Leibson Corporation & Ors v TOC Investments Corporation & Ors

This is an appeal against the order of Hildyard J dated 13 April 2016 (“the Order”) declaring that Beppler & Jacobson Limited (“BJUK”), which is owned by the appellants, is liable to reimburse the first respondent to the appeal, TOC Investments Corporation (“TOC”), in the sum of £2,685,206.81. TOC (a company originally registered in the British Virgin Islands, but which we were informed had re-registered in Cyprus) is and was at all material times a wholly-owned subsidiary of the Russian oil company, TNK-BP International Limited (“TNK-BP”) (Footnote: ¹). TOC paid that sum to BJUK pursuant to the terms of a funding agreement dated 27 July 2012 (“the funding agreement”) in order to fund the costs of the provisional liquidators appointed in relation to BJUK. The funding agreement was made between TOC, the provisional liquidators of BJUK and BJUK, acting by the provisional liquidators.

In summary, the key features of the factual background, which I have taken from Hildyard J’s judgment (“the judgment”) (Footnote: ²) as well as from the witness statements before the judge, are as follows.

The application is the final chapter in a petition for the winding-up of BJUK or for relief pursuant to section 994 of the Companies Act 2006 in relation to it. The petition was presented on 3 May 2012 by the second respondent to the appeal, Caldero Trading Limited (“Caldero”), the beneficial owner of which was a Mr Zoran Becirovic, a Montenegrin. A critical feature of the factual matrix of the funding agreement is that at all material times Caldero was substantially funded in its conduct of the petition by TOC/TNK-BP and that the conduct of the provisional liquidation was similarly funded.

BJUK and its Montenegrin subsidiary, Beppler & Jacobson Montenegro d.o.o. (“BJM”), own two hotels in Montenegro. When it presented the petition, Caldero was one of three then shareholders in BJUK: it owned 25% plus one share. The other shareholders were: Leibson Corporation, the first appellant, a company incorporated in the BVI (“Leibson”), which owned 70% minus one share; and Belinda Capital Limited, the second appellant, a company incorporated in Nevis, (“Belinda”) which owned 5% of the shares.

The participation of TNK-BP/TOC in the petition stemmed from the involvement of Mr Igor Lazurenko, the third appellant, in BJUK. At all material times Mr Lazurenko owned Belinda and he was also the owner (or perhaps rather the agent for an unidentified principal) of Leibson. Mr Lazurenko is a Russian citizen and a former employee of TNK-BP. Mr Lazurenko was employed by TNK-BP, latterly as director of its Logistic Department, from September 2003 until April 2012. Until April 2012, Mr Lazurenko and his family lived in Russia. He claimed (Footnote: ³) (although it was not necessary for the judge to reach any findings on these matters) that, in April 2012, due to the severity of threats made against him and his family by Mr German Khan (who at the time was the Executive Director and major shareholder of TNK-BP) to persuade him to cover up corrupt conduct, he resigned from his employment and was forced to leave Russia with his family.

TNK-BP, for its part, made counter-allegations of fraudulent embezzlement and misappropriation against Mr Lazurenko amounting to tens of millions of U.S. dollars. Again, it was not necessary for the judge to determine these matters in the current proceedings; the evidence relating to the respective claims of both sides was adduced simply as factual matrix material. These allegations led to TNK-BP issuing two sets of proceedings in the Chancery Division against Mr Lazurenko in July and August 2012. I summarise them briefly because I regard the background as relevant factual matrix:

TNK-BP also instigated a criminal investigation against Mr Lazurenko in Russia in relation to the same alleged events. Mr Lazurenko also claims that TNK-BP instigated a criminal investigation against his young son for allegedly failing to attend military service, which was subsequently dropped.

It was against this background that TNK-BP decided to fund the Caldero petition and the appointment of provisional liquidators. Mr Khan offered to provide the assistance of the TNK-BP legal team to Caldero, and, according to Mr Becirovic’s evidence in the petition, Mr Becirovic agreed to align his interests with those of TNK-BP and to assist TNK-BP in recovering any assets purchased with funds allegedly misappropriated by Mr Lazurenko from TNK-BP – the allegation being that Mr Lazurenko had used such funds to acquire BJUK and its assets. Thus, although TNK-BP/TOC were not themselves a party to the petition, they funded Caldero's costs of the petition and the provisional liquidation and provided substantial undertakings in damages.

The respondents to the petition were the subject companies, BJUK and BJM, as well as the appellants on this appeal, Leibson, Belinda, Mr Lazurenko, Lawson Trading Limited, incorporated in Nevis (“Lawson”) and Mr Sergey Scheklanov (collectively “the appellants”). (Footnote: ⁴)

The provisional liquidators were appointed on the same date as the petition was presented (3 May 2012) on the ground of an alleged strong risk of dissipation, said to have been demonstrated by the appellants proffering accounts that purported to show that BJUK held all its assets on trust for Lawson, thus purportedly rendering Caldero’s interest worthless.

The order appointing the provisional liquidators (“the Birss Order”) was made by HHJ Birss QC (as he then was). The Birss Order provided (by paragraph (9)) for the provisional liquidators’ remuneration to be payable on application (i.e. to the court) by reference to the time spent by them and their staff. It also recorded the usual undertaking on behalf of Caldero, as petitioner to “pay the reasonable costs of anyone other than the Respondents which have been incurred as a result of this order…”. Further, given the serious and invasive nature of such relief, TOC joined Caldero in each giving a cross-undertaking in damages. That regime was extended by order of Floyd J (as he then was) on 17 May 2012.

On 21 May 2012 TOC’s cross-undertaking was replaced by an undertaking given to Floyd J by its parent TNK-BP, which included the following:

“As security for (a) the Petitioner’s undertakings numbered (1) and (7) in [the Birss Order] and the undertakings numbered (1) and (3) of in the Order dated 17 May 2012 of Mr Justice Floyd, and (b) any liability that the Petitioner may incur in respect of the costs of the provisional Liquidators appointed under the terms of those Orders, TNK-BP will comply with and satisfy any order the court may make thereafter against the Petitioner Provided always that the total liability of TNK-BP under this undertaking…shall not exceed $30 million.”

