Cavendish Corporate Finance LLP v KIMS Property Company Ltd & Anor

This claim arises out of the defendants’ arrangements to finance the first phase of construction of the Kent Institute of Medicine and Surgery (“the Project”). In its early stages the Project was conducted through Nome Properties LLP (“Nome”) but in February 2011 the defendants were incorporated to take it over. The Project was throughout managed by Mr Steven Bernstein, Mr Franz Dickmann and Mr James Dickmann. Most of the correspondence was written by Mr Bernstein, who is a solicitor. He was the principal witness for the defendants.

The claimant specialises in finding finance for such projects and its claim is for a commission due under an engagement with Nome which was novated to the defendants. There is an alternative claim for breach of contract. The claimant’s representatives who had most dealings with this matter were Mr Simon Ramery, Mr Paul Herman and Mr Gordon Hamilton. Mr Ramery gave evidence at the trial.

The claimant and the defendants were represented before me by Mr Paul Sinclair and by Mr Thomas Plewman respectively.

I shall refer to the defendants as “KIMS” and to the claimant as “Cavendish”. I shall sometimes use the same expressions to refer collectively to the individuals mentioned in paragraphs 1 and 2 respectively.

Other key players were

I shall need to make frequent reference to two particular documents and will use the following abbreviations:

By the Engagement Letter Cavendish agreed to provide its services to Nome for a fee of £15,000 plus a success fee of 3.5 per cent of monies raised. This was an exclusive engagement. The meaning of the clause providing for the success fee is a central issue in this dispute.

Pursuant to this retainer Cavendish introduced VIL, who offered finance of £28m. The amount of the success fee claimed in this action is 3.5 per cent of £28m, being £980,000.

In March 2011 VIL announced the withdrawal of its offer but was persuaded to renew it under a revised scheme whereby VIL appointed StormHarbour to find an investor to take over some or all of the investment. The original plan was that VIL would put up the money at completion (which the parties invariably referred to as “financial close” or “FC”), and that the replacement would step in after financial close – so VIL would provide bridging finance. It is common ground that in those circumstances Cavendish would have been entitled to its success fee. However there was always a chance that StormHarbour would find someone to take out VIL before financial close. The magnitude of that chance, and the consequence of its eventual materialisation, are important issues in the dispute.

In June 2011 KIMS proposed an amendment to the Engagement Letter removing Cavendish’s right to exclusivity. This, combined with the chance mentioned in paragraph 9 above, posed a threat to Cavendish’s success fee. Although Cavendish was told in vague terms that VIL wished to lay off its investment, VIL’s temporary withdrawal and its appointment of StormHarbour were concealed from Cavendish by KIMS when negotiating this agreement. The amendments were agreed in the September Agreement.

Magnetar was identified by StormHarbour as a potential investor to take over some of VIL’s funding.

On 6^th January 2012 VIL announced that it was interested in a long-term investment of £6m but would not provide the balance of £22m even as bridging finance. Magnetar agreed to provide the £22m.

On 21^st March 2012 VIL withdrew completely, even as to the £6m. Magnetar stepped in to lend the full £28m.

KIMS took over VIL’s liability for StormHarbour’s fee of £880,000 (4 per cent of £22m) and VIL lent no money. Financial close was eventually achieved on 30^th March 2012.

Cavendish claims that despite VIL’s withdrawal it is entitled to a success fee under the terms of its Engagement Letter as amended by the September Agreement. In the alternative, if the amendments introduced by the September Agreement mean that it is not entitled to a fee, it claims rescission of the September Agreement for misrepresentation and claims its fee under the terms of the unamended Engagement Letter. In relation to both claims Cavendish says that although VIL withdrew completely, the deal resulted from (in the words of the Engagement Letter) the “Cavendish exercise”.

KIMS respond that the fee was not earned under the Engagement Letter as amended, that there was no relevant representation, that any representation made was true and alternatively that Cavendish did not rely on any misrepresentation which might have been made. In the alternative, KIMS say that even if the September Agreement is rescinded, Cavendish is not entitled to the success fee because (i) it was not earned even under the terms of the unamended Engagement Letter and (ii) that the Engagement Letter was between Cavendish and Nome, and was only novated by the September Agreement; so if that agreement is rescinded, Cavendish has no claim anyway.

Cavendish retorts that the novation was agreed before and independently of the September Agreement and so does not fall away with rescission of that agreement. In the alternative Cavendish argues that the novation is a severable part of that agreement which survives the rescission. In the further alternative Cavendish says that KIMS are estopped from denying the novation.

If I decide that Cavendish is not entitled to its fee because the finance ultimately provided to KIMS did not result from the “Cavendish exercise”, then Cavendish has an alternative claim under the exclusivity provisions of the Engagement Letter.

In the further alternative Cavendish claims damages for breach of the exclusivity provisions if I decide that it is not entitled to its success fee.

Mr Bernstein first approached Cavendish in February 2010. Royal Bank of Scotland (RBS) had agreed in principle to lend £45m as senior lender (meaning they would have first call on assets if things went wrong). The construction company Laing O’Rourke had agreed to invest £5m in return for the building contract. Cavendish’s role was to find an intermediate (mezzanine) investor whose security would rank behind that of the bank but ahead of other investors.

On 24^th March 2010 Cavendish was retained by Nome on the terms of the Engagement Letter. The letter provided for fees as follows:

“Fee Structure

For the proposed scope of work we would propose a fee structure that is fully aligned with Cavendish achieving a successful fundraising for the Company. The fees are therefore split between a nominal upfront retainer and a success fee based on the funds raised. The proposed fees are as follows:

Retainer

•

An initial sum of £15,000 as a non-refundable retainer, with £10,000 due upon confirmation of our appointment and £5,000 due 30 within days. . .

Success fee

•

In the event of a successful fundraising from the Cavendish exercise, a fee of 3.5 per cent of new monies raised (‘success fee’) from the investor (‘Investor’). For the avoidance of doubt, this includes both equity and debt.

•

…

Exclusivity

We would seek an exclusive mandate for a minimum period of 12 months from the date of this letter. On that basis, any fund-raising concluded within that period will be covered by the above fee arrangements. Thereafter, our mandate will continue, subject to termination by you in writing at one month’s written notice. In the event that, within a period of 6 months from the date of termination of our appointment, a sale is concluded with a party with whom discussions have taken place during the period of our appointment (irrespective of whether that party had expressed initial interest in the Company or whether they were initially contacted by Cavendish) or to a party whom we were prevented from contacting by you, we would charge our full success fee based on the total fund raised.”

Cavendish’s role as described in the Engagement Letter included giving advice as to the corporate structure for the Project, and about the best way of structuring the financial model to maximise interest amongst potential investors. It extended to preparing information documents, to providing assistance in presentations and to reviewing offers made by potential investors. All this work was incidental to the ultimate aim of finding an investor.

Newspaper publicity generated by Cavendish resulted in an introduction to VIL, a company which exists to provide investment in development projects with a view to its sister company VCL securing building contracts. In this case the contract was to be worth some £42m and so was very valuable. Mr Finch expressed interest in providing finance of £5m (to replace the Laing O’Rourke money) as well as the £22.7m additional finance which was needed.

