable consequence of that act.

I will start by setting out the judge’s findings as to intention, then the parties’ submissions and then my findings.

The judge found that ACP and FP were concerned to protect their own interests, and that they were aware that causing harm to Britel and Meretz would be a by-product of the exercise of the power of sale. He found that they believed, on the basis of advice from Mr Hawkins, the solicitor who advised FP in the period prior to the exercise of the power of sale, that, if all site payments due to Britel were made (as they were made in return for the assignment of the NUBBH charge), the leaseback option would lapse since it was part of the mechanism to securing payment of the sums. According, they lacked the necessary intent to injure. This appears from [389] of his judgment:

In relation to Mr Tamimi, the judge held in [390] of his judgment that he had no intention to injure anyone, and accordingly he did not have the requisite intention to injure for the purpose of the economic torts:

Mr Boyle’s essential submission on this issue is that each of the respondents was fully aware of the relevant terms of the preliminary agreement and that there was a risk that the exercise by FP of its power of sale might result in a breach of contract by ACP and FP to Britel and Meretz. Britel and Meretz clearly indicated that Britel would exercise the leaseback option if the penthouses were not completed by 7 September 2002. The fourth penthouse (Mr Tamimi’s penthouse A) was under construction and so the date for the automatic discharge of the FP charge under the Cinderella provision was approaching.

Mr Boyle develops his submissions as follows. The parties knew that the option was going to be exercised. What the parties did was to take the opportunity to develop the undeveloped part for themselves to the exclusion of Britel, which was entitled to it. Mr Olsson knew perfectly well that he faced having to return the development opportunity and he said that was why he had to get the lease sold before the cut off date. It was true that FP was exercising a lawful power of sale but the substance of what was happening was that the leaseback option was being defeated. The legal advice given to the respondents identified the risks and they went ahead knowing that it was likely to lead to a claim and that it would lead to a claim by Britel. The unlawful means was the breach of contract by ACP of the development sublease. It was not a case of mere foresight: it was intended to stop Britel enforcing its contractual right to develop the undeveloped part of the roof space, and the act of inducement was all that was said and done by all the three parties leading up to the exercise of the power of sale.

Mr Olsson was the directing mind and will of both FP and ACP. So this was not a case in which a lender with a charge had imposed its will on ACP. Here ACP was about to go into liquidation and Mr Tamimi was brought in to buy the development sublease in spite of the contractual right of Britel. It was known that the cut off date was approaching. In accepting the opportunity offered to him and providing funding, Mr Tamimi induced a breach of contract by ACP and a breach by FP of its guarantee. It is sufficient that a lender knows about the breach of contract.

The legal advice included advice that the leaseback option was merely security for the site payments, which were proposed in that event to be paid in full and indeed which were paid in full in due course. I will call the legal advice to this effect the "option-as-security advice". Mr Boyle submits that the legal advice was very different from that found by the judge. All that happened was that a potential argument was identified that would be run if Britel exercised the leaseback option and demanded the development sublease. It does not mean that Mr Hawkins was advising that the argument was correct. He did not.

By contrast, according to the judge in [389] of his judgment (see [92] above), the critical legal advice was the option-as-security advice. It was a deduction from cl 12.4.5 that Britel would have no further claim once the development sublease was granted. Mr Boyle submits that this finding was not open to the judge and that no such advice was given. All that Mr Hawkins said, as for instance in para. 9.2 of his e-mail dated 22 March 2002, was that it was arguable that the leaseback option was only a security for the site payments. He put forward that argument to Mr Olsson on 2 April 2002. Equivocal advice would not be enough to prevent the formation of the necessary intention. Counsel had advised in March at a conference attended by (among others) Mr Olsson that a claim for damages for non-performance of the leaseback option would survive the exercise of the payment of the site payments. Mr Hawkins gave detailed advice to FP in a memo of 6 April 2002, not referred to in the judge’s judgment. In it he said that it was “arguable” that the leaseback option fell away once the site payments had been paid. ACP and FP, through Mr Hawkins and Mr Olsson, knew from May 2002, if not before, that Britel would not grant any extension of the date for completing the project.

As already noted, the judge refers only to the option-as-security aspect of Mr Hawkins’ advice. The highest that Mr Hawkins put it on this point was that it was arguable that that the provisions operated as security for the site payments: see the memo of 6 April 2002 referred to above. Moreover, Mr Boyle submits that Mr Olsson, who was advised by Mr Hawkins, did not understand him to be giving him more than a chance of success in litigation. In cross-examination, however, he said that he thought that Mr Hawkins firmed up on his advice before the wrap around agreement was made (day 8/143).

Accordingly, Mr Boyle submits that the judge was wrong to find that Mr Tamimi did not have the necessary intent to cause harm. Mr Boyle went through the contemporary documentary evidence in some detail. He submits that the judge did not adequately summarise or set out the evidence relevant to the state of mind of Mr Tamimi. He emphasises that, by virtue of a development agreement dated 19 July 2002, FP and Mr Tamimi agreed that Mr Tamimi would be entitled to deduct sums up to £260,000 on the sale of the loft and a carparking space at Albert Court.

Mr Dutton seeks to uphold the findings of the judge. Many of the same submissions which Mr Dutton makes are also made on behalf of Mr Tamimi. Mr Pryor submits that the judge came to the clear conclusion that Mr Tamimi did not know that a breach of ACP’s obligations or the FP guarantee or economic harm to Britel and Meretz would result from his action. In his evidence Mr Tamimi never accepted that he would be harming the appellants’ interest or assisting in the breaking of their contracts. The provision for litigation costs was a contingency for potential litigation with Mr Stern’s companies.