On 14 June 2012 TNK-BP extended that undertaking, by giving an undertaking to Morgan J in the following terms:

“As security for (a) the Petitioner’s undertakings numbered (1) and (7) in [the Birss Order] and the undertakings numbered (1) and (3) of in the Order dated 17 May 2012 of Mr Justice Floyd, and (b) any liability that the Petitioner may incur in respect of (1) the costs of the provisional liquidators appointed under the terms of those Orders, and/or (2) any costs orders in favour of any Respondent (Footnote: ⁵) TNK-BP will comply with and satisfy any order the court may make thereafter against the Petitioner Provided always that the total liability of TNK-BP under this undertaking…shall not exceed $30 million.”

The expedited trial of the petition came on for hearing on 13 July 2012. Caldero sought an immediate winding-up order on the ground that, by then, the appellants had admitted that the agency agreements which had been said to demonstrate that BJUK’s assets were held on trust had been produced with the intention of defrauding Caldero and its owner.

In the circumstances, the Court gave the parties a period in which to negotiate. This resulted in a partial compromise of the petition, which was reflected in an order made by Newey J (as he then was) on 16 July 2012 (“the Newey Order”). The Newey Order declared the alleged agreements relied on as establishing trusts null, void and of no effect and provided for Leibson to purchase Caldero’s shares at a price to be determined by an expert, subject to the Court first determining one issue (“the Investment Issue”) relevant to the expert’s determination, viz. whether approximately €50m had been invested by the appellants by way of capital (as Caldero contended) or loan (as the appellants contended). The Newey Order further provided for the release of TOC and TNK-BP from their undertakings, with no inquiry as to damages. As to the fees and costs of the provisional liquidators, it was stipulated (by paragraph 21 of Schedule 1) as follows:

“Upon payment of the Purchase Price to the Petitioner it shall jointly apply with the Respondents for the dismissal of the Petition on the basis…that the fees and costs of the provisional liquidators shall be borne by the First Respondent [BJUK] and that as between the Petitioner and the Respondents there be no order for costs (save that the costs of the Investment Issue shall be in the discretion of the Court).”

The Newey Order did not take account of the provisions of the funding agreement which was only entered into subsequently (on 27 July 2012). According to the respondents, the funding agreement was negotiated between 18 May 2012 and 29 June 2012, with a first draft being sent by the provisional liquidators on 23 May 2012. Although, apparently, the terms were in final agreed form (as between the provisional liquidators and TOC) before the making of the Newey Order, the funding agreement was not executed until after the Newey Order and its terms were not made known to Newey J when he made his order or to the appellants at the time of their negotiation of the Newey Order. The funding agreement was only provided to the appellants 11 months later and they were not aware of its existence as at the time of its execution.

The funding agreement, as I have already said, was made between TOC, the provisional liquidators of BJUK and BJUK (acting by the provisional liquidators) and executed on 27 July 2012. In so far as material, it provided as follows:

It is also relevant to note what the funding agreement did not contain: in particular, the absence of any provisions that might naturally be expected if the funding agreement was intended to take effect as a loan, such as provisions for repayment on demand or some other trigger or for the payment of interest.

From the start of the provisional liquidation until April 2013, when the appellants applied to the Court for the removal of the provisional liquidators on various grounds, including bias, the appellants’ solicitors, Mishcon de Reya, had repeatedly expressed concerns in correspondence with the provisional liquidators’ and TNK-BP’s solicitors to the effect that:

The following extracts from the correspondence between the parties and the provisional liquidators (taken from the agreed chronology) give a flavour of this background:

In his seventh witness statement dated 1 October 2012, in support of an application for the court’s approval of the fees and costs of the provisional liquidators, against the background of the appellants’ criticism of their role as mentioned above, and at a time when the provisional liquidators and the respondents were maintaining the position that the appellants were not entitled to see a copy of the funding agreement, despite the latter’s repeated requests for sight of a copy of any documents relating to the funding of the petition and the provisional Liquidators, Mr Mark Shaw, one of the provisional liquidators, said as follows:

"The funding agreement is a vanilla underwriting of the Provisional Liquidators' fees . . . The Provisional Liquidators are entitled to utilise the funds to satisfy the payment of their fees, subject to court approval. The funder has no influence as to how BJUK and/or the Provisional Liquidators utilise such funds and BJUK is under no obligation to repay any monies to the funder".

The funding agreement was not supplied to the appellants in the context of that application, Mr Shaw stating in the same witness statement that:

“The contents of the funding agreement itself are confidential and the provisional liquidators do not intend to provide the MdR parties [effectively the appellants] with a copy.”

That witness statement was relied upon by the Court in the context of the court’s approval of the provisional liquidators’ fees.

In advance of the hearing of the removal application, on 24 June 2013 a copy of the funding agreement was provided (for the first time) to the appellants. The application was compromised by an agreement between the appellants and the provisional liquidators dated 16 July 2013 (“the Settlement Agreement”). It provided:

The investment issue was heard by David Richards J (as he then was) in March 2013, and judgment was handed down in July 2013: see [2013] EWHC 2191 (Ch). He decided the Investment Issue in favour of Caldero. He found the evidence of Mr Lazurenko to have been “deliberately false” and the appellants’ case to have been “shot through with dishonesty”. The Court of Appeal dismissed an appeal by the appellants ([2014] EWCA Civ 935).

