Nearfield Ltd v Lincoln Nominees Ltd & Anor

In this action the Claimant (“Nearfield”) seeks to enforce clause 5.1.3 of a Joint Venture Agreement executed on or about 4^th April 2002 (“JVA”). The parties to the JVA were (1) Michael Potel (2) Nearfield (3) Lantau (4) Lincoln Nominees Ltd (“LNL”) (5) Shiatsu Holdings Ltd (“Shiatsu”) (6) Lincoln Trust Company (Jersey) Ltd (“Lincoln”).

Some clarification of the names is required. Mr Potel is the controller and owner of Nearfield. Lantau as defined in the JVA is the Second Defendant herein Lincoln Trust Company (Jersey) Ltd. In that role the Second Defendant is the sole corporate Trustee of the Lantau Trust. The Second Defendant is a Trust Company incorporated in accordance with laws of Jersey and carries on the business of the provider of offshore trust company services.

It entered into the JVA in two capacities. First it entered into it as Trustee of the Lantau Trust. In the JVA for the purposes of that role it was designated as “Lantau” a designation I repeat in the respect of that role in this judgment. The second purpose of the Second Defendant’s participation in the JVA was as “Administrator” of Shiatsu. In order to distinguish its roles it also entered into the JVA in a capacity designated as Lincoln. Although the flysheet to the JVA described Lincoln as being an Administrator, that has no legal significance either in Jersey or any other jurisdictions or this country for the purpose of the JVA. There was nothing on the face of the obligations to suggest that the Second Defendant as Lincoln was entering into the Agreement on behalf of Shiatsu and it is not so contended.

Once again in this judgment when I deal with an obligation of the Second Defendant qua Lincoln I will describe it as “Lincoln” as opposed to its obligations qua Lantau.

The Lantau Trust was created on 1^st August 1995 by declaration by Lantau constituting the Trust. It is a discretionary Trust created under the laws of Jersey at the instigation of a Mr Ian Blatchly (“Mr Blatchly”) for the benefit of his family as set out in his letter of wishes dated 23^rd December 1999. In addition another family Trust called the Macau Trust was formed on 30^th June 2004 at Mr Blatchly’s instigation. Once again the Second Defendant is a Trustee. There were certain transfers as between the Lantau and Macau Trusts at the instigation of the beneficiaries. Those transfers took place in 2004 and 2005. They do not form part of the present claim, which requires adjudication by me, but they are certainly contested by Nearfield. Where and when that challenge takes place is not a matter for me.

The First Defendant (“LNL”) is a nominee company of the Second Defendant incorporated in the British Virgin Islands. Its sole role appears to be a nominee company used by the Second Defendant in its offshore trust business.

The relevant clause of the subject matter of the claim before me is clause 5.1.3 which is part of the duties of Lincoln and LNL. I will set out clause 5 in full as follows:-

“5.

Duties of Lincoln and LNL

5.1

Lincoln LNL will utilise the first £1.625 milion of the Loan to forward lend the said sum to the Company to enable such sum to be paid toward the deposit on the Property

5.1.2

Lincoln will procure that the balance of the Loan is to be paid to the Royal Bank of Scotland into a Rent Deposit account as required by the Bank in relation to the property, to be released on terms agreed with the Bank and diminution of the Loan, or used to pay Stamp Duty as required

5.1.3

The duration of the Loan will be three years from the date hereof and thereafter Lincoln will procure the payment of the Loan together with all outstanding interest thereon, on written demand by Nearfield

5.2.1

The shares in the Company will be issued to LNL, which LNL will hold as nominee 100% for and on behalf of Lantau, provided that until the totality of the Loan and interest due is repaid to Nearfield it is agreed between all parties that Lincoln LNL will hold all the issued shares for and to the order of Nearfield by way of a lien over the shares

5.3.1

Lincoln will appoint Directors of the Company and will procure that such Directors will act wholly and exclusively in accordance with the wishes of MP and Lantau, and in full compliance with the terms of this Joint Venture Agreement

5.4

Lincoln will secure a second legal charge for £3,000,000 over the property to be granted by the Company substantially in the form of the draft deed of priorities, a copy of which is attached hereto, and will hold that charge for and on behalf of Nearfield until the loans made by Nearfield are repaid. ”

Under clause 4.1 of the JVA as finally drawn Nearfield was under an obligation to advance the Loan (defined as £3,000,000 to LNL). Under clause 5 as seen above LNL was obligated to utilise the first £1,625,000 to forward lend the sum to Shiatsu to enable such sum to be paid towards the deposit on the Property Bankside House, Leadenhall Street, London, EC3. In fact Lantau lent £3,000,000 to Shiatsu. It is not quite clear how that occurred but it appears it received the £3,000,000 from LNL which had been advanced to it under clause 4.1. The balance of the Loan under 5.1.2 was subject to an obligation that Lincoln would procure that it would be paid to the Royal Bank of Scotland into a rent deposit account as required by the Bank in relation to the Property. In fact as I shall set out in the judgment below LNL was supposed to have that obligation. That appears from a fax dated 28^th March 2002 sent by Ken Shaw, Nearfield’s Solicitor for negotiating the JVA to Elizabeth Binet, an employee within the Second Defendant. He attached clauses of the March 2002 variation of the JVA to be amended for her approval. That included a change (which was initialled) whereby LNL would procure that the Loan would be paid to RBS.

This can be said to be logical when analysing the obligations. As I have set out above Lantau obtained the entirety of the £3,000,000 from LNL. It received it from Nearfield under clause 4 subject to the obligation to apply it as directed under 5.1.1 and 5.1.2.

The issue between the parties is as to the meaning of clause 5.1.3. The Claimant contends that “procure” puts an obligation upon Lincoln to see to it that LNL repays the £3,000,000 together with outstanding interest on written demand by Nearfield and that in the event of a failure by LNL to make the payment it is liable to pay damages equal to the amount payable but not repaid by LNL see Moschi v LEP Air Services [1973] AC 331.