Non-binding Heads of Agreement were signed on 23^rd July 2010 and provided that VIL would “procure finance up to the current equity funding gap of c£28m” in the form of “equity, subordinated debt or syndicated debt”. It was agreed that any external investor procured by VIL would “be supported by an investment credit grade investor at least comparable to” Vinci. Later in the same document it was agreed that the investment was to be provided from VIL’s “internal resources” and that no third-party funding was required by VIL to complete the transaction but that third-party funding “may at the discretion of [VIL] be introduced subject to the consent of Nome such consent not to be unreasonably withheld by Nome.”

On 8^th August 2010 the Project suffered a serious setback when RBS announced that it was no longer interested in providing the senior finance. A new lender had to be found. KIMS did not engage Cavendish for this role but instead, in October 2010, engaged Harpe. Mr Peppiatt was a longstanding client of Mr Bernstein’s firm, and introduced Mr Bernstein to Mr Harrison as someone very experienced at dealing with banks.

Mr Bernstein’s witness statement said that one reason for not engaging Cavendish was that he had not been impressed by its work in negotiating with VIL and that he had lost confidence in its ability to raise funds for the Project. That cannot be right because Mr Bernstein subsequently preferred Cavendish to other candidates when it became apparent that further finance needed to be raised (paragraph 39 below). Mr Bernstein also said that Mr Finch had asked that Cavendish should not be given this role. I reject that as well in light of an email from Mr Bernstein to Mr Ramery on 15^th October 2010 saying that Mr Finch’s assistant had suggested that Cavendish should be involved in raising the senior funding. The reason that Mr Bernstein did not appoint Cavendish to this role was not that Cavendish had been unimpressive, but simply that he thought Mr Harrison better suited to the role.

At an early stage of his involvement Mr Harrison advised that the structure of the finance to be provided by VIL needed to be renegotiated. The existing arrangement provided for VIL to take substantial equity in KIMS. Mr Harrison thought it necessary to free up the equity for other potential investors, so VIL needed to be approached about this. This role fell to Harpe because they were charged with finding the senior finance. VIL was successfully persuaded to offer £28m of mezzanine debt without equity. Thus Mr Harrison was now in touch with Mr Finch and they got on well together.

In February 2011 the defendants were incorporated as the intended property and operating companies. Nome thereafter had no further role.

On the advice of Harpe, KIMS engaged StormHarbour to help find a new senior lender. In February 2011 success was achieved when Clydesdale Bank plc (“Clydesdale” or “the bank”) gave its agreement in principle for a senior debt investment.

That success was followed by a crisis in relation to the mezzanine finance. On 9^th March 2011 Mr Finch announced that he had intended to pass on VIL’s investment to Vinci’s pension fund but the opportunity had now been lost as a result of the delays occasioned by RBS’s withdrawal. Mr Finch explained that VIL would no longer be interested in making a long-term investment as large as £28m. VIL do not usually make long-term investments as large as that.

Despite having engaged Cavendish on an exclusive basis to source the mezzanine finance and despite the fact that Cavendish had introduced VIL, KIMS did not go back to Cavendish to have them rescue the deal or to find an alternative pursuant to their exclusive retainer. On the contrary, KIMS took the decision to conceal from Cavendish that there was a serious problem with VIL’s proposed finance and instead gave the role of dealing with VIL to Harpe. On 10^th March Cavendish’s Mr Hamilton reported to his colleagues that he had just had a meeting with Mr F Dickmann and had been told that “Vinci have spent the money set aside for KIMS and will arrange to replace it over the next 14 days?? Franz was confident they are still there.” Mr Hamilton had not been given a complete, or accurate, account because there was no expectation that VIL would find alternative funds within 14 days.

The initial approach to persuade Mr Finch to come back on board is related in Mr Harrison’s witness statement: “I managed to persuade David Finch to remain in the transaction on the basis that we would find an alternative investor to their pension fund who would be able to take them out of £22m of the proposed investment of £28m after financial close. Vinci had the necessary funds to make the full £28m investment but did not want this sum to remain as a long-term debt on its balance sheet, hence the requirement that £22m be off-loaded.”

Mr Harrison introduced StormHarbour’s Mr Newmark to Mr Finch for this purpose but StormHarbour’s involvement was also concealed from Cavendish.

As Mr Harrison says, StormHarbour was engaged by VIL to help find an alternative investor to the Vinci pension fund, that is to take over part of the investment after financial close. Mr Newmark confirmed that StormHarbour was instructed on the basis that VIL was to provide bridging finance and StormHarbour was to find the long-term funder. He said in cross examination that both KIMS and Mr Finch stated that to be the intention. Mr Harrison and Mr Bernstein also confirmed that that was the position and it was not challenged by either party.

The introduction of StormHarbour succeeded in persuading Mr Finch to agree to remain involved. An email of 18^th March records that Mr Finch told Mr Bernstein that he had instructed VCL to resume work on a programme towards a July completion date, and confirms that the bank’s due diligence engagement letters could now be signed.

On 4^th April 2011 VIL entered into a contract with StormHarbour whereby VIL agreed to pay a commission in the event that StormHarbour succeeded in introducing VIL to an investor to acquire the mezzanine debt. KIMS believed that VIL would meet that commission. Indeed Mr Bernstein thought the commission rate too high but did not intervene as he would have done if he had thought that KIMS would have to pay it.

Pursuant to this retainer StormHarbour set about drafting an initial prospectus for submission to potential lenders. The document bore Vinci’s logo at the top of each page. Vinci is a blue-chip organisation and its involvement in the Project was thought to be an asset when trying to find other funders. The document referred to the involvement not only of VCL but also of VIL.

On 12^th May, Mr Finch called Mr Bernstein to tell him that VCL had been given the go-ahead to enter contracts with professional advisers for the Project. Thus VCL was incurring liabilities for fees. The deal was firmly back on and still included Vinci.

The amounts offered by Clydesdale and VIL left a gap in funding of around £6m. On 15^th April Mr Harrison proposed introducing a new adviser for the purpose of finding this investment. Mr Bernstein replied that if he and Harpe could not raise the funding themselves, he would rather use Cavendish than incur fees with another adviser.

Accordingly discussions began between KIMS and Cavendish about this investment (which the parties called the “equity piece”) and Cavendish’s fees for finding it. On 3^rd May Mr Bernstein told Cavendish that he and Harpe had already been looking out for funders and would continue to do so, and that therefore Cavendish’s appointment in relation to that funding would be on a non-exclusive basis. Cavendish accepted that. Mr Ramery said in cross-examination that he resented this and complained about it to Mr Bernstein, but this was inconsistent with a number of contemporaneous communications which revealed that he did not protest and did not think there were grounds to protest.

Mr Bernstein’s email of 13^th May to Cavendish reported that Clydesdale expected to reach its credit-approved decision by the end of June, and that the equity piece would have to be in place within the same timescale.

On 25^th May Mr Herman wrote a letter which marked the beginning of a series of exchanges in which the parties negotiated changes to the terms of Cavendish’s retainer. Part of my task is to construe the September Agreement which resulted from those negotiations. With limited possible exceptions the negotiations are inadmissible for that purpose. However I also have to decide whether Mr Bernstein made certain representations in the course of the negotiations, and if so whether they were false, and if so whether Cavendish relied on them. The history of the negotiations is highly relevant to all three of those issues. Moreover there is a separate issue as to whether a novation of Nome’s liabilities to the defendants took place in the course of the negotiations or not until the end of them, when other terms were finally agreed. For these reasons the negotiations demand careful attention.