The Purchase Price was thereafter calculated in accordance with the Newey Order. The provisional liquidation and the proceedings were brought to an end with effect from 11 December 2014, by an order made by Rose J on 1 December 2014. That order (“the Rose Order”), to which TOC was also joined as a respondent:

At no time prior to December 2014 did Bryan Cave (and in particular Mr Dougans, a partner in Bryan Cave, who acted for both Caldero and TOC), any company in TNK-BP group or the Provisional Liquidators, seek to clarify or correct, whether in correspondence or before the Court, Mr Shaw’s explanation that BJUK was under no obligation under the terms of the funding agreement to repay any monies to the funder. However, in his sixteenth witness statement dated 14 December 2014 and served in the present application, Mr Shaw sought to resile from his previous statement. He suggested at paragraph 41, for the first time, that he might have meant in his seventh statement that TOC had no power to influence the provisional liquidation by demanding repayment of the sums advanced as the "funds provided by TOC were not repayable on demand', and that the intention was

"that TOC would be repaid only after the payment of other expenses of the provisional liquidation (including the remuneration of the provisional liquidators) and where there were sufficient assets to allow TOC to be repaid”.

I find Mr Shaw's after the event purported explanation of what he had meant to say in his seventh witness statement unconvincing. The judge did not deal with the discrepancy between the seventh and sixteenth witness statement. His only consideration of the latter statement was in the context of his discussion of the Ex parte James point.

The application to determine the issue of BJUK’s liability (if any) under the funding agreement was heard by Hildyard J from 1 to 5 May 2015 and he delivered judgment on 8 January 2016 in favour of TOC. In summary he held that TOC was entitled to reimbursement of the fees it funded under a combination of the funding agreement and either or both of paragraph 21 of Schedule 1 to the Newey Order and Insolvency Rule 4.30(3); see paragraph 131(2) of the judgment.

His order was dated 13 April 2016. On 27 April 2016 the appellants filed an appellants’ notice for permission to appeal and McCombe LJ granted such permission by order dated 19 August 2016.

The respondents also filed a respondents’ notice contending that the judge could and should have made the case somewhat simpler by following the logic of his finding that ‘advance’ in the funding agreement meant ‘lend with a right of recourse’, and thus should have gone on to hold that the respondents’ right of repayment arose under the terms of the funding agreement per se, either on its express terms or by implication of a term for repayment.

There were three main issues before the judge:

The judge found that the funding agreement did not itself, as a matter of construction, either expressly or by necessary implication, impose any obligation on BJUK for the repayment of the funds. However, at paragraph 40 of the judgment, he said as follows:

“I develop later my view that the funding agreement contemplated and envisaged that TOC would be reimbursed under the terms of the Newey Order and/or pursuant to Rule 4.30(3) and (3A) of the Insolvency Rules 1986 ….but did not in terms or by necessary implication provide for it.”

He then went on to decide, as his principal conclusion (as recorded at paragraph 131(2) of the judgment), that TOC was entitled to reimbursement of the Fees it funded under a combination of the funding agreement and either or both of paragraph 21 of Schedule 1 to the Newey Order and Insolvency Rule 4.30(3). He summarised his conclusions in paragraph 131 as follows:

“In summary, therefore, in my judgment:

(1)

the funding agreement reflected and did not oust or negate TOC's entitlement to repayment of the sums it advanced in respect of the fees and costs of the PLs;

(2)

TOC is entitled to reimbursement of the Fees it funded under the combination of the funding agreement and either or both of paragraph 21 of Schedule 1 to the Newey Order or Rule 4.30(3);

(3)

the mechanics and mode of repayment, whilst not contained within the funding agreement itself, are prescribed by the Newey Order and Rule 4.30(3) and supported by the right to reimbursement which the funding agreement reflects;

(4)

further or alternatively, TOC would be entitled to reimbursement on the basis of being subrogated, as secondary obligors to the PLs' rights to payment of their Fees out of the assets of BJUK as primary obligor under the Newey Order or (most especially) Rule 4.30(3);

(5)

but if I am wrong in all respects, then, without deciding the point, I very much doubt that the principle in Ex parte James would be applied to save TOC.”

He, therefore, decided that the determinative question was whether the funding agreement negated or restricted the Newey Order and the provisions of Rule 4.30(3).

The judge’s detailed reasoning in relation to the construction of the funding agreement, the Newey Order and the provisions of Rule 4.30(3) is to be found at paragraphs 88 to 111 of the judgment. I should say that at times I found the logic of his reasoning somewhat hard to follow. While he ostensibly starts by addressing the funding agreement, it would seem from paragraph 40 of the judgment (as quoted above), as well as from the final sentence of paragraph 89 and paragraph 92 of the judgment, that he approached the construction of the funding agreement on the assumption that the Newey Order and Rule 4.30(3) created an “obligation to repay” (see paragraph 106(1)). For an understanding of the judge’s analysis it is necessary to set out the relevant paragraphs of his judgment:

“88.

Turning first to Mr Hollington's argument as to the true construction of the funding agreement, I accept that the word "advance", being ambiguous, takes its meaning from the context. It may connote pre-payment without recourse; but it may alternatively (as Mr Hollington submitted) connote a loan or the furnishing of money with a right of recourse (as, for example, in Lincolnshire Sugar Company Limited v Smart [1937] AC 697 and Burns v Trade Credits Ltd [1981] 1 WLR 805 [P.C.]).

89.

In my judgment, the context in this case points strongly to the conclusion that in advancing funds to cover the fees and costs of the PLs TOC did not expect to have no recourse. It seems to me clear that TOC was not advancing moneys either by way of gift nor in advance of any obligation to which it was or might become subject. The funding agreement was not intended to preclude such a right or negate either the provisions of paragraph 21 of Schedule 1 to the Newey Order or the effect of Rule 4.30(2). On the contrary, in my view, it was premised on there being such a right, to which the Newey Order and Rule 4.30(3) gave expression and the mode and means of enforcement.

90.

None of the points made by Mr Wolfson (based on the evidence of Mr Zabeti), in his attempt to neutralise the point against his clients that the notion that TOC had intended to furnish the moneys without recourse flew in the face of commercial common sense, seemed to me to be persuasive. Even accepting (as I would) that TNK-BP/TOC had good reason for providing the requisite funding (since the appointment of provisional liquidators would assist in the investigation of their allegations against Mr Lazurenko, as Mr Zabeti suggests, and without funding it was most unlikely that any competent person would accept appointment), that does not explain why they would have agreed to having no right of recourse.