Lincoln’s Defence is that the clause did no more than place an administrative and ministerial function upon it in keeping both with its facilitative and non- participatory role in the Joint Venture and in keeping it is said with its other procurement obligations in clause 6.5. These it is said are also administrative functions.

In paragraph 7.1.4 of its Defence Lincoln contends that clause 5.3.1 interpreted in that context meant that it had nothing other than an instrumental position as regards the JVA. It therefore merely required it to “take steps to initiate repayment of the Loan and interest thereon by LNL. The extent of Lincoln’s obligation under 5.1.3 was merely to seek to bring about the repayment of the Loan by LNL and did not extend further to provide any assurance or guarantee that the Loan would be repaid by LNL”.

The JVA was entered into to enable the redevelopment of the Property with 97,000 square feet of office building with a self contained Wine Bar and Restaurant on lower ground and mezzanine levels. At the time it was being marketed by its then owner Prudential Insurance Company.

The Development potential appears to have been recognised by Mr Blatchly who is an experienced investor and developer of commercial property. In December 2001 Mr Blatchly informed a Mr Russell Homer (the managing director of Lincoln) of the proposal with a view to the Property being acquired for £32,000,000. The acquisition of the Property was to be carried out through an SPV and Shiatsu was identified as being that SPV. By the time of the JVA (as at 6^th February 2002) LNL held all Shiatsu’s shares in favour of Lantau. Shiatsu had corporate directors controlled by Lincoln for almost the entirety of the relevant period and Lincoln was either secretary or assistant secretary throughout. In order to save stamp duty it was proposed to transfer the Title to the Property to two nominee companies Bankside House (1) Ltd and Bankside House (2) Ltd both BVI companies. On completion Shiatsu was to acquire the shares in the nominee companies from Prudential and thereby acquire legal Title to Bankside House. Beneficial Title to the property was by a transfer from Prudential to Shiatsu separately on terms of a contract for sale which provided for the completion to take place 20 years hence or earlier at Shiatsu’s request. Shiatsu was thus enabled to sell the Property on using the same structure with the same beneficial stamp duty treatment. Doubtless any profits would have achieved a fiscal advantage from the point of view of the developers in view of their offshore connections.

The prime funder of the Development was National Westminster Bank/Royal Bank of Scotland which agreed to lend £29,000,000 to Mr Blatchly leaving him to provide the remaining £3,000,000. Ultimately a facility offer was made from RBS of £31,000,000 on 18^th January 2002. RBS had a profit share arrangement of the ratio of 30/70 on the first £8,000,000 of profit and thereafter 20/80. In addition it extracted a £25,000 fee. At that time the actual borrower was not identified. Mr Blatchly had to provide the remaining £3,000,000. He did not have it and therefore approached Mr Potel to borrow the £3,000,000. There was a difficulty however because he did not wish RBS to find out he was borrowing the money. A note on a fax sent by Mr Blatchly to Mr Homer dated 5^th February 2002 shows that the purpose of the JVA was purely to enable Lantau to get “£” from Michael Potel as the bank is not to know about the JVA. The Bank thought that only Mr Blatchly was involved hence a guarantee only in favour of RBS was sought from Lantau.

Ultimately the finance from RBS was concluded only in early April 2002.

On 3^rd April 2002 Shiatsu borrowed £31,000,000 from National Westminster Bank PLC. It gave RBS a legal charge and debenture over the Property. The Second Defendant agreed to give a guarantee under this offer of advance but limited it to any assets which were in its possession or under its control in any other capacity.

On 11^th April 2002 RBS and Shiatsu entered into a master agreement governing the facilities and on the same day the two nominee Bankside House companies and Shiatsu and Lantau joined in to give a charge over the Property. Once again clause 31 introduced a limitation of liabilities as regards Lantau to the assets of the Trust under its possession and control.

Finally on the same day Lantau gave a guarantee up to a maximum amount of £2,350,000 being the amount which Shiatsu was borrowing to carry out the refurbishment.

Under that guarantee Lantau agreed (clause 1.1) “irrevocably and unconditionally …….to procure the due and punctual performance and observation by [Shiatsu] of each and all of [Shiatsu’s] obligations when such duties …… shall become due and performable ……” Various clauses (vis 12-13) deal with the jurisdictional problems of international borrowing. The limitation of the guarantee however is twofold (clause 15): up to the capital Maximum Amount i.e. £2,350,000 or the amount necessary to complete the refurbishment and also limited to the assets in its control.

Whilst there is a limitation to the Maximum Amount and the assets the word procure is used again although this is in the context of an obligation by Lantau rather than Lincoln.

On 11^th April 2002 LNL charged its shares in Shiatsu to National Westminster Bank as security for the monies lent to Shiatsu.

I will deal further with the express terms of the JVA below in this judgment. However I note at this stage that on 2^nd April 2002 Lantau entered into a guarantee with Nearfield. Under that guarantee the debtor is described as LNL and the “Debtors Obligations” are defined as the payment of such monies to Shiatsu by the Debtor and the obligation to repay such sums to the lender (Nearfield).

The Maximum Amount due under the guarantee is £1,500,000 plus interest on the entirety of the principal of £3,000,000. The guarantee is given in consideration of Nearfield lending £3,000,000 to LNL.

Under the guarantee (clause 12) there is a limitation of liability. First the total amount recoverable is limited to the Maximum Amount (i.e. the above figures). Second it is limited to the assets held in the Trust (clause 12.1). It has no obligations to meet any claim or liability elsewhere up to a similar level.

As I have said above after the demand was made under the JVA and the Guarantee on 10^th May 2005 dispositions of assets held by Lantau had taken place and further dispositions took place after the demand.

In addition to the matter before me Nearfield also claimed the entirety of the Loan monies from LNL. It made the current claim against Lincoln and a claim under the guarantee from Lantau.

