Apvodedo NV v Collins

On 12 March 2008 I heard an application for summary judgment by the claimant, Apvodedo NV (“Apvodedo”), against the defendant, Mr Terry Collins. This is my judgment on that application.

Apvodedo is a company registered in the Netherlands Antilles. Its sole shareholder is a Dutch businessman and financier, Mr Marcel Boekhoorn.

Mr Collins is a businessman, who is connected with a company registered in Nevis, London Allied Holdings Ltd (“LAH”), which is the parent of a group of companies carrying on the business of property investment and development.

In July 2006 Mr Collins was introduced to a Mr Tony Lee, who claimed to be a business associate of the Barclay brothers, the owners of the Ritz Hotel, and to be in a position to buy the hotel from them for £200 million. Mr Lee’s solicitor was Mr Conn Farrell of Farrell, Martin and Nee. Mr Collins established contact with Mr Lee and Mr Farrell at an early stage. Later on he also had some contact with Mr Patrick Dolan, who was said to be Mr Lee’s business partner and the main contact with the Barclay brothers. The Barclay brothers were known by Mr Collins to have the reputation of being extremely secretive in the conduct of their business affairs, and it did not strike him as implausible that they would wish to structure a transaction of this sort through an intermediary such as Mr Lee.

From July to December 2006 Mr Collins was engaged in extensive and detailed negotiations with Mr Lee and Mr Farrell concerning the Ritz, as well as some other transactions in which Mr Lee claimed to be involved. Apart from Mr Collins himself, those acting for LAH included Mr Sakis Tombolis of Beachcroft LLP (LAH’s solicitors) and Ms Karen Maguire of Property-Source.com Ltd, who acted as LAH’s client agent (i.e. a person who helps to source and arrange transactions on behalf of purchasers). The principal object of the negotiations was to enable LAH to purchase the Ritz from Mr Lee for £250 million.

According to Mr Collins, there were two recurrent themes in these negotiations. The first theme was that Mr Lee and the Barclays were apparently very concerned that LAH should prove that it had access to sufficient funds to carry out the transaction. During the course of the negotiations, numerous letters had to be obtained from third party lenders in an attempt to provide Mr Lee with “proof of funds” which would stand up to the scrutiny of himself and the Barclays. The second recurrent theme, on LAH’s side, was (unsurprisingly) that all the supporting documents for the transaction, that is to say for the sale of the Ritz to Mr Lee and the onward sale of the Ritz by Mr Lee to LAH, would have to be made available and considered before the transaction could proceed to exchange of contracts. Such documents would include those relating to title and to the due diligence which a project of this size would inevitably entail, as well as the draft contractual documentation for the two back-to-back sales. These documents were said by Mr Lee and Mr Farrell to fill 27 boxes, and to be held for the most part at Mr Farrell’s offices (or later on at the offices of another firm of solicitors, Berwin Leighton Paisner). These documents play a key role in the present case. They are referred to as “the Documentation” in the Exclusivity Agreement to which I will come shortly, and as “the Purchase Documents” in the Particulars of Claim and the Defence. I will refer to them in this judgment as “the Documentation”.

On 30 October 2006 Mr Collins was told by Mr Farrell that a higher offer had been accepted from another prospective purchaser, but he was then reassured by Ms Maguire and Mr Lee that, although a higher offer had been made, Mr Lee intended to honour his commitment to LAH.

By 8 December 2006, however, Mr Collins had been told by Mr Lee that matters were now urgent, as time was running out under his contract with the Barclays. On 8 December he was informed by Ms Maguire and then by Mr Lee that another prospective purchaser had come forward, and that in order to retain exclusive negotiating rights it would be necessary for LAH to pay Mr Lee a deposit of £1 million which would not be refunded if LAH subsequently pulled out of the deal. In the course of further conversations with Mr Lee over the next few days, an agreement was reached whereby, if LAH paid a deposit of £1 million by 15 December 2006, Mr Lee would send the Documentation to Beachcroft so that the sale could proceed. The deposit would be refundable if Mr Lee did not send the Documentation to Beachcroft, or if (having done so) he did not then proceed with the sale.