91.

Further, it seems to me that a fundamental weakness of the MdR Respondents' case, in addition to the suspension of commercial realities for which, in my view, it calls, is that it provides no coherent and consistent explanation of the various obligations by which the parties became bound, which include not only the funding agreement but also the Court's orders (and especially the Newey Order) and Rule 4.30(3), except to suggest that the funding agreement negated this right to recourse (which, as indicated above, I do not accept).

92.

In my view, it is inherently unlikely that the parties intended, by anything in (or implicit in) the funding agreement, to undermine or remove the pre-existing obligation under Rule 4.30(3) and/or the Newey Order. As it seems to me, unequivocal and express words would have been required to displace that Rule; and although the PLs were not party to the Newey Order, they acted as agents for BJUK which was, and the natural assumption is that the parties to the funding agreement intended to fulfil rather than negate the Newey Order.

93.

In that regard, and as to the MdR Respondents' argument that clause 12 of the funding agreement precludes recourse to remedies under any other arrangements, understandings or agreement, I have not been persuaded that clause 12 of the funding agreement was intended to preclude reliance on obligations imposed, confirmed or recognised by and enforceable pursuant to Court Orders (in proceedings to which, moreover, TOC was not a party) or under the Insolvency Rules. This interpretation which Mr Wolfson urged seems to me to be inconsistent with what I consider to be the plain intent of the parties.

94.

I was also not persuaded by Mr Wolfson's reliance on the fact that because (as it is) clause 3.4 of the funding agreement provided only for return of surplus, it was to be interpreted as excluding any other form of recourse. To my mind, clause 3.4 was quite plainly addressing the very different question as to the PLs' obligations if overpaid by TOC, and provided for a right of recourse by TOC against the PLs in such circumstances. Recourse by TOC against BJUK was of such a different nature that I do not accept the argument that the inclusion of one excludes the other. There is no room, in other words, for the application of the maxim "expressio unius est exclusio alterius"; and it may also be noted in passing that in Bronester v Priddle the clause relied on as having exclusive force was on its true construction dealing with a different type of relationship (see per Holroyd Pearce LJ at 1300).

95.

Further, in my view, Mr Wolfson's submissions did not adequately neutralise or disarm the point that where (as here) the person furnishing the money (here, TOC) is not the primary obligor (here, BJUK) the word "advance" more naturally reflects an expectation in that person of reimbursement, even if under some other agreement or arrangement than the funding agreement itself.

96.

However, even if (as is my view) the word "advance" in this context is correctly interpreted as connoting a loan with a right of recourse, that does not necessarily mean that the word can be invested with all the elements necessary to establish a self-standing and enforceable obligation. In particular, given that TOC plainly did not intend repayment on demand, it seems to me to be difficult to invest into the word a definition of the "event" and mode of repayment. All the more so since the definition that TOC does contend for is one of considerable elaboration and complexity (as Mr Wolfson submitted).

97.

At many points throughout his submissions, Mr Hollington seemed to regard the definition of the event of repayment as the natural and implicit corollary of reading the word "advance" as connoting a loan and not a gift. To my mind, where, as here, the loan is not suggested to be repayable on demand (which in default of any expression of some other event is ordinarily assumed to be the "event"), that is not so. To succeed in establishing an enforceable obligation of reimbursement under the funding agreement it is necessary (as it seems to me) to find within it not only an intention that the moneys advanced should be repayable but also some provision having the requisite degree of certainty specifying when the obligation of repayment is triggered.

98.

Although, as I have indicated, I agree with Mr Hollington that the term "advance" here assumes and envisages a right of recourse, as indicated by the wider commercial context, including such factors as the Newey Order and Rule 4.30(3), I do not think that word is of itself sufficient to denote the conditional and deferred obligation of reimbursement for which Mr Hollington contends. Since it is clear that the funding agreement contains no other express definition in that regard, any such definition would have to be interpolated or implied if the funding agreement is to be read as itself giving rise to an enforceable obligation to reimburse TOC upon the dismissal of the Petition or, if the Purchase Price was not paid, on the winding up of BJUK.

99.

Thus, in my view, Mr Hollington's primary case (that the funding agreement itself, on its true construction, provides the complete answer) is ultimately dependent on the interpolation or implication of a complex provision as to the mode and event of reimbursement.

100.

In my judgment, and especially in the light of the emphasis on the strictness of the rules governing the process of implication in the Marks and Spencer case, I do not think it possible to interpolate or imply such a provision into the funding agreement. I agree with Mr Wolfson's submissions in that respect.

101.

Moreover and in any event, I do not consider that the funding agreement was intended by the parties to be an exclusive and self-standing source for the imposition and definition of an obligation to reimburse the moneys advanced by TOC on account of the PLs' fees and costs. I do not consider that the lack of a provision stipulating the mode and timing of reimbursement is a gap or obvious error which it is necessary to fill or correct. Nor, in my view, is it necessary to imply or interpolate any such term as Mr Hollington has suggested, which is, of course, a conclusive reason against doing so. In my view, the funding agreement was only one part of the overall arrangements.

102.

In my judgment, the funding agreement, the Orders and the provisions of the Insolvency Rules (and especially Rule 4.30(3)) are all to be read together and interpreted in conformity. So read, I consider it clear that the intention of the parties, and of the Court, was that the costs and expenses of the PLs should ultimately be borne by BJUK or out of its available assets in its liquidation, with the funding arrangements being necessary and intended to cover the PLs' ongoing costs and expenses subject to the funder's right of recourse to the assets of BJUK to reimburse its outlay at the relevant time stipulated by the Newey Order and/or Rule 4.30(3) (that is, upon the dismissal of the Petition or, if the Purchase Price was not paid, on the winding up of BJUK).

103.