In its Defence Lantau contended it has no assets. It amended that by a response to a request for clarification dated 15^th March 2006 whereby it is stated the only shares it has are in Bracher Estates Ltd which was the holding company of Lantau and that those were worthless. It also provided details of Deeds of Appointment and Advancement dated 30^th June 2004 and 17^th June 2005 whereby assets identified in the respective documents were transferred for the benefit of the Macau Trust from the Lantau Trust.

On 25^th March 2006 Nearfield obtained judgment against LNL Ltd for £3,569,461.75 inclusive of interest up to 28^th March 2006. That judgment remains unsatisfied. By the same judgment Nearfield obtained judgment against Lantau limited to the value of the assets of the Lantau Trust as at 10^th May 2005 with an inquiry as to the assets held by Lantau as at that date. That claim was under the Guarantee of course. That judgment remains unsatisfied in the sense that the inquiry has not progressed but it is by no means clear that any effective recovery will be made under that judgment.

The Property was not a successful redevelopment. It was sold on 29^th April 2005 for £34,000,000. Of those proceeds £32,319,150.59 was repaid to RBS. After further repayments the sum of £748,593.77 was repaid to Nearfield on 3^rd May 2005. The shortfall in respect of the principal was £2,251,406.23 and the interest due was £1,030,947.35.

As I have said above the dispute between the parties is in effect the meaning of the word “procure” in clause 5.1.3.

It is to be appreciated that there is no claim for rectification either based on a unilateral mistake known to the other party or mutual mistake. Nor is it alleged that any party entered into the JVA under a mistaken belief as to its effect. The dispute between the parties is as to the legal effect. Nearfield claim that 5.1.3 contains an obligation on the part of Lincoln to bring about the stated result. It points out that it has similar procurement obligations in 5.3.1 and 6.5 and LNL had a procurement obligation under 5.1.2. All of these obligations Nearfield contend mean an obligation to require the stated result.

It makes the simple observation that it is unlikely that the word procure would have a different meaning in different parts of the JVA. I also observe that the RBS guarantee also uses the word procure. In this context it is also significant to note Nearfield contends that Lincoln (as opposed to Lantau) does not seek to put any limitation on its liabilities or exposure (contrast Lantau’s liability on the guarantee). This is it is submitted strongly suggested of the contention that Lincoln was assuming a direct personal responsibility to procure events.

Lincoln on the other hand points to its lack of beneficial interest in the outcome of the JVA where limitation on the guarantee to 50% plus the interest on the whole and a limitation of assets and the nature of Lincoln’s business as being indicative of the fact that it was not intended to assume a direct liability to repay £3,000,000 plus interest when in a different capacity it had limited its liability.

It also relies on its limitation in its Lantau capacity and submits it would hardly enter into a limited liability in one capacity and an unlimited liability in another.

In the context of that submission I observe again there is no claim for rectification.

In my view the normal meaning of the word procure is to “see to it”. Thus a person agreeing to procure that someone else performs a contractual obligation first is required to attempt to procure that person complies with the obligation and in the event that he fails to comply to pay damages calculated by the amount that ought to have been paid by the third party. This is conveniently summarised in the decision of Lewison J in Barnicoat et al v Knights et al [2004] 2 BCLC 464. It is also repeated in Andrews & Millett “Guarantees” (4^th Edition) para 1-004.

The question arises then as to whether this meaning is displaced when the JVA is construed.

As will be seen in this judgment the JVA underwent a number of changes. There may be as many as ten versions. Copies of some of them have not survived.

The Second Defendant led a significant amount of evidence designed to show what was the intention behind clause 5.1.3. This led to a detailed examination of the gestation of the JVA and the surrounding correspondence.

Nearfield objected to such evidence. Rather than rule on that I determined that parties would lead as much evidence as they felt appropriate and its relevance would be considered by me in the light of closing submissions after having heard the evidence.

The principles are well known but they are not so easy to apply. Nearfield’s primary stance relying upon the well known decision in the House of Lords in Prenn v Simmonds [1971] 1WR 1381 was that the documents and drafts and the evidence (principally Mr Homer’s) are unhelpful and inadmissible in attempting to answer the question of construction.

The Second Defendant contends that it is not only permissible but necessary to look at the surrounding circumstances of the JVA as an aid to construction of clause 5.1.3. The interpretation of the JVA is the ascertainment of the meaning it is submitted which the document would convey to a reasonable person having all the background knowledge which would have been available to the parties at the time of the contract. The meaning of the document is what the parties use in those words against the relevant background would reasonably have been understood to mean see Investors Compensation Scheme v West Bromwich Building Society [1998] 1.

In paragraph 79 of the Second Defendant’s opening skeleton it set out 13 factors relevant to the factual background as an aid to construction. Those are as follows:-

“1.

the real parties to the Joint Venture were Mr Potel and Mr Blatchly;

2.

Mr Blatchly, which was known to Mr Potel, chose to use the Lantau Trust as the vehicle through which he would pursue the Joint Venture;

3.

the Joint Venturers were named as Mr Potel and the Lantau Trust;

4.

Lincoln Trust was not a party to the Joint Venture itself in anything other than in its capacity as Trustee of the Lantau Trust;

5.

the profits of the Joint Venture were to be shared in a ratio of 1:3 between Mr Potel and the Lantau Trust – Lincoln Trust was not entitled to any of the profits of the Joint Venture or to any other financial or other reward;

6.

in so far as it was a party to the JVA in its personal capacity that was solely in an administrative function;

7.

Lincoln Trust was prepared to guarantee LNL’s obligation to repay the Nearfield loan only in its capacity as trustee of the Lantau Trust and even than only in circumstances limiting the guarantee to (a) £1.5m plus interest on £3m or (b) the assets of the Lantau Trust;

8.