I now turn to my conclusions. I start by reminding myself of the well-known passage from the judgment of Clarke LJ in Assicuriazione Generali SpA. v The Arab Insurance Group [2003] 1 WLR 577 at [14] to [17]. This passage, which incorporates the observations of Mance LJ (as he then was) in Todd v Adam (trading as Trelawney Fishing Co) [2002] Lloyd’s Rep 293, was recently approved by the House of Lords in Datec Electronic Holdings Ltd v United Parcel Service Ltd [2007] UKHL 23 (delivered after the hearing of this appeal). I do not think that I need to set out those passages. Clarke LJ held that the approach of the tribunal to findings of fact would depend on the extent to which the judge had had an advantage over the appellate court. So, where findings turn on oral evidence given by witnesses at trial, an appellate court will be slow to interfere. I must bear in mind that this court does not have the benefit of oral evidence or of having seen the case develop over a 3 ½ week trial as the judge did. This point, however, may depending on the circumstances have less force if the appellate court’s conclusion is that the judge was plainly wrong on a finding of fact but ought to have made a finding of fact based on the same primary evidence which would lead as a matter of law to the same ultimate conclusion.

I now turn to the facts. It is clear from the documentary evidence in the appeal bundles that Mr Hawkins was very concerned with the legality of any action by FP. He was moreover accepted by the judge as an honest witness (J[5]). In the light of Mr Hawkins’ memoranda of 24 March 2002 and 6 April 2002, where Mr Hawkins describes the option-as-security point as a contention which is arguable, and the fact that in March 2002 counsel had alerted him to the possibility that Britel might claim that the leaseback option survived payment in full the site payments, I do not consider that there is a sufficient evidential basis for the judge's finding that Mr Hawkins gave definitive option-as-security advice. If he had, the question of the registration of the option would have been irrelevant and it is difficult to see why the parties took the trouble of preparing a three-part declaration in cl 18.2 of the wrap around agreement (above, [24]).

However, in my judgment, Mr Hawkins certainly considered that the leaseback option would be overreached by the proper exercise of the power of sale. His advice on this point was consistent from the start. Thus, in para. 5.2 of his email of 19 March 2002, he advised that:

Mr Hawkins there refers to para. 2.2 of the same email. He said at para. 2.2 that the leaseback option "could be lost if the ACP title is disposed of (as the preliminary agreement has not been protected by registration against the ACP title).” Reading the e-mail as a whole, I consider that his advice that exercise of the power of sale would overreach both Britel's leaseback option and its second mortgage was firm. This is confirmed by advice in his email dated 29 April 2002 to Mr Ware that the preliminary agreement "will be overreached on any sale by FP as mortgagee (as already explained in our earlier e-mail).”

It followed from that advice that he considered that FP’s rights under the FP charge had priority over the leaseback option and this court has on two occasions accepted the correctness of that advice. It is, moreover, evident that whatever significant advice Mr Hawkins gave on the risks of exercising the power of sale was passed on to Mr Ware, with whom he was in touch.

In [390] (set out above at [93]), the judge makes no reference to Britel. It seems to me implicit that the judge must have considered that Mr Tamimi also relied on Mr Hawkins’ option-as-security advice. This would follow from the liaison that took place between Mr Hawkins and Mr Ware. Mr Tamimi knew that Britel wanted to exercise the leaseback option because on 26 April 2002 Mr Stern had written direct to Mr Ware stating that Britel intended to exercise the option. Mr Ware was meticulous in advising Mr Tamimi on the risks involved in the transaction recorded in the wrap around agreement. By May 2002, Mr Ware had received a copy of the preliminary agreement. In his witness statement for the trial Mr Tamimi refers to the leaseback option. In cross-examination, he explained that this was not something which he knew in May 2002. However, as Mr Hawkins’ e-mail to Mr Ware dated 29 April 2002 demonstrates, Mr Tamimi would also have been aware of Mr Hawkins’ advice about overreaching. When giving their evidence, both Mr Olsson and Mr Tamimi made it clear that, as one would expect, they relied on the legal advice that they got.

I have considered whether the option-as-security advice was inconsistent with a finding that firm advice was given about overreaching. In my judgment, there is no such inconsistency. The option-as-security advice was addressed to the question whether the leaseback option would lapse. A person who took the view that the option-as-security advice was only arguable might well still properly take the view that firm advice could be given that the leaseback option would be overreached and that Britel would simply be left with a possible claim in damages against ACP. Indeed for a property lawyer it is probably instinctive to reach the view that a secured creditor exercising his contractual rights in the manner contemplated by the security documentation would overreach the rights of persons over whom the secured creditor had priority. I am not concerned about the question whether or not Mr Hawkins thought about the existence of a damages claim since no one has suggested that there was any intention to interfere with that claim.

While, in my judgment, the judge's finding that Mr Hawkins had advised (implicitly by firm advice) that if all payments made to Britel were made then the leaseback option would lapse cannot stand, I consider that is open to this court to find that Mr Hawkins gave firm advice about overreaching on which FP and Mr Tamimi relied. I say that on the basis of the documentary evidence in the appeal bundles and on the references which Counsel have made to the transcripts. In my judgment we can rely on them to have drawn our attention to anything material on this point.