Mr Herman’s letter of 25^th May was the first version of what eventually became the September Letter. It was headed “Amendments to Cavendish Engagement Letter dated 24 March 2010”. The first version discussed seven topics under numbered headings:

Mr Bernstein replied on 3^rd June. He addressed the matters raised by Cavendish under the same headings, including the following:

Mr Bernstein went on to acknowledge that Vinci had been introduced as a result of the “Cavendish exercise” and that Cavendish would be entitled to its fee of 3.5 per cent of those monies. He also confirmed that Cavendish would be entitled to revert to a cash fee if the funding mix changed.

Mr Herman responded on 7^th June (though the attached updated version of the letter was dated 6^th June), again adopting the same headings. Under heading 1 he wrote one word: “Agreed”. He went on to make counter-proposals about other matters, and under heading 5 said “We note your comments. However in the unlikely event of a third-party replacing Vinci as ‘lead investor’ in respect of the project, the ‘tail-off’ provisions in our original engagement letter would still apply.”

That was a reference to the exclusivity provisions of the Engagement Letter (set out in paragraph 21 above). Mr Bernstein replied that he did not understand that proposal and following a further exchange of emails on 7^th June Mr Herman produced a revised draft of his letter of 6^th June which included a new section 7 intended to clarify the matter. The new section was headed “Investor that replaces some or all of the proposed Vinci investment of £38 million”. I will set out the new section in full since it is important to one of the alleged misrepresentations:

“In the event that, within 6 months from the date of this letter, an investor with whom Cavendish has spoken since our engagement started on the 24 March 2010 (whether as part of the original exercise or this subsequent exercise) provides such funding that reduces the amount of capital realised from Vinci below the £28m currently stipulated, Cavendish will apply fees of 3.5% on all funds raised up to £28 million (with 20% convertible into equity).

Any fees raised above the £28 million in the same period would attract a fee of 2% as outlined in this letter (payable entirely in cash).”

Mr Bernstein’s response (by email) included the following:

“I recognise that what you are trying to cover here is the scenario whereby one of the other potential investors that Cavendish has introduced to us during this process (an “Alternate Investor”) ends up funding part of the Vinci £28m, in which event you would seek to charge your full fee for those sums invested both by Vinci and this Alternate Investor.

[Mr Bernstein went on to make a counter-proposal on the basis that Mr Herman’s proposed wording was too uncertain. Mr Bernstein suggested that]

“This should be limited to (i) a potential investor (ii) who has been contacted by Cavendish in writing (including email) in connection with the proposed investment in KIMS (iii) whose name is on an agreed list that you now provide, which list could be updated going forward and (iv) who decides to invest in KIMS as a consequence of this initial approach from Cavendish.

I would emphasise that I have no way of controlling the Vinci investment process or who they are talking to (if anyone) as potential investment partners, but that at the moment we are all proceeding on the assumption that Vinci will be investing the full £28m on financial close, which is targeted for mid-August.”

That email is relied on by Cavendish as containing two misrepresentations, with which I will deal later.

On 8^th June Mr Herman sent a further revised version of the proposed amendments with new wording under heading 7. Again the wording is important as supplying the context of what is alleged to be a subsequent misrepresentation. The new proposal was

“In the event that, within 6 months from the date of this letter, an investor listed in Appendix 1 of this letter or a party introduced by Vinci (being the Investor that we originally introduced to the project) provides such funding that reduces the amount of capital raised from Vinci below the £28m currently stipulated, Cavendish will apply fees of 3.5% on all funds raised up to £28 million (with 20% convertible into equity).

Any fees raised above the £28 million in the same period would attract a fee of 2% as outlined in this letter (payable entirely in cash).”

Mr Bernstein rejected this proposal on the ground that it would have entitled Cavendish to a fee in the event that VIL was replaced with an investor introduced by VIL. Mr Bernstein amended Mr Herman’s draft in manuscript so that it would now read:

“In the event that, within 6 months from the date of this letter, an investor listed in Appendix 1 of this letter (“an Alternate Investor”) provides such funding that reduces the amount of capital raised from Vinci below the £28m currently stipulated, Cavendish will apply fees of 3.5% on all funds raised from Vinci and the Alternate Investor up to £28 million (with 20% convertible into equity).

Any fees raised from Vinci and/or the Alternate Investor above the £28 million in the same period would attract a fee of 2% as outlined in this letter (payable entirely in cash).”

Mr Bernstein also deleted section 5 (which had been introduced into the draft on 6^th June mentioned in paragraph 46 above) on the ground that the matter it raised was dealt with in this new section. He sent a scanned copy with his annotations back to Mr Herman.

Mr Herman forwarded that email to his colleagues in Cavendish with the following comments:

“What do you think?? Reality is, if the Investor that WE introduced decides to introduce a third party investor (which we know they are trying to do) we get fuck all. Reality is, our exclusivity provisions would cover this for 7 months from notice of termination so we would normally be protected. Difficult one and we could be talking big money. Views?????”

Although KIMS were concealing from Cavendish that StormHarbour had been retained to find another funder for VIL, it is clear from Mr Herman’s email that he was aware that VIL was trying to find a replacement investor. That was a natural inference from the fact that Mr Bernstein was negotiating to remove the right to exclusivity and from his rejection of Mr Herman’s latest proposed wording.

Later that day Mr Herman responded to Mr Bernstein with a revised draft which accepted and incorporated all Mr Bernstein’s proposed changes. It is necessary to quote Mr Herman’s email in order to understand the response to it:

“Final signed letter attached with all your amendments. We are working on the basis that you consider it highly unlikely that Vinci are about to introduce another investor to replace them in the capital structure. . . . We trust this is not the case!

On with the work, as Simon said, we have some people keen to meet up.

Simon or Gordon will send over the list (that comprises Appendix 1) and I will send you the signed letters as you suggested in an earlier email. We look forward to getting your response to Simon’s email.”

Mr Bernstein replied by email a few minutes later:

“Thanks Paul, that’s all agreed. If you could send me the three letters (your original letter of 25 May 2011, my letter in response of 3 June 2011 and this latest letter from you) signed in duplicate, I will arrange for the counterparts to be signed and returned to you.

I also look forward to receiving the list for the Appendix (which I’m assuming is not the A-Z of potential UK investors!) I’m pleased that we’ve resolved the matter and can now move forward.”

On 10^th June Cavendish submitted its proposal for the Appendix. Mr Bernstein responded that it contained too many names, but it was included without changes in the final version of the September Letter.

On 14^th June Mr Herman, considering the deal to have been concluded, endorsed a copy of Mr Bernstein’s letter of 3^rd June 2011 with his signature below the words “Agreed by Cavendish”. Thus Cavendish agreed that it was no longer entitled to the protection of the exclusivity provision of its original engagement. Mr Herman also sent what he intended to be a final version of his letter which was now dated 14^th June. On the basis of that letter, Cavendish concedes that it has no claim based on the exclusivity of its mandate after 14^th June.

That communication brought the negotiations to an end for the time being. This was partly because of summer holidays, and partly because the parties evidently regarded the deal as concluded. In the event the agreement was not finalised until early September. On 6^th September Mr Bernstein sent a signed copy of the latest version of Cavendish’s letter to Mr Herman. However, although the parties appeared to have reached agreement in June, this signed version of the letter contained a further manuscript amendment by Mr Bernstein; and in response Mr Ramery also proposed a further amendment of his own. The final version was dated 12^th September and was signed thereafter by all parties. I will set out its relevant final terms below, when considering their meaning.

The terms of its engagement having been (almost) finalised in June 2011, Cavendish set about finding the new investor for the equity piece. KIMS and Harpe continued their rival efforts.