None of the documentation shows that at any time was Lincoln Trust considered by any of the parties to be truly or properly participating in the Joint Venture;

9.

no documentation supports Mr Shaw’s assertion that “it was at all material times understood and agreed by all the parties to the JVA that Lincoln (in its own right, as opposed to in its capacity as the sole corporate trustee of the Lantau Trust) was unconditionally undertaking to procure that Lincoln Nominees Limited would repay the Nearfield loan”;

10.

the documentation supports the opposite view – see for example:

10.1

an email from Ken Shaw to Brent Hill dated 25^th February 2002 in which Mr Shaw set out his understanding of the transaction. The email refers to matters in respect of which his client required an “irrevocable confirmation and undertaking from the trustees of Lincoln [sic]” – none of the undertakings sought included and obligation to repay the £3m loan. However, the email goes on expressly to refer to the Guarantee: “so far as concerns the guarantee for 50% of the loan, I understand that it is to follow the same form as the guarantee to Royal Bank of Scotland. Kindly confirm and let me have a copy.”

10.2

Mr Shaw wrote to Mr Potel twice on 28^th February 2002, stating first, “I am concerned that there is no final facility letter or guarantee document in existence….” and then, “I am not yet comfortable with the transaction. I have not seen the actual guarantee nor the limit placed on it.”

10.3

On 18^th March 2002 Mr Shaw wrote to Brent Hill by email, copying in Messrs Potel, Blatchly & Homer, stating “On the question of interest, Ian [Blatchly] has confirmed that Lincoln will guarantee payments of interest as well as 50% of the loan and therefore in the Joint Venture Agreement under clause 10.3 an additional sentence guaranteeing all interest payable to [Mr Potel] and Nearfield under the Joint Venture Agreement. Kindly confirm”.

11.

it was always a part of the Joint Venture negotiations that Lincoln Trust as trustee of Lantau Trust would provide a guarantee (proper) to secure the borrowing, whereas clause 5.1.3 was only introduced into the JVA at a late stage and it is unclear at whose behest and for what purpose;

12.

it would have all times been clear to the parties to the JVA that there was no reason for Lincoln Trust to give such an unconditional undertaking or any undertaking at all in its personal capacity;

13.

it would have been very unusual if not unheard of for a trustee to have given such an undertaking in its own capacity and would have made no commercial sense – it could potentially jeopardise Lincoln Trust’s whole business as acting as a corporate trustee and administrator”.

Of these the overwhelming majority are uncontentious and have no assistance in my view. Items 1-3 do not add anything. Item 4 is incorrect because Lincoln was a party and as such its obligations were separated out from its obligations as Lantau. On the flysheet of the JVA it is described as “Administrators of Shiatsu Holdings Ltd” it is not suggested that limited its role. Therefore there is nothing in the wording of the JVA to suggest that Lincoln did not have some obligations out with the Trusteeship of the Lantau Trust.

Item 5 is correct as to the JVA but there was no evidence led to as to what the Second Defendant might have made by way of fees or other matters out with the wording of the JVA.

As regards item 6 there is no indication in the JVA expressly that Lincoln was solely in administrative function. Tellingly in my view where it was entering into the Agreement as Lantau it liabilities were limited by virtue of the Guarantee. Item 7 shows this because it seems to me that the Second Defendant carefully limited its liabilities when entering in to the JVA as Lantau. It is possible that it will not have any liability at all under the Guarantee. However there is no such limitation as regards its capacity as Lincoln. Indeed there is no limitation on its capacity as Lincoln at all. However it does exercise control of the Development by virtue of its office holding Shiatsu and the control of the receipt of the funds.

Item 8 is a matter of dispute that does not really help the overall question of construction.

Item 9 is disputed but I do not see that Mr Shaw’s evidence is relevant or admissible as an aid to construction.

Item 10 which refers to other documentation is ambiguous. I will deal with this further in the judgment as it is part of the Second Defendant’s platform for suggesting that the surrounding circumstances showed that Mr Potel well understood that he was only intended to enter a guarantee for half and was regarded as an investor for half. I point out that under the terms of the Guarantee Mr Potel is not guaranteed half; he has a maximum of a half. As I have said above there is a strong likelihood he might get nothing. It seems to me that the point has false premise therefore.

Item 11 does not appear to me to be correct and I will set out further in this judgment how clause 5.1.3 appears to have been gestated.

I do not see that items 12 and 13 have any force at all. Trustees can assume primary obligations. When they do they generally tend to protect themselves by arrangements they make with people on whose behalf they contract. No background arrangements have been revealed butthat is a matter for the Trustees.

The time had long passed by even 1971 where documents were construed in isolation from the matrix of fact from which they were derived and interpreted purely on internal linguistic considerations see Prenn v Simmonds at page 1383H-1384A.

However the ability to look at antecedent documents is plainly restricted see Lord Wilberforce in Prenn at page 1385:-

“It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact. Cardozo J. thought so in the Utica Bank case. And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found.”

That is the Second Defendant’s contention. However it is important to see what Lord Wilberforce said next:-

“But beyond that it may be difficult to go: it may be a matter of degree, or of judgment, how far one interpretation, or another, gives effect to a common intention: the parties, indeed, may be pursuing that intention with differing emphasis, and hoping to achieve it to an extent which may differ, and in different ways. The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get "agreement" and in the hope that disputes will not arise. The only course then can be to try to ascertain the "natural" meaning. Far more, and indeed totally, dangerous is it to admit evidence of one party's objective -- even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised…………….In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr. Simmonds' intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively the "aim" of the transaction.”

As to the circumstances, and the object of the parties, there is no controversy in the present case. The agreement itself, on its face, almost supplies enough, without the necessity to supplement it by outside evidence. But *1386 some expansion, from undisputed facts, makes for clearer understanding and I include a reference to these in what follows”.

It is also equally important to appreciate that the intentions in the negotiations were not received in the Prenn case see 1384H:-

“There were prolonged negotiations between solicitors, with exchanges of draft clauses, ultimately emerging in clause 2 of the agreement. The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back: indeed, something may be lost since the relevant surrounding circumstances may be different.”