That leaves the question of the effect of Mr Hawkins’ advice and I consider that when I consider below the questions whether FP and Mr Tamimi had the necessary intention for inducing breach of contract or for conspiracy by unlawful means.

A crucial question on this appeal in relation to economic torts is whether the respondents had the necessary intention. The judge applied the law recently laid down, firstly, by this court in Douglas v Hello! Ltd [2006] QB 125 in relation to the economic tort of causing loss by unlawful means, and, secondly, by this court in Mainstream v Young [2005] IRLR 964. In the first case, this court held that a holistic approach should be adopted to the requirement for intention in the various economic torts. It considered the possible tests for the necessary intention at [159]:

At [223], this court concluded that what had to be shown was that there was an intention to cause harm, whether as an end in itself or as a means to an end:

This court applied the same approach to the tort of inducing breach of contract in Mainstream. I gave the leading judgment in that case. However, since the judge delivered his judgment in this case, the House of Lords has given fresh guidance on economic torts in three conjoined appeals, namely OBG v Allan, Douglas v Hello! Ltd and Mainstream v Young. Accordingly, this court must consider the requirement as to intention in the light of the decision of the House of Lords.

In OBG v Allan, the House of Lords held that conspiracy, inducing breach of contract and other economic torts are separate torts. They held that inducing breach of contract was a species of ancillary liability and that causing loss by unlawful means was a species of primary liability. The House rejected the unifying theory put forward by this court in D. C. Thomson v Deakin [1952] Ch 646. For inducing breach of contract, the essential elements were knowledge of the contract, intention to induce a breach of the contract and actual breach of contract. Accordingly, to be liable, a person must know that his action will result in a breach of contract (per Lord Hoffmann at [39]). He need not have a desire to injure the claimant (per Lord Nicholls at [192]). If a defendant genuinely believes facts which if true show that there was no breach of contract, he is not liable: British Industrial Plastics v Ferguson [1940] 1 All ER 479 (a case which I drew to the attention of the parties in Mainstream in the course of the hearing in this court). Knowledge of the contract is required, but this may include “shut eye” knowledge, that is, knowledge that would have been obtained had not a decision been made not to enquire as to the existence of a relevant fact (per Lord Hoffmann at [41]; and per Lord Nicholls at [192]). If a person intends to cause a breach of contract, it does not matter that he intended thereby to achieve some other purpose or that he would have preferred not to induce a breach (per Lord Hoffmann at [42]). Merely to foresee that breach of contract will occur is not the same thing as intending it (per Lord Hoffmann at [43]). The intention would not be present simply because he reached the view that there would be no breach of contract because of a muddle-headed or illogical belief (per Lord Nicholls at [202]). As to breach, it is not enough that the defendant obstructed a person in the performance of the contract. The defendant’s conduct must actually have caused a breach of that contract (per Lord Hoffmann at [44]).

The essential elements of the tort of causing loss by unlawful means are wrongful interference with the actions of a third party in which the claimant has an interest, and an intention thereby to cause loss to the claimant. A person intends to cause loss even though it is the means by which he achieves the end of enriching himself (per Lord Hoffmann at [62]). Again, mere foresight that the claimant will suffer loss is not enough to found liability (per Lord Nicholls at [166]). Where the loss to the claimant and gain to the defendant are obverse sides of the coin, and the defendant cannot obtain one without bringing about the other, then if the defendant goes ahead in order to obtain the gain which he seeks, his state of mind will satisfy the mental ingredient of the unlawful interference tort: per Lord Nicholls at [167].

Lord Hoffmann specifically rejected the holding of the judge and this court in Douglas, that the defendant, Hello, did not intend to cause loss to its competitor, OK. The fact that Hello wished to publish material, so as to avoid damage to itself through having lost the exclusive, resulted in liability because it used unlawful means and because it was no defence to say that he proposed to further his own business interests: Tarleton v M’Gawley (1794) 1 Peake NPC 270.

The House did not consider the tort of conspiracy. There are two types of conspiracy, conspiracy to injure by unlawful means and conspiracy to injure by lawful means. The latter requires a predominant intention to injure and we are not concerned with that tort. Conspiracy to injure by unlawful means does not require a predominant intention to injure.

Mr Boyle accepts that if a party is advised that a transaction does not infringe the claimant’s rights then he may not have the intention necessary to commit an economic tort. He submits that there is a tension between that principle and the principle that in the tort of conspiracy ignorance of the law is no defence (Belmont Finance Corporation v Williams Furniture Ltd (No.2) [1980] 1 All ER 393). This argument was, however, considered in Mainstream and rejected by me:

Sedley LJ and Aikens J agreed with my judgment. The decision in Mainstream was affirmed by the House of Lords. Lord Nicholls specifically rejected the argument that Mr De Winter was not entitled to escape liability by relying on his own mistaken assessment of the legal position ([201] to [202]).

Mr Boyle further submits that where the parties are independent they may be able to say that they are justified or that there is no inducement. Here ACP was the subject of the inducement action and it was prevented from complying with its contractual obligations. Mr Boyle submits that this is a case of willing participation by ACP in the prospective breach of contract. Mr Boyle submits that it follows from what Lord Nicholls held that it is not enough that the third party prevents performance; there must be more. The conduct must induce the contract breaker to act in a way that amounts to a breach. Here ACP was a willing participant in the sequence of events and this is therefore an inducing breach of contract case. If the lender was an independent bank, it would be able to defend the case by saying that it simply exercised its rights as a secured lender. That would be a very different situation. As it was, Mr Tamimi was involved in the planning and initiation. He was told, in terms, of the existence of the cut-off date and of Britel’s attitude to that.