On 12^th July KIMS entered a memorandum of understanding with VCL whereby the latter committed to spending almost £1m in professional fees in preparation for the Project, at its own risk if the Project did not proceed or if VCL withdrew. This was seen as an important mark of Vinci’s commitment to the Project.

By early July a credit-approved offer was expected from Clydesdale by the end of the month. In an email sent on 7^th July, Mr Bernstein told Mr Ramery that financial completion was targeted for early September. However by 3^rd August, when he was dealing with the intended hospital operator (Spire), Mr Bernstein said that financial close had been set for the end of October. When the offer of funding was received from Clydesdale it provided a deadline for completion of 15^th October.

In July Cavendish introduced Tadhamon Capital and Patron Capital, who expressed interest not only in the equity piece but in taking on part of VIL’s mezzanine debt. Patron withdrew its interest in late September and upon receipt of Tadhamon’s proposed terms in early October KIMS and Harpe set about seeing whether better terms were available from their own contacts. Heads of Terms were signed with one such contact on 4^th November. Since Cavendish did not have an exclusive retainer, no claim arises out of this; but Mr Ramery thought that Cavendish had been used in an underhand way as a means of negotiating better terms from Mr Bernstein’s own contacts.

The deadline imposed by Clydesdale’s credit-approved offer, 15^th October, passed but Clydesdale was persuaded not to withdraw for the time being. Clydesdale set a revised deadline of 25^th November.

Magnetar had been approached by StormHarbour in September and was interested in taking on some of the mezzanine debt from VIL. On 24^th October Mr Newmark emailed Mr Finch that Magnetar was the “leading hope”.

On 16^th November 2011 Mr Herman wrote a letter to Mr Bernstein which began “Over the last few days you have made us aware that Vinci Investments have informed you that they are keen to refinance a substantial element of their mezzanine loan following the financial close of the KIMS project.” This followed a conversation on 14^th November between Mr Herman and Mr Peppiatt. The letter of 16^th November attempted to secure for Cavendish the very role for which StormHarbour had been appointed since April without Cavendish’s knowledge.

On 18^th November Mr Bernstein sent an email to Mr Herman rejecting the offer and informing Mr Herman that a new potential investor had already been found “to invest the £22m that Vinci were previously going to invest.”

Negotiations continued and an extended deadline of 16^th December was again missed and was again extended, this time to Christmas. By now it was becoming increasingly apparent that VIL was not taking deadlines seriously. By 13^th December VIL’s solicitors had still not produced draft loan documentation and attempts to chase Mr Finch were unsuccessful.

On 14^th December Magnetar announced that it was prepared to enter into negotiations with a view to signing a term sheet before the end of the month. However it proposed 75 days of due diligence thereafter. Thus Magnetar was in no position to complete within the bank’s deadline or within a short extension of it, so the deal still appeared to depend on either VIL putting in the full £28m without a credit-approved commitment from Magnetar, or an extension of the deadline, which could not be guaranteed.

Also, by this stage there would not be enough time to replace VCL as the building contractor if Vinci withdrew. Although VIL had offered finance in order to secure the building contract for VCL, and although KIMS had thought that VCL’s expenditure on preparatory work would tie Vinci in, Mr Finch’s approach reflected the clear reality that KIMS needed the Project more than Vinci did. Mr Bernstein told me that he would have been personally ruined if the deal had not proceeded.

These factors combined to give Vinci a very strong negotiating position. KIMS continued to press for financial close before Christmas but on 20^th December Mr Finch put a stop to those efforts by warning Mr Bernstein that if he insisted on proceeding before Christmas, VIL would withdraw altogether. It is a measure of the negotiating position which VIL had now achieved that Mr Bernstein felt he had no option but to comply.

Christmas passed but the bank did not withdraw its offer. At a meeting on 6^th January Mr Finch announced that VIL was not prepared to invest £28m even for a short term, but would only put in £6m. The upshot was that completion had to be postponed until Magnetar was ready to commit to lending £22m. It was eventually set for 16^th March. The bank was persuaded to wait.

On 20^th January VIL promulgated a draft term sheet for its £6m which contained an important concession to Magnetar that it would have the right to put its investment back onto VIL in certain adverse circumstances.

On 16^th March Mr Bernstein emailed VIL’s solicitor “What’s going on with your client? Everyone is ready to complete on Tuesday. Will you be? If not, you better tell Vinci Construction as they think they are starting on site on Wednesday!” That attempt by Mr Bernstein to deploy such negotiating power as he had did not succeed. Mr Finch remained uncontactable and no progress was made.

On 19^th March Mr Bernstein contacted Mr Ridley-Barker of VCL and pointed out that if the Project were to collapse as a result of Vinci pulling out, large sums of money would be lost and Vinci’s reputation damaged. This again did not produce the desired result. Instead, at a meeting on 21^st March (which Mr Finch did not attend), Mr Ridley-Barker announced that VIL was pulling out altogether. He said that the terms of the investment had not been approved by Vinci’s head office, and in particular that the proposed put option was unacceptable.

Harpe approached Magnetar to ask if they would be prepared to assume the £6m junior mezzanine debt. Magnetar agreed but only in return for a share in the equity - in other words it would cost the other shareholders more to have Magnetar invest the £6m than it would have cost if the investment had proceeded in accordance with VIL’s term sheet.

Magnetar at first continued to insist on a put option, which Vinci was not prepared to give. However following a meeting with VCL, Magnetar withdrew this condition and so the deal was finally agreed, albeit on Magnetar’s more expensive terms.

However this did not occur before Vinci deployed its by now overwhelming negotiating position to extract a series of indemnities in favour of VIL in respect of any liabilities arising out of its involvement in the negotiations. It also required KIMS to agree to pay StormHarbour’s fee. KIMS had known for some time that this requirement was likely to be made and had spoken of resisting it. When the time came, however, KIMS had no choice. VCL flatly refused to sign the construction contract until KIMS agreed to pay. StormHarbour’s fee of £880,000 was duly paid by KIMS.

The last £6m of funding was not subject to StormHarbour’s commission, which was paid on £22m not £28m. So if KIMS’ defence of this claim prevails, it will have paid brokers’ fees of £100,000 less than would have been payable under the Engagement Letter (£100,000 being the difference between Cavendish’s claim and the amount paid to StormHarbour). However Magnetar’s investment was more expensive to the equity investors than VIL’s would have been, so there was for them no net saving.

In summary, Mr Finch was able to dictate the terms of VIL’s withdrawal, and did so. Only when VIL had achieved all it wanted could financial close take place on 30^th March 2012.

At the suggestion of both counsel, with which I agree, I shall approach the issues in the following order:

Evidence was given by Mr Ramery and Mr Newmark who were called by Mr Sinclair, and by Mr Bernstein and Mr Harrison called by Mr Plewman.

Mr Newmark is connected with neither party beyond his role in the Project and was very keen to emphasise his neutrality in the dispute. His evidence reflected that neutrality and, though his recollection was understandably imperfect on some issues, I found his evidence reliable.

Mr Ramery was, but no longer is, a member of Cavendish. It was apparent that he felt very strongly about the case and there were discrepancies between his oral evidence on some issues and the contemporaneous documents. I have already mentioned one such instance but there were others as well. In fact he had little admissible evidence to give on the actual issues in the case (as opposed to his subjective views of the issues), and even if admissible I did not find his evidence as to his own state of mind reliable. It is always difficult for a witness to give such evidence, especially where he has a preference as to the outcome of the case. It is very easy in the course of litigation to become convinced of a particular version of events and for that conviction to replace genuine recollection, and still more so when the issue is the historic state of one’s own mind. I think that Mr Ramery’s recollection had become coloured by his loyalty to Cavendish.