This was further considered by the House of Lords in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at 912H-913D:-

“My Lords, I will say at once that I prefer the approach of the learned judge. But I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows: ”

(1)

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)

The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4)

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] 2 W.L.R. 945

(5)

The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201:

 ". . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense”.

Once again in my view I should emphasise item (4).

As I have said earlier I allowed evidence to be adduced particularly by the Second Defendant which Nearfield challenged. The Second Defendant called Mr Homer, Brent Hill (under a witness summons), Elizabeth Garrett (whose evidence was not challenged) and Mrs Ebby Cudlipp nee Gibbons pursuant to a hearsay notice.

I found Mr Homer’s evidence of no use whatsoever in determining what clause 5.1.3 was intended to mean. Further he had difficulties as regards credibility as was shown by the matters that were put to him by Mr Peacock for Nearfield about earlier stances which had been taken in the dispute which were not credible. Indeed they had to be withdrawn before the hearing before me had even taken place. He was not helped by the apparent disappearance of a substantial part of the Second Defendant’s documentation.

Mr Hill was not legally qualified and appeared to be some kind of financial advisor or business advisor for Mr Blatchly. It was clear from his evidence in my view that he had no positive role in the gestation of any of the new drafts beyond apparently transposing (for example) the observations of Kenneth Shaw on to a laptop for the preparation of the next draft of the JVA. Mr Shaw was a solicitor who was brought in by Nearfield in February 2002 and he had a role in negotiations both at meetings and in correspondence. He was the only qualified lawyer involved in the negotiation of the documents which I found very surprising given the size of the liabilities. Mr Homer qualified many years ago as a Barrister but had never practiced as a lawyer in any way so far as I am aware.

Elizabeth Garrett’s evidence was not challenged. This is hardly surprising because it did not say very much despite her having a significant role at the later stages of the negotiations.

Equally the Civil Evidence Act Notice statement of Mrs Cudlipp did not have any significance either.

The thrust of all the witnesses (save Mr Hill who could contribute virtually nothing for the reasons I have set out above) was that it was never the subjective intention on the part of the Second Defendant to assume a direct liability to Nearfield. That evidence in my view is completely inadmissible absent a claim for rectification or relief from the consequence of a mistake. It does not assist me merely forthese witnesses to say that I should determine that clause 5.1.3 should be construed as they say.

There is a further reason why it does not assist. Even on the Second Defendant’s case it had an obligation to seek in some way to persuade LNL to pay the money. It is plain from the evidence that no such steps were taken. The case started on the basis that LNL had no assets as it was a nominee company. As the case developed however it is clear that LNL had advanced the money which it received from Nearfield to Lantau in order to advance it to Shiatsu under the terms of the Loan Agreement dated 11^th April 2002. Although there was a short debate between Mr Corbett QC and myself about whether there would be any obligation to repay that money absent a gift (and it certainly was not a gift) there would in my view plainly be an obligation when Lantau receives the money from its nominee company LNL to loan it onwards to Shiatsu that Lantau thereby became under an obligation to repay the monies it had received. I should say in this context that the Second Defendant (whether under its Lincoln or Lantau hat) was unable through Mr Homer or any of the other witnesses to explain the inter relation between the JVA and this Loan Agreement. It follows, contrary to the opening stance of the Second Defendant, that LNL had substantial rights of recourse as against Lantau. It may be that Lantau can plead a limited liability for that. Mr Homer gave evidence (although it was not in the capacity of expert) that under Jersey law a Trustee is not personally liable for a contract it enters in to but is limited to the assets it has. I observe that if that is correct it made clause 12 of the Guarantee unnecessary. In addition Mr Homer in evidence said that when Lantau transferred assets to the Maccau Trust (it being the Trustee of that Trust as well) it secured an indemnity (which has not been produced) from the Second Defendant in its capacity as Trustee for the Macau Trust. This arose when I observed that I would be very surprised if the Trustee would release assets without a guarantee or form of indemnity of some worth when it knew that the Lantau Trust was facing a claim under the Guarantee for £1,500,000 plus interest on the £3,000,000. It follows therefore that it is quite possible that even if Jersey law is as Mr Homer said (and I emphasise I am making no finding as to that) a claim against Lantau might be capable of being fully satisfied by Lantau having recourse to an indemnity it obtained and possible liens over assets in the Macau Trust.

If all that is right the supine attitude of the Second Defendant “LNL has no assets” would in my view be a breach of clause 5.1.3 even on its construction of it.

It called two witnesses. The first was Mr Shaw. I found his evidence self serving as he was equally determined to say the intention was the opposite to that of the Second Defendant. He was hazy about how the JVA had been gestated and plainly even on his own evidence wrongly failed to make LNL liable under clause 5.1.2 as opposed to retaining Lincoln as it appeared in draft. He like the Second Defendant had no documentation of significance. He did not appear to keep notes of meetings beyond recording the fact that a meeting had taken place as opposed to its detail and he was completely hazy as to how clause 5.1.3 came into being (see below). I found his evidence unhelpful.

Mr Potel was even more unhelpful. It is plain from his evidence that he is a business man and not a lawyer. It was equally plain that he distanced himself from the actual details from any written document. One is reminded of the well known phrase “one does not hire a dog and bark oneself”. In my view that is what Mr Potel did. It is clear from the one detailed letter that Mr Shaw wrote that has any significance dated 21^st February 2002 that Mr Potel had decided to go ahead with the deal despite seeking security or guarantees that would be worth anything given the fact that every party on the other side of the negotiation was offshore.

In conclusion as regards the witnesses I found that none of their evidence was either admissible or of use in attempting to construe 5.1.3. I may be able to derive some limited assistance from the material which led up to the JVA but I remind myself firmly of the observations in Prenn and West Bromwich that one should not look at negotiations or drafts as an aid to construction of the final document. Mr Corbett QC in my view ingeniously seeks to adduce evidence of precisely that type in this case. He submits that all he is doing is providing part of the background. In effect the position is that the Second Defendant does not believe that it entered into a direct liability as it would not be its practice so to do. I do not believe shorn of the detail that that is anything more than is sought to be said by the evidence.