In that context, I accept, of course, that paragraph 21 of Schedule 1 to the Newey Order was couched in terms of imposing an obligation to be fulfilled upon joint application of Caldero and the MdR Respondents for dismissal of the Petition on the specified basis that the fees and costs of the PLs should be borne by BJUK, without taking into account the provisions of the funding agreement (which had not by then been entered into).

104.

I accept also, of course, that in the event the Rose Order did not itself make provision for payment, but left the issue open for determination. But it seems to me that (a) paragraph 21 of Schedule 1 to the Newey Order unequivocally prescribed or confirmed that the PLs' fees and costs are to be borne by BJUK, and (b) neither the form of the application which resulted in it nor the Rose Order itself affected that allocation of the obligation: the purpose of the directions Rose J gave was to enable completion to take place and, in doing so, not to deprive TOC of any rights but, on the contrary, to ensure that TOC was fully secured by a payment into Court pending determination of its right.

105.

Since the Newey Order is consistent with Rule 4.30(3) it does not seem to me ultimately to matter whether the Newey Order prescribed that the PLs' fees and costs should be reimbursed out of the assets of BJUK, or merely recognised and reflected the provisions to the same effect. As it seems to me the effect is the same whether the source of the obligation of reimbursement is the Newey Order itself or Rule 4.30(3). In my view, the obligation of reimbursement can be enforced by TOC (or if necessary Caldero on its behalf) on either footing.

106.

As to Mr Wolfson's written submissions in his Supplemental Note of 8 May 2015 in relation to the Newey Order and the Rose Order:

(1)

In my view, the argument that the Newey Order cannot have been intended to impose, confirm or complement any obligation for the funding agreement, since that agreement had not yet been entered into, misses the point, which is that the funding agreement left untouched the obligation to repay envisaged by the Newey Order.

(2)

The fact that TOC was not a represented party when the Newey Order was made does not undermine its terms, or alter the meaning to be invested into the word "borne".

(3)

The fact that the Rose Order does not include the word "borne" is also nothing to the point: it was dealing with different objectives.

(4)

I agree also with Mr Hollington's observation that these late submissions were inconsistent with the MdR Respondents' original case that the meaning and effect of the funding agreement were that TOC gave away the benefit of the regime established by the Newey Order (an argument which I have already rejected).

107.

As to enforcement of the relevant part of the Newey Order, the MdR Respondents contended that there was no obligation capable of being enforced by TOC because it was not a party to the proceedings and was not represented before Newey J (or at all). I do not accept this. As Mr Hollington contended, and Mr Wolfson could not contradict, the Newey Order, as an order of the Court, binds not only the parties and their privies, but also may be enforced as such. I have little doubt that, in the circumstances described, TNK-BP and TOC were privies of Caldero. In any event, CPR 70.4 provides for enforcement of judgments or orders by or against a non-party in terms that seem to me applicable and appropriate.

108.

Alternatively, if the better view is taken to be that Rule 4.30(3) is the only source of the obligation, I do not see there is any real difficulty in TOC enforcing it. First, in my view, the Court can enforce the rule at the instance of a person affected, such as TOC. Secondly, given that, in my view, the funding agreement and the subsequent Orders taken together were premised upon there being that right of reimbursement, BJUK should be held to the obligation, if necessary by recognising the equitable entitlement of TOC to step into the shoes of the PLs for this purpose: I address this alternative remedy by way of subrogation more fully in the next part of this judgment.

109.

If I am right in relation to any of those means of enforcement, the joinder of Caldero, though I permitted it, is unnecessary. If I am wrong, then there seems to me to be no difficulty in Caldero enforcing the Newey Order, and good reason why its controllers should procure it, if necessary, to do so.

110.

In summary, I have concluded that when TOC advanced moneys under the funding agreement it did so on the basis that it would recover the amounts so advanced out of the assets of BJUK, either upon the dismissal of the Petition or, if the Purchase Price was not paid, on the winding up of BJUK, and nothing in the funding agreement was intended to, or did, preclude it from doing so, under either or both of paragraph 21 of Schedule 1 to the Newey Order or Rule 4.30(3). Nothing in the Rose Order altered TOC's rights in that regard.

111.

My conclusion avoids what I regard as the commercial unlikelihood, to the extent in my view of being commercially absurd to suppose, that TOC would have agreed to fund without recourse, not least given the express provision in the Newey Order and the content of Rule 4.30(3).”

The judge then went on to deal with TOC’s alternative argument that, if it had no right of recourse under the terms (express, implicit or implied) of the funding agreement, it should nonetheless be entitled to be subrogated to the provisional liquidators' right to payment out of the assets of BJUK. The judge held in favour of TOC that it was indeed entitled to such a right. The relevant paragraphs of his judgment on this issue are at 114 to 126. In summary, he concluded at paragraph 126 that:

“In my view, even if I am wrong and the Funding Agreement did not itself provide a right of repayment inherent in the word "advance", whether it is to be assumed that the parties thereby intended that there should be no recourse at all is another matter. In my view, the real question is not whether there is a gap or failure, but whether there is any inconsistency between the Funding Agreement, the Orders and Rule 4.30(2), on the one hand, and, on the other, affording TOC the remedy: and see, in that regard, Goff and Jones on Restitution at para. 6-12. In my judgment, there is not; and accordingly, the remedy of subrogation should be made available to TOC, since in those circumstances that would be the remaining and the appropriate way of ensuring that BJUK is not unjustly enriched.”

The judge then went on to consider the possible application of the principle in Ex parte James: see paragraphs 127 to 130 of the judgment. He concluded that if he were wrong in his conclusion that TOC were entitled to reimbursement under paragraph 21 of Schedule 1 to the Newey Order, Rule 4.30(3) or alternatively by way of subrogation, he very much doubted that the principle in Ex parte James would be applied to save TOC. There is no respondent’s notice challenging his decision in this respect.

In the light of the judgment and the manner in which the respective arguments of the parties were presented to us, the issues on the appeal and the cross-appeal may logically be summarised as follows:

The appellants were represented in this court by Mr David Wolfson QC and Mr Matthew Cook, as they had been before the judge. The respondents, TOC and Caldero, were represented by Mr Robin Hollington QC and Mr Adrian Pay, who had likewise appeared below. The provisional liquidators did not appear on the appeal and were not represented.