Mr Harrison, though close to the Project and a shareholder in KIMS, was an impressive witness who gave clear and consistent evidence. He held strong views about what occurred in 2011 and 2012 and communicated them energetically, but with what I took to be evident sincerity.

Since (as will be seen) I have to decide what subjective opinion Mr Bernstein held about the likelihood of certain events as at 8^th June 2011, and since the only witness with personal knowledge of that is Mr Bernstein himself, I must have careful regard to his credibility, which Mr Sinclair attacked with some vigour. The attack centred on an email Mr Bernstein wrote on 23^rd May 2011 which he intended to be shown to those conducting due diligence on behalf of Clydesdale. It contained a misleading account of how and why VIL had come to engage StormHarbour. Thus, as Mr Sinclair pointed out, it was a deliberate attempt to mislead the bank. Mr Sinclair also relied on another occasion when Mr Bernstein told the bank that certain funding was in place when in truth it was not.

Mr Bernstein did not suggest that he had not lied on these occasions. He explained, as regards the email of 23^rd May, that he thought that if the bank learned of Vinci’s hesitation, it might conclude that the mezzanine funding was unstable. Similarly, he subsequently falsely told the bank that certain funding was in place to reassure the bank as to the viability of the Project. On both occasions he himself did believe in the viability of the Project.

So Mr Bernstein was prepared on these occasions to say things that were not true in order to get the Project (as he put it) over the line. I take that into account when assessing his evidence.

Mr Bernstein’s cross-examination by Mr Sinclair was sustained, thorough and skilful. Some of the questions put to him were very challenging and he had difficulty in providing cogent answers on occasions. In the face of this rigorous testing of his evidence he did not at any stage give me the impression that he was making anything up or consciously suppressing anything. Where he had difficulty, he acknowledged it. On occasions such acknowledgments gave me to think that his evidence on the particular point was unreliable, but not that he was lying.

The most hotly contested factual issue about which Mr Bernstein gave evidence was his own subjective belief about whether a particular future event was “highly unlikely”. I must therefore also bear in mind the matters mentioned in paragraph 84 above.

I bear all this in mind when assessing Mr Bernstein’s evidence and will look for corroboration or contradiction in contemporaneous documents where available.

Where (above or below) I mention particular evidence from a witness, I accept that evidence unless I say otherwise.

The September Agreement was contained in the September Letter and in so much of the Engagement Letter and the letter of 3^rd June 2011 as remained in effect upon a true construction of the documents when read together.

The September Letter includes the following:

“3.

Requirement for a further £7m of equity

We do consider that the 1.75% counter-proposal by you for any additional funds raised (above and beyond those for Vinci) is significantly below market rates. In the interests of compromise we would suggest that this fee is raised to 2% of these further funds raised.

. . .

5.

Investor that replaces some of all of the proposed Vinci Investment of £28m

In the event that, within 6 months from the date of this letter, an investor listed in Appendix I of this letter and any subsequent investor introduced by Cavendish (‘an Alternate Investor’) provides such funding that reduces the amount of capital raised from Vinci below the £28m currently stipulated, Cavendish will apply fees of 3.5% on all funds raised from Vinci and/or the Alternate Investor up to £28m (with 20% convertible into equity).

Any funds raised from Vinci and/or the Alternate Investor above the £28 million in the same period would attract a fee of 2% as outlined in this letter (payable in its entirety in cash).”

Since the September Letter was expressed to amend the Engagement Letter, if the Engagement Letter were to produce a different result from the September Letter, the latter would prevail. However Mr Sinclair says that they do not produce a different result because the words of the September Letter do not apply at all. He points out that they deal with the position where an investor listed in the Appendix, or subsequently introduced by Cavendish, replaces VIL. They do not deal with the situation where that does not occur. In that event, he says, the words of the Engagement Letter continue to apply unamended.

As to the commercial purpose of clause 5, Mr Sinclair’s submission is that it was to deal with, and only with, the possibility that Cavendish would introduce a funder for the equity piece who would take on some or all of VIL’s commitment. It was to make clear that in respect of the mezzanine funding Cavendish would not be confined to the rate of commission it had negotiated for the equity piece (2 per cent) but would remain entitled to 3.5 per cent under the Engagement Letter. Mr Sinclair argues that clause 5 does not deal with the situation where an investor not listed in Appendix 1 and not introduced by Cavendish takes over some or all of the mezzanine finance.

In evaluating that argument I need to consider the relevant background and the purpose which objectively the parties appeared to be seeking to achieve.

The situation when the September Agreement was negotiated was very different from that which had obtained on 24^th March 2010:

I see no reason to conclude that this last consideration (vi) would have been the only one in the parties’ minds. A bystander with relevant knowledge would have expected Cavendish to want to protect its connection with the investors listed in the appendix, because there was a possibility with the loss of exclusivity that another party might approach them (consideration (v)). The same bystander (even with Cavendish’s limited knowledge) would also have expected that KIMS, having conceded that the introduction of Vinci had resulted from the Cavendish exercise, would want to cover the possibility that an alternative (non-Cavendish) investor would replace Vinci (considerations (i) to (iv)).

In my judgment it is reasonable to conclude that in the summer of 2011 the parties intended to address the situation as it then stood: to take stock of the position and to consolidate their arrangements. There is no reason to conclude that they would only have intended to address the possibility that an investor introduced by Cavendish for the equity piece also took on part of VIL’s £28m, but not the possibility that an investor introduced by someone else might do so.

In light of these considerations I read the September Agreement to mean that if VIL had been replaced with an investor in Appendix 1 or subsequently introduced by Cavendish, then Cavendish would have been entitled to a commission; but if not, not. There was no room then to go back to the Engagement Letter and to inquire whether the investment had resulted from the Cavendish exercise.

Accordingly, since Magnetar was not introduced by Cavendish, and was not on the list in Appendix 1, the claim under the September Agreement fails.

I have reached this conclusion without reference to the negotiations which led to the September Agreement save to the extent, as mentioned in paragraphs 97 to 99 above, that the negotiations reveal admissible aspects of the factual matrix or, of course, actually became part of the final contract.

Both counsel were very keen to stress the orthodox principles of contractual interpretation and in particular the inadmissibility of negotiations (with limited exceptions) and the irrelevance of subjective intention. However Mr Sinclair did seek to invoke Mr Bernstein’s email of 7^th June 2011 negotiating what became clause 5 of the September Letter, and in particular the first paragraph quoted in paragraph 48 above.

Mr Sinclair submits that that paragraph is admissible for the limited purpose of demonstrating the general objective of clause 5, although not to help construe the actual words. That is a distinction recognised in the authorities, but as Mr Sinclair concedes the use of negotiations for this purpose has to be approached with caution: see Widows Fund and Life Assurance Society v BGC International [2011] EWHC 729 (Ch) per Norris J:

“But the pre-contractual negotiations of the parties must not be used as an aid to construction, save insofar as they may assist in the objective ascertainment of the common commercial or business object of the transaction. The identification of the genesis of the transaction may assist where one reading of a document renders that commercial or business objective futile, but another does not. But the identification of the commercial objective from the negotiations cannot be used at a more granular level to support detailed points of interpretation.”