Mr Dutton seeks to uphold the judge’s conclusion that the respondents did not have the necessary intention, as does Mr Pryor on behalf of Mr Tamimi.

I have already concluded that Mr Hawkins gave advice that Britel’s rights under the leaseback option would be overreached, that is overridden, by the exercise by FP of its power of sale. In my judgment, it is also clear that FP and Mr Tamimi relied on Mr Hawkins’ advice.

The basis for saying that Britel's rights under the leaseback option are subject to the FP charge is that Britel consented by the deeds of priorities to the FP charge having the status of a first charge: see the two earlier decisions of this court set out above. As I have already held, it follows from that consent that Britel must be treated as having agreed to the liability of ACP to deliver the development sublease being converted into an obligation to pay damages when that event occurred.

Furthermore, in my judgment, it follows from Mr Hawkins’ advice and the respondents’ reliance on it that the parties to the wrap around agreement believed that they were entitled to act as they did when they entered into the wrap around agreement. They considered that they were entitled to cause ACP to breach its obligation to deliver the development sublease under the leaseback option. The position of FP and Mr Tamimi is then in my judgment directly comparable with the position of Mr De Winter, the alleged inducer of the breach of contract in Mainstream. He genuinely believed that the directors had obtained the consent of the company to diverting a corporate opportunity to him a joint venture owned by the directors and him. It was irrelevant that his belief was misconceived. In this case, too, it is in my judgment sufficient to avoid liability for inducing breach of contract that FP and Mr Tamimi believed that they were entitled to act as they did.

Mr Boyle relies on of the metaphor of the obverse side of the coin used by Lord Nicholls in OBG. At [167], Lord Nicholls held:

In my judgment, this metaphor is used to illustrate a very different proposition, namely the mere fact that by injuring a third party a person intends to further his own business interests does not mean that he does not have the intent to injure that party. This point is graphically illustrated by Lord Hoffmann by reference to Tarleton v M’Gawley. In that case, the question was whether the defendant could prevent traders from approaching the plaintiff's ship, the Othello, by firing at them. As Lord Hoffmann said at [63], "The master of the Othello in Tarleton v M’Gawley may have had nothing against the other trader. He may have gone off to make his fortune in other waters, he could have wished him well. He simply wanted a monopoly of the local trade for himself. But he nevertheless intended to cause him loss."

But these propositions do not in my judgment apply where the causative act is something which the party doing it believes he has a contractual right to do as against the relevant person, notwithstanding that the act would coincidentally cause that person detriment or loss. In this case, the respondents envisaged that, when FP exercised the power of sale, Britel would lose its right to the development sublease. However, as I have explained, they were advised and believed that the exercise of the power of sale would overreach Britel’s rights to the development sublease. This was an inevitable result of the arrangements to which Britel agreed. The mere fact that Mr Tamimi or FP intended that result to occur does not mean that they had the intention to cause harm for the purposes of the tort of inducing breach of contract. All they intended to do was to produce a result which they believed as a result of the contractual arrangements between ACP, FP and Britel that they were entitled to produce.

I now turn to the question whether there was any inducement of ACP to breach the leaseback option, and to a number of related matters, namely causation, justification and consent.

To succeed in its claim for inducing breach of contract, Britel must identify the breach of contract induced. There are pages of pleading on this point, much of which is made irrelevant by the judge’s decision against the appellants on points which are no longer in issue. As far as I can see, the only breaches of contract by ACP that are in issue are its failure to complete in accordance with the development timetable and its failure to perform its obligations under the leaseback option. The failure to complete in accordance with the development timetable was caused by other factors, such as lack of finance, not by the exercise of power of sale. Thus, Mr Boyle has relied on the failure to perform the leaseback option.

Then, as to inducement, Mr Boyle submits that the parties’ arrangements implemented by the wrap around agreement amounted to inducing breach by ACP of its contractual obligations under cl 12.4.5 of the preliminary agreement (the leaseback option). Mr Boyle emphasises that ACP was a party to the wrap around agreement. He therefore draws a distinction between this case and the normal case where a bank enforces a charge because in this case the mortgagor was fully involved in the arrangements for sale of the mortgaged property.

Mr Dutton submits that, in OBG v Allan, the House of Lords pointed out that there was an essential difference between prevention of performance of the contract and persuasion to breach it. In the case of persuasion, the tort of inducing breach of contract could be committed. But, if it were a case of prevention of performance, the tort would be one of unlawful interference with contractual arrangements. Accordingly, in the present case, there could be no liability for the tort inducing breach of contract. In any event, there could be no inducement where FP simply did that which it was entitled to do. If Britel is correct, the startling consequence would be that any mortgagee exercising its power of sale in circumstances where it knows that the exercise will put the mortgagor in breach of contract is potentially liable for inducing breach of contract.