I would have had sympathy with such a line of evidence and argument if it were as a platform for a claim for rectification or relief from consequence of a mistake. Absent such plea these subjective statements and arguments are of no admissible status or relevance in construing 5.1.3.

The gestation of the JVA is shrouded in a fog through which one can peer successfully from time to time. It is impossible to construct a chronological series of drafts that are complete. Both parties in their closing submissions (in response to promptings from me) helpfully provided as best they could an analysis of the various drafts that were still in existence in an attempt to show how the JVA gestated.

As I have said above Mr Shaw became Nearfield’s advisor in early February 2002. The first two drafts (documents 5/1 and 5/2 in the trial bundles) appear to have been prepared by a Mr Farmer of a firm of solicitors Atteys following from instructions from Mr Homer. That appeared to have occurred in early February 2002 following a meeting at the Second Defendant’s offices. These two drafts only have British and Foreign Trading Company Ltd (another company of Mr Potel’s) Lantau and Shiatsu as parties. There is no Lincoln liability and certainly no liability comparable to clause 5.1.3.

The next document is (document 5/3). Thisdocument appears to have been in existence by the 13^th February 2002. It bears a fax transmission date of that date on it. On the front of it is a statement “updated document” which Mr Homer said was done by his secretary and it was sent by fax by Mr Homer on 13^th February 2002 to a London fax number (possibly that of Mr Blatchly).

This document also does not include a clause 5.1.3.

The next important event is a meeting on 20^th February 2002. This was Mr Shaw’s first involvement after an introductory meeting with Mr Homer on 16^th February 2002. Then he was briefed by his colleague Peter Atkin. He met Mr Potel for the first time on 20^th February 2002 and attended a meeting at Mr Potel’s Joint Venture partner’s office (i.e. Mr Blatchly’s). In addition to Mr Shaw and Mr Blatchly an associate of Mr Blatchly’s one Danny Donegan was present. Mr Hill was present and another person Craig Bonner a broker was present. It seems reasonably clear that the third draft referred to above was used as the working document during the course of that meeting. However nobody has produced any notes of the meeting despite the time according to Mr Shaw’s attendance note of 4 hours spent in the meeting and travel. Somewhat surprisingly Mr Shaw did not take it upon himself to draft the agreement; he and others appeared to have made suggestions which Mr Hill then transposed onto his laptop. Mr Shaw’s attendance note simply records the meeting taking place and the fact that “I ran through the matters of principle and the amendments that were required and left them to discuss after my departure”. Mr Shaw did not condescend either in his note or otherwise to explain what were the matters of principle and what the amendments that were required were to be and he appears to have left his client and the other lay people on the other side to negotiate and amend the Atteys drafts to reflect these unexplained and unidentified matters and in the light of their subsequent discussions.

He decided however to protect himself. First on 21^st February 2002 he wrote to Mr Blatchly saying that he appreciated the document he was working from was of course a draft but that it did not appear to represent what was agreed between all of them and that he was pleased to hear Mr Blatchly’s comments (whatever they were) at the meeting. He also understood that there had been discussions afterwards and everything was resolved amicably subject of course to documentation. He looked forward to receiving the revised draft. He does not appear to have made a note of what was discussed and no-one appears to have made a note or told him what was agreed.

His second protective effort was a letter of the same date to Mr Potel. The bulk of the letter appears to be simply designed to warn Mr Potel that it is up to him if he wishes to negotiate and enter into deals without guarantees of any kind from offshore entities. He suggests in his letter that those were risks which Mr Potel said he was prepared to take. In his evidence before me Mr Potel denied this. As I have said his case is that he always wanted a guarantee for the full amount of his investment/loan into the JVA. I do not believe Mr Potel stated that. I prefer the contemporary letter (albeit of a self serving nature) sent by Mr Shaw to him its lack of challenge and the lack of any other contemporary documents to support Mr Potel’s assertions. This however is of limited assistance because these statements of intention and these self serving letters at this early stage of the negotiations in the JVA (bearing in mind clause 5.1.3 or its ancestor does not exist at this date) has no admissible relevance to the task before me. The reason for that is spelt out in the Prenn and West Bromwich cases I referred to above. It is simply impossible to draw upon such material as this as an aid to construing what a later concluded Agreement which bears little relation on the key points before me to the earlier drafts means. After the meeting Mr Hill produced draft 5/4. This for the first time produces a structure and content which broadly follows the JVA. However as will be seen further in this judgment late slight amendments had a substantial effect.

There is evidence which shows a draft was produced on or about 25^th February 2002 and Mr Homer’s evidence was that he received a further draft on 26^th February 2002 from Mr Hill. It is impossible to know what these drafts say as neither of them exist or is missing.

Mr Homer produced a memorandum on 1^st March 2002. This is the nearest point to which Mr Homer contributes to the debate about the form of the JVA. He describes having gone through “version 4” of the JVA and a copy was attached to that memorandum. Unfortunately that attached copy is not clearly identified but it appears to be a draft which was in the hands of Mr Shaw as at 5^th March 2002 and was faxed by his firm to BDO Stoy Hayward and was subsequently commented on by Malcolm Pengelly on 6^th March 2002. It also appears to include some of Mr Homer’s amendments recorded in his 1^st March 2002 Agreement. This version was sent by email by Mr Homer to Mr Shaw, Mr Blatchly and Mr Hill on 4^th March 2002 (4/118) it is wrongly numbered as amended JVA (version 4). This document (5/4) is significant as will be seen from my consideration of it next in this judgment.