Mr Collins was evidently either unable or unwilling to provide the necessary £1 million himself, and on 8 December 2006 he began to seek outside finance. He was put in touch by an adviser with Mr Boekhoorn and Apvodedo, with neither of whom had he had any previous dealings. There then followed an intensive period of negotiation, which took place initially by telephone and then at a series of meetings at Beachcroft’s offices on 14 and 15 December. Mr Boekhoorn and his team of business and legal advisers flew over to London in order to attend these meetings. The negotiations resulted in the conclusion of a written Exclusivity Agreement dated 15 December 2006 and made between LAH as seller, Apvodedo as buyer, Mr Collins (referred to in the agreement as “Terry”) and Mr Boekhoorn (referred to in the agreement as “Marcel”) (“the Exclusivity Agreement”), to the provisions of which I shall now turn.

The main purpose of the Exclusivity Agreement, broadly stated, was to give Apvodedo exclusive negotiating rights for a six week period to buy the Ritz from LAH for £258.5 million, in return for which Apvodedo agreed to finance the initial phases of LAH’s prior purchase of the property from Mr Lee by procuring a £25 million bank guarantee payable to LAH upon exchange of any agreement by LAH to purchase the property (i.e. a sum sufficient to fund a 10% deposit on LAH’s proposed purchase of the Ritz for £250 million), and also to pay the £1 million purportedly required by Mr Lee for release of the Documentation to LAH or its advisers. Apvodedo’s commercial interest in the matter was to emerge as the ultimate purchaser of the Ritz for £258.5 million. Unlike LAH, it wished to buy and hold the Ritz as an investment. LAH’s interest in the matter, on the other hand, was to obtain payment on its behalf of the £1 million needed to keep its proposed deal with Mr Lee on the table, and then to purchase the Ritz for £250 million and sell it on immediately to Apvodedo for £258.5 million, thereby making an immediate profit of £8.5 million.

Clause 2.1 of the Exclusivity Agreement defined “the Property” as the Ritz Hotel and licensed casino, and “the Transaction” as, broadly speaking, the sale of the Property by LAH to Apvodedo for £258.5 million (“the Price”). The “Exclusivity Period” was defined as the period starting on 6 January 2007 and expiring on 22 February 2007,

The recitals in clause 1 recorded that the parties were in negotiations with a view to agreeing the Transaction, and that pending the conclusion of those negotiations they had agreed to enter into the Exclusivity Agreement. Apvodedo expressly acknowledged that LAH did not (yet) own the Property, and that LAH’s obligations under the Exclusivity Agreement were “dependant on its vendor performing appropriately”. The recitals then continued as follows:

Clause 3 then set out the obligations undertaken by LAH and Mr Collins during the Exclusivity Period, expressed to be in consideration of an Exclusivity Payment of £1. In short, their effect was to confer exclusive negotiating rights on Apvodedo, coupled with positive obligations on LAH to progress the Transaction expeditiously, and to endeavour to enter into an agreement to purchase the Property for £250 million. Apvodedo again expressly acknowledged in clause 3.3 that LAH’s performance of this obligation was dependent on its vendor.

Clause 4 contained the obligations undertaken by Apvodedo, including (in clause 4.2) the procurement prior to 28 December 2006 of a bank guarantee from a reputable European bank in the sum of £25 million to be payable to LAH on exchange of any agreement for LAH’s purchase of the Property or any shares in a company owning the Property.

Clause 5 provided for the termination of the Agreement in various events, and clause 9 (which was headed “Long Stop Date”) provided as follows:

Clause 10 (headed “Terry”) is the crucial provision for the purposes of the present proceedings. It reads as follows:

Finally, clause 12 provided that the Agreement was to be governed by English law and the parties submitted to the exclusive jurisdiction of the English courts in respect of any matter or dispute arising under or in connection with the Agreement.