The parties’ respective arguments on the appeal and the cross-appeal are adequately reflected in my discussion and determination below.

I accept Mr. Wolfson’s submission that neither the Newey Order nor Rule 4.30(3) imposed any obligation on BJUK to repay to TOC funds which had prior to the date of that order previously been advanced by TOC or which might in the future be advanced by TOC. In my judgment the judge was wrong to hold that the effect of either the Newey Order or Rule 4.30(3) was to impose any obligation on BJUK to repay TOC the funds which the latter had advanced or was in the future to advance.

The key wording of paragraph 21 of schedule 1 to the Newey Order is that:

“the fees and costs of the Provisional Liquidators shall be borne by [BJUK]”.

That wording said no more than that BJUK was to pay the fees and costs of the provisional liquidators, as opposed to the petitioners or the respondents to the petition (i.e. the appellants), which, by the time they had paid the purchase price for Caldero’s shares, would own the entire share capital of the company. These provisions were concerned with the responsibility - imposed on the subject company – to pay the provisional liquidators. The provisions said nothing, however, about how BJUK should raise the money for paying the provisional liquidators or about the terms of any funding arrangements which might be arranged in order to do so. Indeed, it would have been open to BJUK to have done so from its own resources or from a loan from a bank. The fact that the fees and costs were to “be borne” by the company (which has done so) says nothing about the nature of its obligations to third party funders.

Mr Hollington argued that the appellants were seeking to defeat the court’s order which he claimed was negotiated for the benefit of the petitioner and its financial backers. But that mischaracterises the terms, scope and purpose of the Newey Order. That order did not take into account the provisions of the funding agreement which had not by then been executed and indeed the existence of a proposed funding agreement was unknown to the appellants. No reference was made in the Newey Order to funding being provided by a third-party funder or to any obligation on BJUK to repay such funding. As was common ground, the issue was not raised before Newey J by either the petitioners, the provisional liquidators or by TOC or TNK-BP, as it clearly could have been, had the provisional liquidators, TOC or TNK-BP chosen to do so. On the contrary, it is clear from the subsequent correspondence and witness statements that the provisional liquidators, TOC and TNK-BP had every intention of keeping the terms of the funding confidential from the appellants. Moreover, TOC was not a party to the Newey Order or, according to the order’s recitals, represented at the hearing. Indeed, the only reference to TOC in the order is in the provision in paragraph 5 and Schedule 2 releasing it from certain undertakings which it had previously given. Moreover, the fact that appellants may have been aware that TOC or TNK-BP had, or might have, funded the provisional liquidators was irrelevant.

Accordingly, in my judgment the judge was wrong to conclude that the Newey Order “envisaged” an “obligation to repay” (Footnote: ⁶) or gave TOC any right to repayment under the terms of (at that stage) a proposed future funding agreement. The Newey Order was a negotiated compromise order – effectively by consent. It was one which basically – subject to the resolution of the investment issue and payment of the purchase price – compromised Caldero’s petition and ensured that the appellants would buy out Caldero’s interest and remain the sole shareholders in BJUK. In those circumstances any obligation imposed on the company by the terms of the Newey Order would clearly have been of relevance to the appellants. To suggest that such an obligation could have been imposed sub silentio, or slipped in by implication, in circumstances where the appellants had not been informed of the terms of the proposed funding agreement (which might, for example, have contained onerous terms as to interest) and had had no opportunity to address the point, seems to me to have been unlikely in the extreme. Thus, in my judgment the contractual arrangements under the funding agreement must be considered separately from the Newey Order. Thus the judge was wrong in my view at paragraph 102 of his judgment to state that:

“the funding agreement, the Orders and the provisions of the Insolvency Rules (and especially Rule 4.30(3)) are all to be read together and interpreted in conformity”.

Likewise, for similar reasons, the judge was wrong, in my judgment, to conclude that any assistance could be derived from Rule 4.30(3) of the Insolvency Rules 1986. It provides as follows:

“Without prejudice to any order the court may make as to costs, the provisional liquidator’s remuneration…shall be paid to him, and the amount of any expenses incurred by him…reimbursed –

(a)

if a winding-up order is not made, out of the property of the company; and

(b)

if a winding-up order is made, as an expense of the liquidation…”

The Newey Order effectively replicated Rule 4.30(3). So, for similar reasons to those which I have given above, there is nothing in the rule itself – which merely provides that the provisional liquidator’s remuneration shall be paid to him, and the amount of any expenses incurred by him reimbursed, if a winding-up order is not made, out of the property of the company – which can validly be construed as imposing a freestanding contractual obligation on the subject company to repay funding from a third party. Accordingly, the judge was wrong to rely on Rule 4.30(3) as providing any support for his conclusion.

The first sub-issue that arises under this head is what was the relevant factual matrix. The judge concluded, retrospectively, that as a matter of commercial sense, TOC would not have expected to have had no recourse to BJUK for repayment. I do not agree. The judge adopted a far too blinkered approach to the relevant factual matrix as well as falling into the trap referred to by Lord Neuberger in Arnold v Britton [2015] UKSC 36 at [19] of invoking “commercial common sense” retrospectively.

The reality was that, in the internecine litigation warfare between TNK-BP and Mr Lazurenko, which I have described above, TNK-BP, and its subsidiary, TOC, appeared prepared to spend substantial sums, or to expose themselves to risk under substantial cross-undertakings in damages, in the funding of the Caldero petition and provisional liquidation, in order to obtain information about Mr Lazurenko and his assets, without necessarily having regard as to recovery of monies expended. Moreover, as the evidence before the court showed and as Mr. Hollington submitted, following the Newey Order, TOC unsuccessfully sought to persuade the provisional liquidators that they should look in the future to the assets of BJUK for their fees and expenses and that there was no need for the funding agreement to be executed.