In my judgment it is obvious that one of the commercial objectives of the parties in negotiating the September Agreement was to deal with the matter mentioned in Mr Bernstein’s email. Indeed I have already reached that conclusion without reference to the email anyway (paragraph 98(vi) above). However Mr Bernstein’s email does not demonstrate that that was the only objective which the parties had in mind and does not demonstrate that the interpretation favoured by Mr Plewman would contradict the parties’ commercial objective. The email is therefore inadmissible for any relevant purpose and would take Mr Sinclair’s submissions no further, even if it were.

I should say that I was not assisted on the issue of construction by Mr Ramery’s evidence of what the September Agreement was intended to achieve. Mr Sinclair’s closing submissions relied on this evidence but did not identify why it was admissible. It seemed to me to be evidence of his private understanding. Even if it had been admissible, I did not find Mr Ramery’s recollection reliable as to his subjective understanding for the reasons already provided.

The claim for rescission is pleaded as fraud but in his closing submissions Mr Sinclair conceded that it makes no difference whether the misrepresentations were made fraudulently or not. He therefore did not press for any finding about that. However it will be obvious from what follows that the allegation of fraud would have failed.

The representations relied upon are set out in paragraph 15A of the particulars of claim. The first is contained in the final paragraph of the email of 7^th June 2011 quoted in paragraph 48 above. Cavendish’s case is that this paragraph meant that as far as Mr Bernstein was aware, VIL were not talking to anyone as potential investment partners.

The second alleged misrepresentation is contained in the same paragraph in the words “At the moment we are all proceeding on the assumption that Vinci will be investing the full £28m on financial close.”

The third alleged misrepresentation was contained in the email exchange of 7^th and 8^th June mentioned in paragraphs 55 and 56 above and specifically the words “Thanks Paul, that’s all agreed” which Mr Sinclair submits conveyed a representation that KIMS considered it “highly unlikely that Vinci are about to introduce another investor to replace them in the capital structure”.

I must first of all decide whether representations were made in the terms alleged. They are pleaded as express or alternatively implied representations. In Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm), Christopher Clark J said this about implied representations:

“84 An express statement may impliedly represent something. A possible implication of a statement may be that what has been expressly stated is complete, i.e. covers everything material or relevant on a particular matter such that something which has not been referred to does not exist. It is, however, necessary to distinguish between what a document does not say and what it impliedly represents.

85 The essential question is whether in all the circumstances it has been impliedly represented by the defendant that there exists some state of facts different from the truth. In evaluating the effect of what was said a helpful test is whether a reasonable representee would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it: Geest plc v. Fyffes plc [1999] 1 All ER (Comm) 672 , at 683 (per Colman J).”

In Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm) Hamblen J said:

“215 A representation is a statement of fact made by the representor to the representee on which the representee is intended and entitled to rely as a positive assertion that the fact is true. In order to determine whether any and if so what representation was made by a statement requires (1) construing the statement in the context in which it was made, and (2) interpreting the statement objectively according to the impact it might be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee: see [Raiffeisen Zentralbank v RBS plc [2011] 1 Lloyd's Rep 123] at [81]; Kyle Bay Ltd v Underwriters Subscribing under Policy No. 01957/08/01 [2007] Lloyd's Rep IR 460, 466, at [30]–[33], per Neuberger LJ.”

In deciding whether Mr Bernstein made the alleged representations, therefore, I have to decide whether his emails judged objectively in their particular context might have been expected to cause a reasonable person in the position and with the knowledge of Cavendish to believe that as far as Mr Bernstein was aware VIL were not talking to anyone as potential investment partners, that KIMS was proceeding on the assumption that Vinci would be investing the full £28m on financial close and/or that KIMS considered it highly unlikely that Vinci were about to introduce another investor to replace them in the capital structure.

In my judgment a reasonable person in the position of Messrs Ramery and Herman would not have understood Mr Bernstein’s email of 7^th June to have been intended to convey a factual assertion (as pleaded) “that as far as Mr Bernstein was aware VIL were not talking to anyone as potential investment partners”. A reasonable recipient of Mr Bernstein’s email would have read “I have no way of controlling the Vinci investment process or who they are talking to (if anyone)” to mean that Mr Bernstein was unable to control if Vinci talked to anyone, and not that he did not know whether they were talking to anyone and certainly not that so far as he was aware they were not talking to anyone.

Even if I am wrong about this, Cavendish was not entitled to rely on the statement as having that meaning because a reasonable person in their position and with their knowledge would not have relied on it as having that meaning. It was too ambiguous.

In my judgment the words “At the moment we are all proceeding on the assumption that Vinci will be investing the full £28m on financial close” did amount to a representation of fact upon which Cavendish was entitled to rely. Mr Plewman did not suggest otherwise.

I find that Mr Bernstein did represent that KIMS thought it “highly unlikely” that VIL were about to introduce another investor to replace it in the capital structure. Mr Herman’s email of 7^th July plainly invited comment about the proposition that KIMS thought it highly unlikely. Mr Bernstein’s reply began with the words “Thanks Paul, that’s all agreed”. A reasonable person in Cavendish’s position would have been likely to take that email as providing the confirmation which had been sought. Indeed none of the rest of Mr Ramery’s email under reply called for Mr Bernstein’s agreement. But even if some other part of Mr Ramery’s email did call for Mr Bernstein’s assent, a reasonable person in Cavendish’s position would have understood the assent also to extend to the confirmation which had been sought.

Mr Bernstein says in his witness statement that he ignored the request for confirmation. Objectively, he did not ignore it.

The original plan was that StormHarbour would find an alternative home for VIL’s investment after financial close. That was consistent with what had been Mr Finch’s original intention, to invest £28m at financial close and then to lay some or all of it off to Vinci’s pension fund (paragraphs 33 and 34 above).

There was however an alternative possibility, namely that another investor would be found to provide some or all of the funds up front, with VIL dropping out of the picture altogether to the extent of those funds. I shall refer to finance provided in this way as a “non-Vinci solution”.

There are four stages to negotiating and providing finance of this kind: agreement in principle, due diligence, a firm (“credit-approved”) offer and finally financial close. Mr Finch never made clear which of the three preliminary stages VIL would need to reach with its alternative investor before it would commit to providing £28m. However there is ample evidence that KIMS believed that Mr Finch would if necessary commit to the full £28m without having reached the fourth stage (legally binding agreement) with a replacement investor.

On 13^th March 2011 Mr Harrison sent an email to Mr Finch:

“We have introduced StormHarbour to you, with the intention that they can work on finding an alternative ultimate home for your £28million sub/debt piece.

I just wanted to clarify with you your clear intention to commit to funding the £28million at the outset in order that the deal can progress, so that you can mobilise your construction colleagues in the coming days. I am confident that an alternative investor to the Vinci pension fund can be found in order to take you out in due course, but we need your clear support and commitment please at this crucial stage to mobilise your construction colleagues, otherwise we seriously risk losing the bank deal KIMS has with Clydesdale.”

On 18^th March Mr Finch telephoned Mr Bernstein to tell him that he had instructed VCL to start work towards a July completion: the work mentioned by Mr Harrison’s email of 13^th March in the context of seeking reassurance that VIL was committed to providing the full £28m at close. So it would have been reasonable to take Mr Finch’s telephone call of 18^th March as encouragement that VIL were committed to “funding the £28m at the outset”. I am satisfied that KIMS believed that VIL was so committed and remained of that view at least until the autumn of 2011. For example Mr Harrison advised Mr Bernstein that that was still the case in emails of 23^rd September 2011 and 21^st October.