Readers of this judgment will perhaps have guessed by now that Mr Collins and LAH (and, indirectly, Apvodedo and Mr Boekhoorn) were the victims of an elaborate fraud. Mr Lee and Mr Dolan were not currently involved in the property business, nor were they authorised in any way to act as intermediaries on behalf of the Barclay brothers. Mr Lee was an unemployed HGV driver, and was an undischarged bankrupt throughout his dealings with LAH. Mr Dolan was a former contracts manager for a construction company who had also been unemployed since 2000. The Documentation and the 27 boxes appear to have been purely fictitious. At any rate, no documents were ever provided by Mr Lee to LAH or Mr Collins or their advisers. As to the £1 million paid by Apvodedo, Mr Lee and Mr Dolan set about spending the money as soon as they received it.

When it became clear to Mr Collins that Mr Lee was not going either to provide the Documentation or refund the £1 million, he instructed his solicitors to start High Court proceedings against Mr Lee (and subsequently Mr Dolan). The action came on for trial, with commendable expedition, before Etherton J in late July 2007, and on 5 September 2007 he handed down a written judgment to which reference may be made for a full account of the whole affair: see London Allied Holdings Ltd v Anthony Lee and others, [2007] EWHC 2061 (Ch). As the judge said in paragraph 2 of the judgment, the bare facts of the case are, on any footing, remarkable. For present purposes I do not need to refer to the judgment in any detail. It is enough to say that the facts found by Etherton J confirm the accuracy of the background which I have set out above. In particular, he found that the £1 million was indeed paid by Apvodedo on 15 December 2006 into Mr Lee’s Dublin bank account: see paragraphs 89 and 161-173 of the judgment. He also found (see paragraph 183) that an oral contract was made by Mr Lee and Mr Collins between 8 and 15 December 2006 to the effect that, if the papers and a contract for the purchase of the Ritz by LAH were not forwarded by Mr Lee within a reasonable time after the £1 million was paid, and in any event by the end of January 2007, the £1 million would be repaid. Accordingly, Mr Collins had the comfort of this contractual obligation on the part of Mr Lee to support his own obligation in clause 10.2 of the Exclusivity Agreement to pay £1 million to Apvodedo on 31 March 2007 in the event that the documents were not forthcoming.

The basic nature of the fraud perpetrated by Mr Lee and Mr Dolan appears clearly from the findings of fact made by Etherton J in paragraphs 222 and following of his judgment:

Apvodedo first demanded repayment of the £1 million as early as 2 February 2007, in a letter of that date from its then solicitors to LAH and Beachcroft. At that stage the claim was based on various alleged misrepresentations, as the repayment date of 31 March 2007 under clause 10.2 of the Exclusivity Agreement still lay some time in the future. In due course, a demand under clause 10.2 was made in a further letter dated 5 April 2007. Meanwhile, Apvodedo had agreed to assist LAH in its efforts to recover the money from Mr Lee, and although Apvodedo served a statutory demand on Mr Collins on 13 June 2007, it subsequently agreed not to pursue it pending trial of LAH’s action against Mr Lee and Mr Dolan. After Etherton J had delivered his judgment in September, Apvodedo sought various undertakings from Mr Collins. These were not forthcoming, and on 11 October 2007 the present action was begun by a claim form issued in the Chancery Division of the High Court.

Apvodedo’s claim, as set out in the Particulars of Claim, is a simple contractual claim for payment of £1 million pursuant to clause 10.2 of the Exclusivity Agreement together with interest under section 35A of the Supreme Court Act 1981.

In his Defence dated 13 November 2007, Mr Collins contended for the first time that he was not liable to pay the £1 million on two alternative grounds. The first ground was that the Exclusivity Agreement was void for common mistake. The second ground was that the Exclusivity Agreement was subject to an unsatisfied condition precedent that the Documentation existed and/or that Mr Lee was entitled to purchase the Ritz.