Perhaps most cogently in relation to factual matrix was the evidence of Mr Shaw in his seventh witness statement, to which I have already referred, that:

“"The funding agreement is a vanilla underwriting of Ike Provisional Liquidators' fees ……. The funder has no influence as to how BJUK and/or the Provisional Liquidators utilise such funds and BJUK is under no obligation to repay any monies to the funder".

Obviously, such views are not relevant to the construction of the funding agreement, but they, and the other factual matters to which I have referred, undermine any basis for the judge’s assumption (for example at paragraph 89 of the judgment) that “TOC did not expect to have no recourse”. That certainly could not have been the common understanding of the parties at the date the contract was entered into, given Mr. Shaw’s evidence. There is every reason to suppose that, in such circumstances, TNK-BP/TOC might have considered it in their commercial interests to have funded the provisional liquidation by advancing funds to BJUK, notwithstanding the risk that such funds would not, or might not, be repayable. In my view that analysis is supported by the fact that, as I have already mentioned, the provisional liquidators and TNK-BP/TOC did not seek to obtain the court’s approval, on an application to which the appellants were parties, to the entry by BJUK into the funding agreement. That was despite the fact that, subject to payment of the purchase price after resolution of investment issue, BJUK would be owned by the appellants, who clearly would have an indirect interest in financial obligations assumed by BJUK during the currency of the provisional liquidation – in particular in circumstances where the role of the provisional liquidators after the making of the Newey Order was limited to protecting and preserving the assets of the company.

Against this background I turn to consider the construction of the funding agreement. I bear in mind the first five of the seven principles of construction stated by Lord Neuberger (with whom Lord Sumption and Lord Hughes agreed) in Arnold v Britton [2015] UKSC 36at [16ff]:

“16.

For present purposes, I think it is important to emphasise seven factors.

17.

First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

18.

Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

19.

The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG[1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath at para 110, have to be read and applied bearing that important point in mind.

20.

Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.

21.

The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.”

I approach the question of construction afresh from the approach taken by the judge. That is because, as I have already stated, his conclusions were flawed, since they were based upon wrong assumptions that:

Obviously, the funding agreement has to be interpreted generally against the background of the Newey Order and/or Rule 4.30(3). But, in reality, as I have already explained, they tell us nothing about the existence or otherwise of TOC’s rights of reimbursement. All that the Newey Order and Rule 4.30(3) inform us are that the provisional liquidators are entitled to reimbursement of their costs and fees out of the assets of BJUK.

The first point of construction which arises is whether the use of the word ‘advance’ in the funding agreement itself provide an inherent right of repayment for TOC. The judge was ambivalent about this point and his reasoning is somewhat hard to follow. At paragraphs 97 to 100 of the judgment (see above), he concluded that the word “advance” was “correctly interpreted as connoting a loan with a right of recourse”, but then went on to hold that an enforceable right of reimbursement under the Funding Agreement depended upon some further provision having the requisite degree of certainty, specifying when the obligation was triggered and that it was not possible to interpolate or imply the complex provision as to the mode and event of reimbursement that would be required. However, in paragraph 126 of the judgment, the judge appears to have thought that he had reached the opposite view and that the funding agreement had itself provided a right of repayment inherent in the word “advance”.

It was in this context that Mr Hollington sought to argue that the judge, having found that the word ‘advance’ in the Funding Agreement connoted a loan with a right of recourse, should have gone on to conclude that TOC was in the circumstances entitled to be repaid the monies it had advanced either on the true construction of the agreement or (if necessary) under an implied term to the effect that the monies were repayable upon the natural end of the provisional liquidation, or, in other words, when the agreement had run its natural course, which would occur under the Newey Order either in the event of a completed share purchase or a winding up order (in which case it would rank as a liquidation expense). He submitted that, as the judge had correctly held, ‘advance’ meant ‘lend with a right of recourse’, there was no need to imply a term for repayment: a right to repayment was already implicit in the word ‘advance’, such a right being the legal incident of a loan.

I reject Mr Hollington’s submissions. I accept that, in general, where money is lent without any stipulation as to the time of repayment, a present debt is created which is repayable at once without any previous demand; see Norton v Ellam (1837) 150 ER 839. But, as Mr Hollington rightly accepted, the context may well require otherwise. Here the use of the word “advance” was, as the judge, held, ambiguous. The reality was that the context obviously required that the monies advanced were not immediately repayable since the provisional liquidation was ongoing and the provisional liquidators had no other immediate source of funding. The purpose of the “advance” was to fund them in payment of their costs and fees, including, as was envisaged in the indemnity provided by TOC at clause 5.1, in circumstances where they might be acting “at the request or direction of the Funders”. The use of the word “advance” in context meant in advance of the provisional liquidators being able to recoup their fees and expenses out of the assets of BJUK. As Mr Shaw said, the funding agreement was an underwriting of the provisional liquidators’ fees and costs in circumstances where there was a risk that they would not be able to recover them from the company.

Apart from the fact that there is no express obligation to repay (other than clause 3.4), it is surprising, if the advance was indeed repayable at some stage, that there were no provisions for payment of interest. But, as Mr Wolfson submitted, the critical feature of the funding agreement in support of the appellants’ construction was that it did indeed expressly provide for repayment – but only of the “surplus” funds advanced and only in the limited circumstances stipulated in clause 3.4, viz.

“Once all Fees have been agreed and satisfied in accordance with clauses 2 and 3, and the Provisional Liquidators no longer act as Provisional Liquidators of the Company (and they have not been appointed as the liquidators of the Company), the Provisional Liquidators shall return any surplus Existing Funds and/or Additional Funds to the Funder.”