However, although KIMS thought that VIL would agree to this solution if necessary, it was not Mr Finch’s preferred solution. As Mr Harrison told me, Mr Finch would have preferred that VIL drop out of the deal altogether, at least as to £22m. That is, Mr Finch would have preferred a full or partial non-Vinci solution, which is eventually what happened. Vinci’s core business is construction, not finance. If Mr Finch could find someone to replace VIL whilst retaining the construction contract for VCL, that would have been his optimum solution.

Mr Bernstein says that despite Mr Finch’s preference, as at 8^th June 2011 he (Mr Bernstein) thought this outcome highly unlikely. He did not think that there was enough time to find another investor ready to proceed to financial close within the timescale he expected Clydesdale to require.

Clydesdale’s timetable was unclear as at 8^th June. Its due diligence was not complete. Mr Bernstein said that in early June he expected a credit-approved offer “any minute now”. His email of 7^th June said that financial close was targeted for mid-August, and Mr Sinclair did not challenge that that was a genuine estimate at the time. Mr Bernstein said that he thought that once a replacement had been found for VIL, due diligence for a non-Vinci solution would take too long for the bank to wait. If the new investor had already been found in early June, a non-Vinci solution might have been achievable in time for financial close in August. However an alternative investor had not in fact been found. Indeed StormHarbour had indicated that it would not start its work in earnest until the bank had issued its credit-approved offer. Mr Newmark explained that by June he might (at most) have approached a few select potential investors to “road test, to see if the deal would fly”.

Mr Bernstein’s evidence was supported by that of Mr Harrison. He acknowledged, indeed emphasised, that VIL would have preferred not to be involved at all in funding the Project. But he worked very hard to persuade VIL to remain in the deal. He repeatedly emphasised to Mr Finch that if Vinci pulled out, the deal would not happen. His witness statement was made before the misrepresentation claim had been pleaded and so did not address whether he or anyone else thought a non-Vinci outcome “highly unlikely”. In cross-examination it was not put to him in terms that he or anyone else did not consider a non-Vinci solution highly unlikely, but he made clear that it was his intention to ensure that VIL remain in the deal for the full £28m at financial close.

So although VIL would have preferred a non-Vinci solution, Mr Harrison had been instructed to persuade them to provide the £28m at financial close; and of course Mr Bernstein had faith in Mr Harrison’s powers of persuasion.

For these reasons, KIMS says that Mr Bernstein did think that a non-Vinci solution was highly unlikely.

Against this evidence Mr Sinclair relies heavily on the fact that KIMS and Harpe adopted a deliberate policy not to tell Cavendish about the introduction of StormHarbour to VIL or the reason for it. It is common ground that if VIL remained in the deal to provide bridging finance, Cavendish would have been entitled to its fee. Mr Sinclair argues that KIMS and Harpe would not have adopted this policy of secrecy in order to hide that possibility from Cavendish, since that would not have been an adverse outcome for Cavendish. Accordingly, he argues that KIMS and Harpe must have been concerned to conceal from Cavendish matters which were pointed to the possibility of the alternative outcome, namely a non-Vinci solution. I agree with that reasoning.

The policy of secrecy is exemplified by an email to Mr Bernstein from Mr James Dickmann on 26^th April, reporting a meeting he had held with Mr Ramery: “I was vague around Vinci’s wish to lay off the majority of their investment especially around the timing”. Those last four words show that although Mr Dickmann had been prepared to make a vague reference to VIL’s wish to lay off its investment, he felt the need to be especially vague about the timing of the lay-off, that is about the possibility that it would involve a non-Vinci solution. I cannot accept Mr Bernstein’s evidence that he did not know what Mr Dickmann meant by the “timing issue”. It seems to me obvious what he meant.

Mr Bernstein said that the reason for this policy of secrecy was that he did not want Cavendish to make an approach to VIL. I accept that he thought that Mr Harrison was the better person to deal with Mr Finch. He had preferred Harpe to Cavendish in 2010 when a new senior lender needed to be found and it is consistent with that that he preferred Harpe to deal with VIL at this delicate stage. However, his desire to keep Cavendish and VIL apart was as much a consequence of as a reason for the policy, because keeping Cavendish and Mr Finch apart was necessary to ensure that Cavendish did not find out about StormHarbour’s role.

I think that the chief reason for this policy of secrecy was Mr Bernstein’s desire to renegotiate the terms of Cavendish’s retainer. In any negotiation, a party with full knowledge of the facts is in a stronger position than one who is kept in the dark. Mr Bernstein preferred to negotiate from this position of strength.

However, whilst the fact that Mr Bernstein thought it prudent to renegotiate Cavendish’s retainer shows that KIMS recognised the possibility of a non-Vinci outcome, it does not falsify the representation that they thought it highly unlikely. It is commonplace for lawyers to cover off risks even if they are highly unlikely to materialise. The fact that KIMS withheld knowledge of StormHarbour’s role shows that they thought that such knowledge would make the negotiation more difficult for them, but does not enable me to conclude that they did not think that a non-Vinci solution was highly unlikely - only that they preferred not to assume the risk that such knowledge would make Cavendish more guarded.

Others in KIMS’ position would have done things differently. They might have chosen to reveal the full picture in the expectation that Cavendish would conclude for itself that the risk was highly unlikely. However Mr Bernstein, in his dealings with others as well as with Cavendish, preferred to share information only where it was necessary to do so for the benefit of the Project. The fact that he concealed relevant information is consistent with his guarded approach to all those involved in the Project. It is not a reliable indicator of what he thought the eventual outcome would be.

I have considered Mr Sinclair’s arguments based on contemporaneous internal communications between KIMS and Harpe:

I have to decide this case on the balance of probabilities. I thought Mr Bernstein’s explanation of why he did think a non-Vinci outcome was highly unlikely to be clear, cogent and persuasive. It coincides with other known facts about the timetable as it was then thought to be, and it is supported by Mr Harrison’s evidence about what he was trying to achieve. I consider parts of Mr Bernstein’s evidence to be unreliable for the reasons I have given, and I therefore treat his evidence with caution. However I accept his evidence on this issue. The policy of secrecy and the communications discussed above do not persuade me that the representation, that KIMS thought it highly unlikely that VIL was about to introduce another investor to replace it, was untrue.

For similar reasons I accept that KIMS was (on 8^th June) proceeding on the assumption that VIL would be investing the full £28m on financial close.

I will deal briefly with the first alleged misrepresentation, which I have already found was not in fact made. If Mr Bernstein had represented that so far as he was aware, Vinci were not talking to anyone, then such a representation would in my judgment have been misleading. VIL had engaged StormHarbour precisely for the purpose of talking to potential investors and it would have been misleading to say that he did not know whether they were talking to anyone without mentioning that fact. It would not have been the whole truth.

If my conclusions or any of them are wrong, and if in fact all three representations were made and if in fact one or more of them was untrue, then it would become relevant to consider whether they were relied on by Cavendish.

In the case of the first alleged misrepresentation, this gives rise to some difficulty since I have already decided that the representation was not in fact made. It would be inconsistent with that to consider whether it was relied on. I can however consider whether Cavendish relied on the email of 7^th June timed at 16:19 in which the putative representation (and the second alleged misrepresentation as well) is said to have been contained.