The alleged common mistake is pleaded as follows in paragraph 8 of the Defence (substituting the definitions which I am using in this judgment):

Although these contentions relate to the Exclusivity Agreement as a whole, it became clear in the course of the hearing before me that Mr Collins relies in the alternative on the argument that the agreement embodied in clause 10 of the Exclusivity Agreement is in any event void for common mistake and/or failure to satisfy the pleaded condition precedent, whether or not the remainder of the Exclusivity Agreement is also void.

On 18 January 2008 Apvodedo issued an application for summary judgment under CPR part 24. The application was supported by a witness statement of Mr Boekhoorn, the signed version of which in the bundle is dated 5 March 2008, to which Mr Collins responded in a witness statement dated 27 February 2008.

In his witness statement Mr Boekhoorn says that when he met Mr Collins on 14 and 15 December 2006 he sought assurances from Mr Collins that the £1 million would be repaid if the purchase did not proceed, and Mr Collins said that he would be able to repay the money himself if this were to occur. Accordingly, it was agreed between them that Apvodedo would pay the £1 million to Mr Lee, and the terms of the Exclusivity Agreement were also decided upon. With regard to the alleged defence of common mistake, Mr Boekhoorn says that he and Apvodedo had no particular belief as regards Mr Lee’s bona fides and the existence of the Documentation, beyond a general reliance upon what they were being told, in particular by Mr Collins. He goes on to say:

For his part, Mr Collins emphasises that during their visit on 14 and 15 December 2006 Mr Boekhoorn and his team were given access to and examined all the documents which LAH and Beachcroft had relating to the proposed transaction. He says that he was entirely transparent with them about the extent and sources of his knowledge of Mr Lee, and that Mr Tombolis and Ms Maguire also told them all that they knew. He exhibits a letter from Mr Tombolis to Mr Boekhoorn dated 14 December 2006, in which he summarised his involvement in the project and said that he had no reason to disbelieve oral representations made by Mr Farrell on a number of occasions to the effect that he acted for Mr Lee and Mr Lee had a contract for the purchase of the Ritz, or a company which owned the Ritz. Ms Maguire also spoke to Mr Boekhoorn on 14 December by telephone from Verbier where she was skiing, and subsequently sent a handwritten fax summarising her understanding. In that fax she confirmed that her company had a verbal agreement with Mr Lee to receive the contract and associated paperwork to enable the acquisition of the Ritz to proceed. She said that they expected to receive the paperwork in early January 2007, and in their opinion Mr Lee would honour his agreement. She also confirmed that if the £1 million was paid to Mr Lee by his deadline, her company would in due course forward the contract to LAH. On the strength of this material, Mr Collins says that by the time when the Exclusivity Agreement was concluded Mr Boekhoorn’s knowledge of Mr Lee was equivalent to his own. Over several hours of intense negotiations, he had given Mr Boekhoorn “the fullest picture possible of my understanding of the proposed transaction and the parties involved”.

In a subsequent section of his witness statement Mr Collins deals with the beliefs of the parties at the time of the Exclusivity Agreement:

Mr Collins goes on to challenge the accuracy of Mr Boekhoorn’s statement that he and Apvodedo had “no particular belief” with regard to the bona fides of Mr Lee and the existence of the Documentation. He says that in his view Mr Boekhoorn and Apvodedo would not have acted as they did “without a real and substantial belief in the reality of the Ritz deal”:

CPR 24.2 provides, so far as material, that the court may give summary judgment against a defendant on the whole of a claim if it considers that the defendant “has no real prospect of successfully defending the claim”, and “there is no other compelling reason why the case … should be disposed of at a trial”.