What is interesting about this clause is that it demonstrates the tension between what is said to be the position under the funding agreement – namely that the company, BJUK, was the contracting party and recipient of the advance - and the practical reality which was that the provisional liquidators were actually the beneficiary of the “advance” and who were responsible for returning any surplus once the provisional liquidation has come to an end. But, of course, once they no longer acted as provisional liquidators of BJUK, they, theoretically at least, would have had no power as agents of the company to have returned surplus funds in a company account to TOC! Be this wrinkle as it may, it underlies in my judgment the point made by Mr Wolfson that it was only in the prescribed circumstances that monies advanced were repayable. Moreover, clause 12 - the whole agreement clause – makes it difficult, if not impossible, to accept the argument that all monies advanced were repayable to TOC once the provisional liquidation had come to an end, notwithstanding the provisions of clause 3.4.

Nor is there any room for the implication of a term that the monies advanced were repayable in their entirety once the provisional liquidation had come to an end. Any such implied term would have been inconsistent with, and indeed would have contradicted, the express terms of the funding agreement and therefore illegitimate. Nor was there any need for the implication of such a term to make the funding agreement workable. Accordingly, the strict requirements for implication of terms articulated in cases such as: Attorney-General of Belize and others v Belize Telecom Ltd and another [2009] UKPC 10, [2009] 1 WLR 1988; and Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72; were not satisfied.

For the above reasons I accept the appellants’ submissions that the judge should have concluded that the funding agreement did not impose any obligation upon BJUK to reimburse funds provided pursuant to that agreement (other than in the limited circumstances set out in clause 3.4).

In the light of my decision on issue i), issue iii) does not arise for determination.

The premise of TOC’s subrogation/unjust enrichment claim is that if, as a matter of construction of the funding agreement, TOC has no contractual right to repayment of the sums advanced to the liquidators, other than surplus sums remaining in BJUK’s provisional liquidation account after the provisional liquidators have been paid, then BJUK has been unjustly enriched in the amount of the sums paid by TOC. Accordingly, TOC claims that it is entitled to be repaid the sums advanced by way of unjust enrichment or subrogation. Mr Hollington sought to support the judgment for the reasons that the judge gave.

However, the judge’s reasoning on this issue is somewhat confusing. At paragraphs 125 – 126, he said:

“125.

On this basis, in his further submissions Mr Wolfson submitted on behalf of the MdR Respondents that if the Funding Agreement did not, whether through construction or implication, give TOC any right of repayment (save for the limited right in clause 3.4 which is not applicable in the present case), it follows that there is no scope for a claim in subrogation, since that would conflict with the Funding Agreement, particularly in the light of the requirement not to take a “narrow view” of what would conflict.

126.

The point was well and clearly made; but I do not accept it. In my view, even if I am wrong and the Funding Agreement did not itself provide a right of repayment inherent in the word “advance”, whether it is to be assumed that the parties thereby intended that there should be no recourse at all is another matter. In my view, the real question is not whether there is a gap or failure, but whether there is any inconsistency between the Funding Agreement, the Orders and Rule 4.30(2), on the one hand, and, on the other, affording TOC the remedy: and see, in that regard, Goff and Jones on Restitution at para. 6-127. In my judgment, there is not; and accordingly, the remedy of subrogation should be made available to TOC, since in those circumstances that would be the remaining and the appropriate way of ensuring that BJUK is not unjustly enriched.”

Thus it would appear that, while the judge describes this as an alternative basis for liability, on analysis, it seems clear from paragraph 126 that his conclusion that a right of subrogation existed were premised on his earlier analysis as to the combined effect of the “Funding Agreement, the Orders and Rule 4.30(2)”.

In my view, this was not an appropriate case for the remedy of subrogation in any event, since the case did not involve TOC discharging the obligations of BJUK to the provisional liquidators, but rather BJUK itself discharging its own liabilities to them – albeit out of funds provided by TOC. Moreover, in circumstances where clause 9.1 of the funding agreement itself expressly prohibited TOC from requiring the provisional liquidators to exercise any remedy against the BJUK, it would seem anomalous that TOC should nonetheless be subrogated to such “rights”. But it is not necessary for this court on this appeal to carry out any analysis of the scope and application of the doctrine of subrogation, whether in light of decisions such as Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66 or otherwise, since Mr Wolfson restricted his arguments on the appeal to the second argument advanced before the judge, namely that there was no scope for a claim in unjust enrichment where there was a contract between the parties in relation to the relevant subject matter, since the parties are taken to have determined their own allocation of risk in relation to the events in question.

I accept Mr Wolfson’s submission that, on the correct construction of the funding agreement, as set out above (namely that there was no obligation on BJUK to repay the monies advanced, save to the extent that there was a surplus in the designated account after payment of all the relevant costs, fees and expenses of the provisional liquidators), any claim in unjust enrichment by TOC to a right to repayment of funds advanced would indeed be inconsistent with the funding agreement, since it would give TOC a right of repayment in circumstances where the agreement between the parties in relation to the funding did not.

In deciding whether a claim in unjust enrichment lies, it is well-established that one of the relevant considerations is

“the need to avoid any conflict with contracts between the parties, and in particular to prevent ‘leapfrogging’ over an immediate contractual counterparty in a way which would undermine the contract; ”

see per Henderson J in Investment Trust Companies v Revenue and Customs Comrs [2012] STC 1150 at paragraph 68. This was approved by Patten LJ on appeal in the same case at [2012] STC 1280 at the end of paragraph 69 who also said:

“We consider that the correlative of taking a broad approach to the first consideration [the need for a close causal connection between the payment by the claimant and the enrichment of the indirect recipient] by taking account of ‘economic’ or ‘commercial’ reality is that it is important not to take a narrow view of what, under the third criterion, would conflict with contracts between the parties or with a relevant third party in a way which would undermine the contract.” (Footnote: ⁷)

These passages were also subsequently approved by the Supreme Court in Menelaou: see per Lord Clarke at paragraph 31.

The short point here is that a claim to unjust enrichment in the present case (even on the assumption that it might otherwise lie) would directly interfere with the manner in which the parties had allocated risk under the terms of the contract. In my judgment, therefore, the judge’s conclusion on subrogation cannot stand if, as I have held, he is wrong on his primary conclusion that TOC has a pre-existing right of repayment.

Accordingly, I would allow the appeal.

I agree.

I also agree.