My conclusions on inducement are as follows. The concept of inducement was analysed in OBG by Lord Hoffmann and Lord Nicholls and I must test the parties’ submissions on inducement by reference to their analysis. In OBG, Lord Nicholls drew a distinction between inducing a breach of contract and preventing its performance. At [178], he held:

Lord Hoffmann did not use the distinction made by Lord Nicholls. However, as mentioned above, he too emphasised that the liability for inducing breach of contract was ancillary to that of the contracting party for breach of contract. At [34] to [38], Lord Hoffmann discussed the distinction between direct and indirect interference with a contract. He was critical of this distinction and to illustrate the point he gave the following example:

Lord Hoffmann considered whether the distinction meant no more than a direct communication between the defendant and the contract breaker as opposed to one through an agent. He continued:

Lord Hoffmann accepted that facts giving rise to accessory liability for procuring a breach of contract might also give rise to primary liability for causing loss by unlawful means. He considered, however, that the two torts should be treated as separate. Similarly, Lord Nicholls considered that it was “confusing and misleading” to treat prevention cases as part and parcel of the same tort as inducement cases. He held:

It is not suggested in OBG that there was any difference between the approach of Lord Nicholls and that of Lord Hoffmann to the question of inducement. They both regarded it as fundamental that liability for inducement was accessory to the liability of the party to the contract. Lord Brown expressly agreed with Lord Nicholls and Lord Hoffmann on matters where they were agreed and Lord Walker and Baroness Hale by implication agreed with them on those points.

On the face of it the distinction drawn by Lord Nicholls as between prevention of performance and inducement would suggest that there was an inducement in this case. ACP was, as Mr Boyle points out, a party to the wrap around agreement and FP and ACP, as parent and subsidiary respectively, could not be said to act independently. However, in my judgment, it is necessary to look to the substance and not the form. Although ACP was a party to the wrap around agreement, it had no role to play in FP's decision to enforce the charge or in its arrangements for the sale to Mr Tamimi. This was not, after all, the normal case where a contracting party is induced to commit a breach of contract. In the normal situation, a contracting party has an option whether to perform his contract or to pay damages. Here the creation of the FP charge removed that choice once the power of sale became exercisable and had been exercised. In these circumstances, the only course of action open to ACP was to pay compensation.

Thus the present case is not a persuasion case but a prevention case, as those terms are defined by Lord Nicholls. It therefore has to be shown that the preventative means used by FP were "independently unlawful". This cannot be done because FP was contractually entitled as against ACP and Britel to exercise its power of sale. (There is no evidence that the respondents caused any breach of ACP’s obligation to pay damages).

I consider that Lord Hoffmann’s test leads to the same answer. It is not enough to show that there was a relationship of parent and wholly-owned subsidiary between ACP and FP or that ACP was a party to the wrap around agreement or to some of the negotiations which preceded it. It would have to be shown that FP’s "acts of encouragement, threat, persuasion and so forth have a sufficient causal connection with the breach by the contracting party to attract accessory liability.” But there is no evidence of any acts of encouragement or any conduct on the part of FP in the form of the wrap around agreement, which had the effect of preventing ACP from delivering the development sublease when the leaseback option was exercised. The fact was that Britel had agreed to the creation of a contractual structure which gave FP a charge over the development lease and it was part and parcel of that structure that FP could take it out of ACP’s power to deliver the development sublease. The die had been cast long before the wrap around agreement was thought of. In the circumstances, the instrumentality of FP, which exercised its power of sale and, as it were, lit the blue touch paper which caused the proprietary rights conferred by the leaseback option to be destroyed, did not in the circumstances constitute a sufficient causal connection to attract accessory liability.

An analogy can be drawn between the inducement by exercising contractual rights as a secured creditor and the situation where, to enable it to obtain monies to repay funds borrowed to purchase shares in the company, a secured creditor of a company enforces a pre-existing charge. In MT Realisations v Digital Equipment (2004) BCC 415, this court held that the company did not give “financial assistance” contrary to section 151 of the Companies Act 1985 by allowing a secured creditor to exercise its secured rights because the secured creditor was entitled to exercise those rights by reason of a charge granted prior to that purchase. So, too, here ACP has not been induced by FP and Mr Tamimi to breach its contract with Britel. FP had a contractual right to exercise its power of sale as a secured creditor as against both Britel and ACP.

On causation, the judge concluded at [395] of his judgment that Britel suffered no loss because the loss was caused by the exercise of the power of sale rather than the wrap around agreement. Mr Boyle submits that the judge was in error in this conclusion since it was those arrangements that resulted in Mr Tamimi purchasing the development lease and prevented ACP from performing the leaseback option. Mr Dutton seeks to uphold the judge’s conclusion. I agree with the judge. It was the exercise of the power of sale which rendered it impossible for ACP to deliver the development sublease. The exercise of the power of sale was the fulfilment of the the FP charge, to whose status as a first charge Britel had given its consent in the 1999 deed of priorities.

On justification, Mr Boyle submits that the judge was wrong to find that the actions of the respondents were justified. Mr Dutton seeks to uphold the judge’s conclusion on justification (above, [42]). In the circumstances, it is not necessary to inquire whether there was justification for any interference with Britel’s rights under the leaseback option. I note that Lord Nicholls specifically contemplates that a defence of justification may be available (OBG at [193]). Had it been necessary to do so, I agree with the judge's analysis of the Edwin Hill case and his conclusion that the defence would have been available in the circumstances of this case.

Mr Boyle also submits that the judge was also wrong to find that Britel and Meretz consented to any breach of contract. He submits that Britel and Meretz consented to the creation of the FP charge as part and parcel of a set of arrangements that were intended to bring about the completion of the development. Mr Dutton seeks to uphold the judgment of the judge. In my judgment, in this connection it is necessary to keep in mind the distinction between consent to the exercise of the power of sale by FP (as to which there can be no question) and consent to the release of all remedies against ACP. It seems to me to follow from Britel’s consent to the creation and priority of the FP charge that Britel and Meretz must be taken to have consented to a variation in the contractual obligations of ACP to this extent, but to this extent only, namely that the liability of ACP should be converted from a liability to deliver the development sublease into a liability to pay damages for non-delivery of the development sublease in the event that FP exercised its power of sale.