It is well established that in order to defeat an application for summary judgment it is enough for the defendant to show a prospect of success which is real in the sense of not being false, fanciful or imaginary. However, the burden on the defendant is at most an evidential one. The overall burden of proof rests on the claimant to establish, if it can, the negative proposition that the defendant has no real prospect of success (in the sense which I have mentioned) and that there is no other reason for a trial. Regard must also be had to the overriding objective of dealing with the case justly. The court should not hesitate to give summary judgment in a plain case, and if the case turns on a pure point of law, it may determine that point. However, the court has often been enjoined not to conduct a mini-trial on the documents, without discovery and oral evidence. As Lord Hope said in Three Rivers District Council v Bank of England (No. 3) [2003] 2 AC 1 at 261B, the object of the rule is to deal with cases that are not fit for trial at all.

The arguments advanced by counsel for Apvodedo, Mr Andrew Clutterbuck, were short and simple. He submitted that the contingency provided for by clause 10.2 of the Exclusivity Agreement had clearly occurred, with the result that Mr Collins was obliged to pay Apvodedo £1 million on 31 March 2007. He submitted that the defence of mistake was misconceived, because the parties had by their express agreement allocated the risk of the events specified in clause 10.2 failing to occur. There were no grounds for supposing the parties to have acted on the assumed basis that Mr Lee either would or could perform his obligations, precisely because the parties provided unambiguously for what was to happen if Mr Lee did not perform. Furthermore, Mr Collins admits in his witness statement that everybody was aware of the possibility that the documents might not be forthcoming. Accordingly, submitted Mr Clutterbuck, there was no common mistake.

Counsel’s primary submission was that the relevant contract to consider for these purposes was not the Exclusivity Agreement as a whole, but rather the separate contract in clause 10. He argued that this separate contract had nothing to do with the wider agreement for exclusivity, and that its separate nature was brought out by clause 9 which provides for clauses 10, 11 and 12 to remain in full force and effect upon termination of the Exclusivity Agreement at the long stop date. The only relevant obligation in clause 10 was Mr Collins’ obligation to pay the £1 million. That was obviously not something which it was impossible for him to perform, and the existence or otherwise of either of the classes of documents referred to in clause 10.2 was irrelevant to performance by Mr Collins of the obligation. As a fallback argument, counsel submitted that the same result was reached even if it was right to look at the Exclusivity Agreement as a whole, because again clause 9 provided expressly for the continued subsistence of clause 10 in the event that LAH had not received the relevant documents by the long stop date.

Counsel referred me to the recent and authoritative review of the law of common mistake by the Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2002] EWCA Civ 1407, [2003] QB 679 (“Great Peace”), and in particular to paragraph 76 of the judgment of the court where they stated that:

Counsel also drew attention to other passages in Great Peace, and in the earlier judgment of Steyn J (as he then was) in Associated Japanese Bank (International) Ltd v Credit du Nord [1989] 1 WLR 255 (“Associated Japanese”), which emphasise the prior need to examine the terms of the contract itself to see if it provides who is to bear the risk of the relevant mistake: see for example Associated Japanese at 268B-C, cited with approval in Great Peace at paragraph 80, and also Great Peace at paragraphs 75, 84 and 85.

Turning to Mr Collins’ alternative defence that the Exclusivity Agreement was subject to a condition precedent, counsel submitted that there was no reason to imply a contractual term to the effect that the existence of either class of documents referred to in clause 10.2 was a condition precedent to performance of Mr Collins’ obligation to pay the £1 million, nor could the presence of an express term to that effect be conjured up by any legitimate process of construction.

These contentions were attractively and persuasively advanced by Mr Clutterbuck, but they were met by equally able submissions from counsel for the defendant, Mr Thomas Grant who appeared with Mr Thomas Munby, and in the end I am left in no real doubt that this case must go to trial.