This document therefore appears to have gestated primarily from Mr Homer. I accept the structure may have gestated from the missing drafts but the document 5/4 comes out from Mr Homer with clause 5.1.3 in which at that stage puts a liability on Lincoln under clause 5 entirely. His detailed memo of 1^st March 2002 covers numerous clauses but has no comment on clause 5.1.3. That these amendments were all Homer led appears from Mr Shaw’s letter to Mr Potel of 28^th February 2002 where he says that the JVA is being amended materially but he is in other persons’ hands. It is further supported by his email for the like effect to Mr Hill.

In document 5/4 Lincoln in its different capacity becomes a party. Nearfield becomes a party. LNL becomes a party.

Although Lincoln is described on the cover sheet, as an Administrator no such limitation or explanation for that is provided in the JVA and it is not suggested that it does either. Lincoln is simply described by a reference to its registered office. For the first time clause 4 introduces the obligations of Nearfield. Those ultimately remain the same in the JVA except that under this draft Lincoln is the recipient of the Loan whereas under the final JVA its nominee LNL receives the money. Clause 5 is introduced for the first time and imposes obligations on Lincoln alone. It introduces therefore for the first time procurement obligations under 5.1.2 and 5.1.3 and 5.3.1. In addition clause 6.5 included obligations which require the Joint Venturers to procure that Shiatsu does the things identified therein. As I have said the ultimate clause 6.5 puts the procurement obligation on Lincoln. The Joint Venturers mean Nearfield and Lantau together.

This draft was the subject apparently of discussion on 25^th February 2002 and a meeting between Mr Shaw, Mr Potel, Mr Blatchly and Mr Hill. The only attendance note of Mr Shaw’s (3 ½ hours meeting and travel time) simply says “attending at the office of Ian Blatchly and going through all matters in Agreement and revising Agreement” Mr Shaw did flag up what he intended to discuss in his email of the same date sent to Mr Hill (document 4/90). He sets out what is the essence of the structure in a number of paragraphs and un-numbered paragraphs. Item 2 reflects Mr Potel lending the Trustees (i.e. LNL) of the Second Defendant £3,000,000 and the Trustees are lending the same £3,000,000 to Shiatsu. Further down it says “so far as the Guarantee for 50% of the Loan, I understand that it is to follow the same form as the Guarantee to the Royal Bank of Scotland. Kindly confirm and let me have a copy”. The Second Defendant submits that shows that it was not in the contemplation of the parties that Lincoln would have a liability in excess of the 50%, which is the essence of Nearfield’s claim in this action. This is a point, which the Second Defendant develops extensively in this case. In my view it is a bad point because by the time of this draft Lincoln has a dual role. I see nothing inconsistent with limiting its liability in its Lantau capacity with a primary liability in a different capacity. One must appreciate that Nearfield and Mr Potel in reality know nothing about the financial structures and strengths on the other side of the transactions. They appreciate there is a relationship between the Second Defendant and Mr Blatchly. I disregard for these purposes the statement Mr Potel contended Mr Homer gave as to the financial strength of the Lantau Trust. Nevertheless in my view the Second Defendant was plainly on the other side of the negotiations and the ultimate transaction. The first two drafts for example were prepared by Atteys on behalf of Mr Blatchly but instructed by Mr Homer. Looking therefore at Mr Shaw’s email as a whole in my view it records the Guarantee liability but also shows that the money is being lent to the Trustees of “Lincoln Trust Company (Jersey) Limited”. There is nothing beyond that statement in my view which needs to be said. A loan is made and the person who receives the loan will have to repay it. Independently of that a Guarantee of 50% has been negotiated as regards Mr Blatchly and his Trusts.

This was prepared by Mr Homer also and sent by him to Mr Shaw on 12^th March 2002. This document also is missing. It appears that it responds to Mr Shaw’s email of 7^th March 2002. That email which Mr Shaw sent to Mr Hill, Mr Potel, Mr Blatchly and Mr Homer reflected inconsistencies under clause 4 and 5 where monies are to be loaned by Nearfield to Lantau and clause 14 which obligates the company (i.e. Shiatsu) to pay interest at 10%. The inter-relation between the two required clarification. This had been preceded by an exchange between Mr Shaw and Mr Pengelly at BDO Stoy Hayward (Mr Potel’s financial advisors). Mr Pengelly questioned the security worth and in particular raised the fact that Mr Potel appeared only to be obtaining a Guarantee of 50% from Lincoln/Lantau per clause 10.3. His telling observation was “I presume that this is a commercial deal and that Michael is content with it please confirm”. Mr Shaw’s response the same day refers to clause 5.1.1 and identifies in particular that Lincoln covenants to pay under 5.1.3. Plainly Mr Shaw in my view is contemplating that there be two streams of liability namely Lincoln as covenantor and Lantau as giving a Guarantee on behalf of the Trust.

The major variation on this document is that the advances under clause 4 are made to Lantau and the obligations under clause 5 remain with Lincoln. The procurement obligations under 6.5 are transferred to Lantau.

This document appears to have been created by Mr Hill and sent by him by email on 19^th March 2002.

This was executed by Nearfield and Mr Potel on 20^th March 2002 and the Lincoln parties on 22^nd March 2002 and apart from some minor changes in the manuscript edition concerning interest being extended to the Guarantee under clause 10.3 it is the same as version draft 8. Although the documents are executed the matter did not proceed to completion at that time because the Guarantee contemplated under clause 10.3 was not in place.

The documents were executed by the Lincoln parties after it had been sent to Mr Homer by Mr Shaw on 20^th March 2002. It was executed by the Second Defendant in both its Lincoln and Lantau identities. Mr Homer was one of the signatories on behalf of Lincoln. Miss Gibbons signed on behalf of Shiatsu and on behalf of LNL. No explanation was given as to why it was felt necessary for the Second Defendant in different capacities to be represented by different signatories. This of course might (albeit weakly) suggest that the difference between the obligations was understood. Under clause 4.1 Lincoln has dropped out as receiving the monies and is replaced with Lantau as contemplated. The obligations under clause 5 remain on Lincoln and the obligations under clause 6.5 are put on Lantau.