Mr Boyle's argument is that it must follow from the OBG case that the holding of the court in Douglas as to the intention necessary for conspiracy, on which the judge relied, no longer represents the law. He further submits that it was enough that FP and Mr Tamimi were intending to further their own interests, in the case of FP by exercising its charge, and in the case of Mr Tamimi by taking an investment in the development lease and protecting his interest in penthouse A. They chose to do so by taking advantage of the situation in which Britel would suffer loss. That was the obverse side of the coin, and accordingly, they must be taken to have intended to cause loss to Britel.

The crucial point, Mr Boyle submits, is that Britel would not receive back the development sublease. This was a breach of contract. If parties combine together to deprive a claimant of his right to a valuable property in breach of contract, that is actionable in conspiracy. Mr Tamimi had an unsecured claim against ACP arising out of his purchase of penthouse A. He was looking after his own interests, but was he doing this in such a way to cause someone else damage? Mr Boyle submits that he was because he went much further than was necessary to protect his own interest as the purchaser of a single penthouse. Mr Dutton and Mr Pryor seek to uphold the reasoning of the judge.

I now turn to my conclusions. The OBG case did not concern liability for conspiracy but no counsel suggested that any distinction could be drawn between what was held in OBG about intention to cause loss by unlawful means and conspiracy. It follows therefore that it is not enough that there is an intention to do an act which in fact causes loss. That act must be done with the intention that it will cause loss. In the present case, Mr Hawkins gave advice that the leaseback option would be overreached. That advice was inconsistent with an intention to cause harm to Britel. Nor was there any intention to prevent performance of any residual liability in damages. In those circumstances, in my judgment, the requirement as to intention was not satisfied in the case of any respondent.

The appellants rely upon the failure by ACP to grant a development sublease to Britel as constituting the necessary unlawful means. Mr Dutton rejects this argument because FP was entitled to exercise its power of sale. The judge held that it did so for a proper purpose and in good faith.

I accept Mr Dutton’s submission that there was no unlawful means. Where a party does something which he is entitled to do because of his contractual right conferred by A, the fact that it results in a breach of B’s contract with A cannot in my judgment constitute unlawful means of which A can complain in an action for damages for unlawful means conspiracy. The court has to look at the whole of the means used by the alleged tortfeasor and not simply its effect on the party rendered in breach. Here, the operative element of the means, viz. FP’s exercise of its power of sale, was lawful. Britel, by giving its consent to FP having a power of sale, effectively agreed that, if the power of sale was exercised, its right to require ACP to execute the development sublease on exercise of the leaseback option would be converted into a claim against ACP for damages. Accordingly, in my judgment, the claim for conspiracy must also fail on the ground of lack of unlawful means.

Relative to the other issues, this is a minute issue. It arises in this way. At the end of the trial, the judge ordered an inquiry into the damages suffered by Meretz as a resulting of its loss of commission suffered in consequence of the delay in completing penthouses in accordance with the development timetable. Damages were to be assessed on the basis of the loss of the chance of being paid commission on the completion by ACP on the sale of penthouse A and one other penthouse (J[431]). I will call these penthouses "the remaining commissionable penthouses". There is no appeal from that part of the judge's order as such.

Before HHJ Seymour QC, Meretz recovered judgment (“the Seymour judgment”) for its commission on the sale of penthouse C. As the judge records at [274] to [276] of his judgment, there was a dispute as to whether ACP had been entitled to make certain deductions. HHJ Seymour QC did not determine this matter because, according to Meretz, irrespective of the precise amount of the net sale proceeds the aggregate commission was within the 70% band in cl 6 of the introduction agreement. There was no appeal from the entry of judgment for commission by HHJ Seymour. The judge held that the effect of the Seymour judgment was that Meretz was not entitled to reopen the account:

Mr Boyle submits that the judge was wrong in his conclusion at [234]. He submits that the judge ought also to have ordered an account into the deductions made from the sale proceeds of penthouses B, C and E so that the court could ascertain the base figure for which the net proceeds of the remaining commissionable penthouses to which the inquiry ordered related. If Meretz was right in its contentions about the deductions, the aggregate net sale proceeds of the remaining commissionable penthouses might be in the highest band, and thus carry a right to 50% commission under the terms of the introduction agreement. No authority is cited in support of these submissions.

In my judgment, the judge was right to say that what was sought was in substance a reopening of the account settled by the Seymour judgment. True it is that commission on the difference between (1) the aggregate net sale proceeds on which the Seymour judgment was based and (2) the aggregate net proceeds if Meretz establishes loss of chance on the inquiry will not give rise to a right to commission, but it will alter ACP’s liability. In my judgment, it is clear that the amount of the aggregate net proceeds earning commission on the sale of penthouses B, C and E is now fixed by the Seymour judgment binding on both ACP and Meretz, and it is too late for this point now to be taken. I would dismiss the appeal on this issue.

For the reasons given above, I would allow the appeal on issue (1) and dismiss this appeal on issues (2) and (3). In consequence of issue (1), judgment will be entered in favour of Britel against ACP and FP for damages to be assessed for the breach by ACP of its obligation to deliver the development sublease. I would remit to the judge the question of any directions with regard to the assessment of such damages.