The starting point, in my judgment, is to examine with care the terms of the Exclusivity Agreement itself, in the factual matrix in which it was concluded. Clause 10 cannot be looked at in isolation, even though clause 9 provides for its continuation in force after the long stop date. It is elementary that contracts have to be construed as a whole, and in the light of the surrounding circumstances in which they are made. Furthermore, for the purposes of a summary judgment application I must assume, in the absence of any compelling evidence to the contrary, that Mr Collins’ account of the background facts in his witness statement is correct, and in particular that Mr Boekhoorn’s knowledge of Mr Lee was equivalent to his own by the time when the Exclusivity Agreement was concluded.

It is clear from the Exclusivity Agreement read as a whole, and in its commercial context, that the involvement of Mr Boekhoorn and Apvodedo was not just as outside financiers, but also as prospective purchasers of the Ritz in their own right. Their ultimate object, as I have already said, was to buy the Ritz for £258.5 million and to hold it themselves as an investment. Against that background, it seems to me entirely plausible to suppose that Mr Boekhoorn and Apvodedo, like Mr Collins and LAH, entered into the Exclusivity Agreement on the assumption that they were dealing with genuine vendors who were in a position to sell (or procure the sale of) the Ritz, and also that the 27 boxes of documents did indeed exist and were held at Mr Farrell’s offices. They all had a common interest in ensuring that the sale went ahead, and it seems to me fanciful to suppose that Mr Boekhoorn and Apvodedo would have entered into the Exclusivity Agreement if they had known, or even suspected, that the proposed sale by Mr Lee was a sham and that Mr Lee and Mr Dolan were fraudsters. It must in my view be at least strongly arguable that the payment of the £1 million by Apvodedo to Mr Lee was seen by all the parties to the Exclusivity Agreement as an essential first step that had to be taken in order to keep the deal offered by Mr Lee on the table, and thus to enable the two back-to-back purchases in which they all had a common interest to proceed.

No contract for the purchase of the Ritz had yet been concluded with Mr Lee, and it was of course possible that no such contract would ever be concluded with him, even if he was acting in good faith and even if he genuinely represented the Barclay brothers. Accordingly the Exclusivity Agreement needed to deal with the position if no contract materialised within a reasonable time. This it did by virtue of the provisions in clauses 9 and 10. It is true that clause 10.2 provided in unambiguous terms for Mr Collins to pay £1 million to Apvodedo on 31 March 2007 if the specified documents had not been received by LAH by 28 February 2007 at the latest. However, it seems to me well arguable that this obligation, like the rest of the Exclusivity Agreement, was predicated on a common assumption that the parties were dealing with a real vendor and that the Documentation existed and was held by his solicitors. In other words, I think there is a real question whether the allocation of the risk of non-receipt of the documents in clause 10.2, and the corresponding obligation to pay the £1 million, was absolute and unqualified, or whether it was dependent upon the truth of the underlying common assumption. After all, if the claimant is right it was a certainty at the date when the Exclusivity Agreement was entered into that Mr Collins would have to pay the £1 million to Apvodedo on 31 March 2007, regardless of his own ability to recover that sum from Mr Lee. That is a far more onerous obligation than one to pay the same sum only if, for whatever reason, a genuine vendor failed to provide the specified documents by the specified date.

Whether there was in fact a common underlying assumption along the lines I have indicated is in my judgment impossible to determine on a summary judgment application, because resolution of the question will, or at least may, depend to a considerable extent on the oral evidence of the protagonists and full disclosure of relevant documents. Assuming, however, that the defendant succeeds in establishing at trial that there was a common understanding of this nature, it is then well arguable in my view that the Exclusivity Agreement as a whole, or alternatively the sub-contract contained in clause 10, was void from its inception for common mistake.