Mr Shaw had requested Mr Homer to procure that the Lincoln parties initial the alterations to clause 10.3. In fact they did not do so. Mr Homer when the matter became the subject matter of disputes initially suggested that that had not been approved but it is plain that it was approved because the documents were sent to him under Mr Shaw’s letter of 20^th March 2002, including the handwritten amendment executed by the various parties on behalf of Lincoln and returned. The missed initialling was his fault.

Miss Gibbons on 25^th March 2002 sent an email to Mr Shaw copied to Mr Blatchly and Mr Hill. She raised a structural problem. Lantau was a guarantor for the Loan advanced by Nearfield to Shiatsu she then said:-

“However you mentioned that Nearfield Limited would be acting as lender to the Trustee. Obviously inherent in the Loan to the Trustee would be the “Guarantee” to repay its own debt. Lincoln Trust Company (Jersey) Limited sole could not guarantee this debt”.

Mrs Cudlipp does not deal with this in her witness statement. She adopts what Mr Homer said in his third witness statement. In paragraph 70 he merely comments that there was some confusion with regards the Guarantee to be given by Lincoln as Trustee of Lantau. That really does not do justice to Mrs Cudlipp’s email. She is pointing out the fact that the Loan is made to Lincoln and the Guarantee is also given by Lincoln (under its Lantau hat). The significance of the words “own debt” cannot in my view be understated. She plainly appears to be acknowledging that Lincoln had a primary liability which was inconsistent with it guaranteeing it as well. Mr Shaw took this up on 25^th March 2002. He referred to the Agreement which of course under clause 4 advances the Loan to Lantau. With respect to Mr Shaw he is misunderstanding the position because Lantau could hardly guarantee a loan made to Lantau. He sent her a further email of 25^th March 2002 indicating that the Loan should not be with Shiatsu (on the insistence of her clients) and referring her to the JVA. On 28^th March 2002 Mr Shaw faxed various amendments to Miss Binet. He said that the amendments were agreed with Mr Hill on behalf of Mr Blatchly and if they were approved could she please arrange for each of the signatories to authorise him to initial the alterations on behalf of the signatories.

His alterations are instructive. The Loan is made to LNL instead of Lantau. The monies are advanced to LNL under clause 4.1. Under clause 4.5 the duties are split. The obligations under 5.1.1 and 5.1.2 are cast on LNL (I have commented on the error under 5.1.2 above). Lincoln maintains its obligation to procure under clause 5.1.3 and under clause 10.3 Lantau gives the Guarantee. He has therefore addressed the point that the Second Defendant cannot be a principal debtor and guarantor at the same time by introducing LNL as the principal debtor instead. This separation of roles is accepted and Lincoln is to procure that LNL repays its loan.

Although it was initially denied these alterations were agreed there is a hand written note of Mr Shaw’s which contains the intriguing observation “5.1.2 LNL? 5.1.3 LNL?” but no clarification of this was forthcoming.

The obligations under clause 5 therefore have changed over this period from Lincoln to LNL.

The structure seems to me to be clear. Nearfield advances to LNL. That is a corporate creature of Lincoln’s. Under clause 5.1.1 LNL is obligated to lend the money to Shiatsu. That transposes into the Loan Agreement from it to Lantau to enable Lantau to advance it to Shiatsu. LNL is also obligated to procure that the balance would be paid to RBS as a rent deposit.

In other words LNL is receiving the money. It has a primary obligation to repay it. It is a creature of Lincoln and Lincoln under 5.1.3 procures that it will repay.

Separately to that there are the obligations of Lantau. Those are in its representative capacity of Trustee of the Lantau Trust. In my view they are independent and a Guarantee is negotiated. That Guarantee is 50% of the £3,000,000 plus interest on the whole. As I have said earlier in this judgment I see no inconsistency with those; they represent negotiation. This document in this form was executed by Mr Shaw under authority given by Mrs Cudlipp a letter of 2^nd April 2002. Mr Homer also initially challenged the authority to sign those alterations. On 3^rd April 2002 Mr Shaw acknowledged receipt of the alterations. On 10^th April 2002 he sent a final copy of the final form of the JVA to Lincoln (Mr Natasha Brennan). Mr Homer said that was never received.

It will be seen from the correspondence and the various drafts that there is nothing of assistance in my view of significant nature which explains clause 5.1.3 save the late alterations referred to above. The only glimmer is Mrs Cudlipp’s raising of the difficulties of Lantau being a principal debtor and a guarantor. That gives a small piece of evidence to suggest that Lincoln was a debtor. It is very small because it does not address the Second Defendant’s evidence as to intent. None of that evidence however is admissible for the reasons that I have said. It is trying to put in evidence which is not receivable because of the decisions that I have set out above.

There is nothing in the correspondence which suggests that procure under clause 5.1.3 should be given a different meaning in different parts of the JVA. I do not see that procure means anything other than as Nearfield puts it “see to it”. There is no limitation expressed in it and it could easily have been done. Mr Homer appears to be the major drafter of these clauses (although the position is not entirely clear). And the changes at the late stage which make structural sense appear to have emanated from the Second Defendant also. They do not in any way address the nature of the obligation under clause 5.1.3. My conclusion is that clause 5.1.3 should be construed as Nearfield submits. Its meaning is clear and is well understood according to the authorities of Moschi and those that follow it. I have not seen any document or anything from the drafts leading up to the JVA which would lead me to conclude otherwise.

I therefore determine that Lincoln is liable to procure (in the sense of see to it) that LNL repays the Loan liability to Nearfield.

I have not heard any submissions as to whether or not Lincoln can reduce that liability based on Jersey law. The JVA is governed by English law. I will say nothing further about that and leave that to be considered when and how Nearfield come to enforce the judgment which I propose to grant in its favour.