I agree. Arden LJ’s detailed explanation of the facts and arguments enables me to cut directly to what I see as the points at the heart of the case.

Under the Preliminary Agreement dated 7 March 1996 the freeholder, Britel, agreed to grant and subsequently granted a development lease of property to ACP. The agreement expressly contemplated that ACP might grant a mortgage over the lease to a “commercial lender” to fund the development. The net proceeds of the development up to £5.4 million were to be divided between ACP and Britel in agreed percentages. The agreement required ACP to complete the development by a date which was later extended to 7 September 2002. If ACP failed to complete on time, Britel was entitled to require it to lease back the property to Britel (except for areas already developed), and ACP was required to procure that any necessary consent in this regard was granted by any first mortgagee in respect of the development lease. ACP’s parent, FP, guaranteed ACP’s obligations under the agreement.

After other attempts to raise the finance failed, FP agreed to provide it and took a mortgage over the development lease from ACP as security. This put FP in the position of wearing two hats. It had rights as a mortgagee of the development lease but obligations as guarantor of ACP’s obligations under the preliminary agreement.

The relationship between those rights and obligations was considered in part by this court in the two sets of previous proceedings to which Arden LJ has referred. The quia timet proceedings came before the Court of Appeal on 7 August 2002, ie a month before the contractual date for completion of the development. By this stage it was plain that it would not be completed by that date and Britel had said that it was going to exercise its right to demand a lease back. On 19 July 2002 FP as mortgagee had contracted to sell the development lease to Mr Tamimi. Britel wanted the court to stop the sale from going ahead. It refused to do so. It held that FP was entitled in its capacity as a chargee to realise its security.

That right, it held, had been acknowledged by a deed of variation in 1999, by which it was agreed between all interested parties that FP’s charge should be subordinated to a charge in favour of a prospective purchaser, Varlet, and that on Varlet’s charge being discharged the FP charge should be reinstated as the first charge over the lease. The Varlet charge had later been discharged. A second deed of variation contained a similar kind of acknowledgment.

The same reasoning was followed in the second case, where the court held that there had been an unreasonable refusal by CHAPS, which had acquired Britel’s interest in the freehold, to consent to the assignment of the lease to Mr Tamimi.

The Court of Appeal was directly concerned on each occasion with FP’s rights as a chargee of the development lease and not with its liabilities as a guarantor.

On its face the position is simple. As the judge found, ACP breached its contractual obligations to complete the development on time and to grant a lease back when it was called on to do so. FP guaranteed the performance of those obligations and is liable accordingly. In that regard it is in no better position than if ACP had charged the development lease to a commercial lender, which had subsequently realised its security. I agree with Arden LJ that Mr Dutton’s arguments for trying to escape this conclusion are ill founded.

However, the judge held that Britel was entitled only to nominal damages against ACP and FP. His reason had to do with the position of Britel’s associate company, Meretz. Under the so-called introductory agreement, ACP agreed to share development profits over £5.4 million with Meretz. By the 2001 deed of variation ACP undertook an obligation to Meretz to comply with the contractual timetable for the development, which it subsequently breached. The judge was understandably concerned that ACP should not end up with liabilities in damages to Britel and Meretz calculated on mutually inconsistent factual bases. He held that it would be wrong in principle to order an inquiry into damages at the behest of both, and that the parties should be taken to have agreed that Meretz’s claim should have priority over Britel’s claim.

We were told that this point had not been addressed during the trial, and on this issue I think that the judge was attempting to cross a bridge before it had been reached. At this stage I see no good reason why each should not be entitled to an inquiry into damages, whatever the result may be when the issues as to damages are more fully considered.

At the heart of the economic tort claims lies the complaint that Britel was cheated of the ability to enforce the lease back option by FP selling the lease to Mr Tamimi.

In January 2002 ACP had entered into a contract to sell penthouse A to Mr Tamimi for £2.75 million. By 6 February 2002 Mr Tamimi had paid ACP £420,000 towards the purchase. In April 2002 Mr Olsson, the managing director of ACP and FP, began to try to persuade Mr Tamimi to play a more active part in financing the construction of the development. As the judge found, Mr Tamimi was concerned about the risk of losing his money if Mr Olsson “went under”. Arden LJ has set out at [93] the judge’s finding about his intention and state of mind when he agreed to buy the development lease.

I start with the question what were the “means” that caused loss of which complaint is made. I take the means to be the sale of the development lease, for it was this which prevented the enforcement of the lease back option. Mr Boyle QC tried to argue that this was not the means, but I found the argument unconvincing. The “wrap around agreement” which paved the way to the sale was not itself the means which caused the loss, but on any view the sale of the development lease was core to the causation of the loss.

The next step is to consider whether the means were unlawful. The sale of the lease was the realisation of a chargee’s security by its sale to a bona fide purchaser for value. The sale did not have the intrinsic quality of unlawfulness necessary for the tort of conspiracy to injure by unlawful means, albeit that the consequence was to prevent ACP from fulfilling a contractual obligation guaranteed by FP. In reaching that conclusion I am influenced in particular by three considerations, namely the deeds of variation, the previous Court of Appeal judgments and the position of Mr Tamimi.