Taking the elements of common mistake identified in paragraph 76 of Great Peace, element (i) would clearly be satisfied because there would have been a common assumption as to the existence of a state of affairs. Element (ii) would raise the question whether the parties intended the allocation of the risk of non-production of the documents in clause 10.2 to be unqualified, or whether it was predicated upon the truth of the common assumption. As to element (iii), nobody suggests that the non-existence of the state of affairs was attributable to the fault of any party to the Exclusivity Agreement. Element (iv), if read literally, would still not be satisfied, because it would still be possible for Mr Collins to pay the £1 million. However, Associated Japanese (see below) shows that there are cases where a defence of common mistake can succeed even though performance of the relevant contractual obligation is possible (in that case payment by a bank under a guarantee). This suggests that the true test may rather be whether the non-existence of the state of affairs renders performance of the contract in accordance with the common assumption impossible. Finally, the state of affairs (namely the existence of a genuine vendor and of the Documentation) would arguably be circumstances which had to subsist if performance of the contractual adventure was to be possible. Again, much would depend on precisely how the “contractual adventure” was identified, and here too Associated Japanese might help Mr Collins to surmount this hurdle.

Further support for the argument might also be found in the well-known speeches of Lord Atkin and Lord Thankerton in Bell v Lever Bros Ltd [1932] AC 161: see for example the reference by Lord Atkin at 226 to a new state of facts which “makes the contract something different in kind from the contract in the original state of facts”, and the example he then gives of one of the cases arising out of the postponed coronation of King Edward VII, Krell v Henry [1903] 2 KB 740, where the Court of Appeal found that the subject of the contract was “rooms to view the procession”, with the consequence that the postponement made the rooms not rooms to view the procession, and the defence of an implied term succeeded. Obviously the rooms themselves remained exactly the same throughout, and equally obviously there was no impossibility about letting them for the original period of two days.

In Associated Japanese the defendant bank agreed to guarantee the obligations of the ostensible owner of four industrial machines to the claimant bank under a sale and lease back transaction. The guarantee was in terms unconditional, and applied if the lessee should for any reason make any default in payment of any sum due to the claimant: see 261A-C. In fact, the machines did not exist and both banks were the victims of a fraud. There was accordingly some similarity to the facts of the present case. Steyn J dismissed the claimant’s action against the defendant under the guarantee on two separate grounds. First, he held that on the true construction of the guarantee agreement it was subject to an express condition precedent that the lease related to existing machines, or alternatively that such a condition precedent was to be implied into the agreement. Secondly, he held that the contract of guarantee was in any event void ab initio for common mistake. He found that both parties (the creditors and the guarantor) acted on the assumption that the lease related to existing machines; that the subject matter of the guarantee was essentially different from what it was reasonably believed to be by both parties; and that for both parties the guarantee of obligations under a lease with non-existent machines was essentially different from a guarantee of a lease with four machines which both parties at the time of the contract believed to exist: see 269B-F. The non-existence of the subject matter of the principal contract was therefore of fundamental importance to the accessory contract of guarantee, which was accordingly void.

I do not suggest for a moment that a similar analysis can automatically be applied to the present case. Every case turns on its own facts, and there are some obvious differences between the position of the guarantor in Associated Japanese and the position of Mr Collins under clause 10.2 of the Exclusivity Agreement. However, the similarities are in my judgment close enough to suggest that he may well have a sustainable defence of common mistake. Associated Japanese is also of importance because it demonstrates that a defence of common mistake can succeed even if it is on the face of the contract perfectly possible for the defendant to do precisely what he has contracted to do. The contract of guarantee was framed in the widest terms, and there could be no doubt that the lessee had defaulted. Equally there was nothing impossible about the defendant bank paying the sums which had apparently fallen due. Nevertheless, the defence of common mistake succeeded.

I hope I have now said enough to explain why in my view this is a case which needs to go to trial. In my judgment the defence of common mistake is one which offers a real prospect of success, and will turn on a detailed examination of the full facts at trial. In the circumstances it is unnecessary for me to deal with the alternative defence that the Exclusivity Agreement was subject to a condition precedent. I will say, however, that in my judgment this defence is likely to turn on very similar considerations to the defence of common mistake, and it is in my view clearly appropriate that the court should consider both defences together.

For the reasons which I have given, this application must be dismissed.