As to the first point, the odd mixture of FP having conflicting proprietorial rights and personal contractual obligations in its separate capacities as guarantor of ACP’s contractual obligations to Britel and chargee of the development lease, or wearing of two hats, to which I have referred was something to which the parties had consented. They had agreed that FP’s charge should rank as a first charge (subject to other priorities which are no longer relevant), which carried with it a right of realisation. A right which cannot lawfully be exercised is a contradiction in terms. It is not, however, impossible to have a proprietorial right coupled with a purely contractual obligation to pay monetary compensation for loss resulting from its exercise.

As to the second point, in its previous judgments the court has confirmed the right of FP to realise its security.

As to the third point, the sale of the lease was a commercial transaction between a secured chargee (who happened also to be the parent and guarantor of ACP) and a purchaser who had a legitimate interest in entering into the transaction for the purpose identified by the judge. As the judge put it, “All he did was to finance penthouse A in the only way he could.” By ordinary standards of commercial probity, Mr Tamimi had a perfectly legitimate reason for acting as he did. It would therefore be wrong to classify such conduct as founding an action for an unlawful means conspiracy.

If I were wrong about the absence of unlawful means, the question would then arise whether there was the requisite unlawful intention. There was a good deal of argument about this. The judge found that the alleged conspirators were not actuated by an intention to cause harm to Britel or Meretz but to advance their own interests.

It is well established that it is not a requirement of a conspiracy to injure by unlawful means that the defendants should have the predominant intention of causing injury to the claimant (Lonrho plc v Fayed [1992] 1 AC 448). If defendants intend to injure the claimant and use unlawful means to do so, it is no defence in itself to show that their primary purpose was to further or protect their own interests. Moreover, as Lord Nicholls said in OBG in the passage set out by Arden LJ at [125], the court may regard the two as indistinguishable.

Mr Boyle referred in some detail to the documentary evidence, as Arden LJ has said, to support his argument that the respondents well appreciated what would be the effect on the claimants of the arrangement made between FP and Mr Tamimi. So he submitted that even if the defendants’ motivation was as the judge found, he should have found that there was dual intent.

Although my conclusion on the issue of unlawful means makes it unnecessary to decide the point, I would support Arden LJ’s view at [127] that it is a defence to an action for conspiracy to injure by unlawful means if the defendant not only acted to protect his own interests, but did so in the belief that he had a lawful right to act as he did. Just as the tort of conspiracy to induce breach of contract is not committed if the defendant believes that the outcome sought by him will not involve a breach of contract (Mainstream v Young), so a defendant should not be liable for conspiracy to injure by unlawful means if he believes that he has a lawful right to do what he is doing. This is consistent with Lord Hoffmann’s comment in OBG [56], when considering the tort of causing injury by unlawful means, that the common law in this area is designed only to enforce basic standards of civilised behaviour. Moreover Lord Nicholls was not addressing such a situation in the passage set out at [125] above. (I would note two supplementary points. First, for avoidance of doubt, I do not consider that this conclusion is inconsistent with the decision of the House of Lords in Churchill v Walton [1967] 2 AC 224, which concerned a very different issue, namely the mens rea element of the crime of conspiracy in the context of an agreement which led to the commission of a strict liability offence. Secondly, we are not in this case concerned with the alternative form of conspiracy to injure, where the intent to injure is the defendant’s dominant intention and questions of the lawfulness of the means do not arise.) I would also concur with Arden LJ’s conclusions about intent on the evidence before the judge.

There was a close similarity in the way that Mr Boyle put the case on both economic torts and there is a close similarity in what I see as the key points.

I start with the question what was the conduct, agreed between FP and Mr Tamimi, which might be said to have induced the relevant breach. If anything, it was the sale of the lease, because this prevented the enforcement of the lease back option.

However, to prevent the performance of a contractual obligation is not the same thing in law as inducing its breach. The former may give rise to the tort of causing loss by unlawful means. The latter requires the defendant’s conduct to have operated on the will of the contracting party: see Lord Nicholls’ speech in OBG at [174] to [180]. Although Lord Hoffmann expressed himself in different terms, as Arden LJ has pointed out, I do not detect that he intended to disagree with Lord Nicholls on this point, nor did any of the other three members of the House of Lords appear to detect any disagreement in principle.

On this ground the claim for conspiracy to induce breach of contract fails, but it is not the only ground.

In my judgment there was justification for Mr Tamimi agreeing to buy the lease in order to acquire penthouse A and to protect himself against loss of the money he had already spent. The judge held that justification was an answer to the claim for conspiracy to induce breach of contract and I agree with Arden LJ that he was right.

I also agree with Arden LJ that in any event it is sufficient to avoid liability for conspiracy to induce breach of contract that FP and Mr Tamimi believed, as they did, that they were entitled to sell, or buy, the development lease.

I too gratefully acknowledge the description of the background to the dispute and the statement of facts contained in Arden LJ’s judgment. I agree with Arden LJ’s conclusions on each of the issues identified in paragraph 1 of her judgment.

I agree with Toulson LJ’s identification of the points at the heart of the case and his analysis of each of them, adopting, as he does, much of Arden LJ’s reasoning. In particular, I agree that, in view of the conclusion they both reach on the issue of unlawful means, it is unnecessary to decide issues on dual intent, though the discussion of these issues by Arden LJ and Toulson LJ in this case is illuminating. I agree with Arden LJ’s factual conclusions on intent. The appellants sought to rely on the evidence of Mr Hawkins and I agree with her analysis of it.

I also agree that it is unlikely that Lord Hoffmann intended to disagree with Lord Nicholls in his consideration in OBG of inducement of breach.