In the absence of a finding of fraud, reliance requires proof that the representee would not have made the contract if the misrepresentation had not been made (Chitty on Contracts 31^st ed. §6-037). Mr Sinclair did not pursue a finding of fraud.

The position was that on 3^rd June Mr Bernstein had given unilateral notice to terminate Cavendish’s exclusive mandate. There is no evidence to suggest that anyone at Cavendish thought that he was not entitled to do that. Certainly upon receipt of his letter of 3^rd June, Cavendish did not protest that he was not.

So part of the background to the negotiations was that Cavendish was faced with loss of its exclusive mandate and therefore was faced with the risk of losing its success fee if another investor took over VIL’s role in whole or in part.

It is apparent that Cavendish thought that the result of the termination of exclusivity was that any deal done within 7 months would still have attracted the success fee if the new investor had been one with whom discussions had been held during the period of exclusivity, but not otherwise. That is apparent from the email of 8^th June quoted in paragraph 53 above. So the position as Cavendish perceived it was that if a new agreement was not made, Cavendish would lose its success fee if VIL was replaced with another investor to whom KIMS had not spoken before 3^rd July.

The version of the September Letter which Mr Herman submitted to Mr Bernstein on 7^th June (paragraph 46 above) contained a clause which broadly reflected Mr Herman’s understanding of Cavendish’s existing entitlement. In his response (paragraph 48 above), in the email which contained the first alleged misrepresentation, Mr Bernstein said that he preferred to have an agreed list of the investors to whom Cavendish had spoken. In the same email he made the remark about having no control over Vinci. Mr Herman’s response (paragraph 50 above) was to produce a new version of the September Letter which would have entitled Cavendish to be paid if a new investor introduced by VIL ended up funding the Project.

So if Mr Bernstein’s email is to be taken as having represented that so far as he was aware, VIL was not talking to potential investors, it actually had the effect of causing Cavendish to introduce a provision to cover the very eventuality that VIL was talking to other investors. That seems to me inconsistent with the contention that Mr Bernstein had induced Cavendish to believe that VIL was not talking to anyone, and with the contention that his belief that they were not talking to anyone was material to Cavendish. On the contrary, Cavendish believed that VIL was trying to find an alternative investor and its response was to attempt to cover the very risk that VIL was talking to someone.

I therefore find that Cavendish did not rely on a belief that VIL was not talking to potential investors nor upon any belief that KIMS was assuming that VIL would invest £28m at financial close.

Mr Bernstein rejected the attempt to extend the success fee to money introduced by VIL and proposed a version of the September Letter which would have provided Cavendish with a success fee only if the new investor was one of Cavendish’s contacts on an agreed list. Without any further reassurance having been sought or given, Cavendish accepted that proposal and agreed to assume the obvious risk which it brought for Cavendish. It was only in the email communicating that acceptance that Mr Herman sought the reassurance that KIMS thought it highly unlikely that VIL would find a replacement investor. That email attached the now settled draft which was labelled “FINAL”. Although the agreement had not by then been concluded so as to be binding in law, the negotiations on this point had been concluded. In my judgment, if Cavendish had wanted the reassurance to inform its decision to agree to that amendment, it would have asked for it before conceding the point, not afterwards.

It is relevant in this regard that Cavendish was achieving an important safeguard in this new agreement, in that its exclusivity as regards any deal done with anyone on its list was effectively preserved. In return it gave up its previous negotiating position that it should retain exclusivity as regards anyone introduced by Vinci. It made commercial sense to accept that position since it effectively protected Cavendish’s right to commission if a deal was done with one of its own contacts but not if a deal was done with one of Vinci’s contacts. It seems a reasonable compromise and I am unsurprised that Cavendish agreed it before seeking reassurance as to the likelihood of a deal with a Vinci contact.

For all these reasons I conclude that that acceptance of Mr Bernstein’s proposed wording, made before the reassurance was sought, would not have been reversed if the reassurance had not been given.

The only evidence I have about the state of mind of anyone at Cavendish at this time is from Mr Ramery. He said in cross examination that he thought that all of Cavendish’s team relied on the alleged misrepresentations. I did not find that evidence persuasive. It was no more than an assertion of Cavendish’s case – a tendency which Mr Ramery exhibited throughout his evidence. Examination of the evidence in the form of contemporaneous emails reveals that there was no reliance.

Where a material representation is made, there is a factual presumption that the representee was induced by it and the burden shifts to the representor to prove he was not: Barton v County Natwest Ltd [2002] 4 All ER 494. The considerations discussed above lead me to conclude that KIMS have discharged that burden.

Since I have found that Cavendish is not entitled to rescind the September Agreement, this issue does not arise. Moreover even if it did arise, its resolution would not require any findings of primary fact. However I heard full argument on the matter and so will briefly deal with it.

Nome ceased to trade in February 2011 and the Project was taken over by KIMS. It is common ground that KIMS intended to stand in the shoes of Nome as regards all Nome’s liabilities from the outset. It would have been unthinkable that KIMS would have suggested otherwise, or that they would have got away with such a stance if they had adopted it. So it was probably wholly unnecessary for Cavendish to ask, but Mr Herman’s letter of 25^th May did seek “confirmation of the contracting parties”, expressly stating that the question was asked “for the avoidance of doubt”. Mr Bernstein replied that he was “happy to confirm that the terms of the Cavendish Engagement Letter, together with those further terms added or revised during our subsequent correspondence, will apply to these companies rather than Nome”.

Although Cavendish’s letter of 25^th May included a signature page and its own terms were not intended to be binding until signed by both parties, there was nothing in Mr Bernstein’s reply of 3^rd June to say that the novation he confirmed was not to take immediate effect.

All the other items under negotiation were about changes to the terms of engagement, and a reasonable bystander would have expected the parties to regard agreement about them to be interdependent. The novation was different. The reasonable bystander would not have expected KIMS to think it commercially ethical to use that as a negotiating chip or to make agreement of other items necessary before this one could be agreed. Indeed the novation was no more than a formal recognition of the commercial reality against which the parties had been dealing since February 2011. I therefore consider that a reasonable bystander with all relevant knowledge would have understood Mr Bernstein’s letter of 3^rd June to mean that he was confirming, there and then, that the liability of Nome was thenceforth the liability of the defendants. That was an end of the issue. The novation was complete.

Therefore if Cavendish had been entitled to rescind the September Agreement, that rescission would not have reversed the novation.

This issue arises if I am wrong to dismiss the claim for rescission. It also arises if I am wrong to dismiss the claim under the September Agreement on the grounds of construction discussed in paragraphs 92 to 106 above. In that event Cavendish would still have to prove, to get home under the September Agreement, that it satisfied the requirements of the Engagement Letter.

Mr Bernstein’s letter of 3^rd June 2011 and Cavendish’s response of 14^th June agreed that Cavendish’s engagement would no longer be exclusive. In its Reply to Defence Cavendish makes clear that it “does not found its claim on the existence of any right to exclusivity after 14 June 2011”. The claim must therefore be determined on the basis of the Engagement Letter without the exclusivity provision and so focuses on the words

“In the event of a successful fundraising from the Cavendish exercise, a fee of 3.5 per cent of new monies raised (‘success fee’) from the Investor (‘Investor’).”

I accept Mr Plewman’s submission that construction of these words has to take account of the fact that the contract is an agency agreement providing for a commission. Bowstead & Reynolds on Agency 19th Ed Article 57 says:

“Subject to any special terms or other indications in the contract of agency, where the remuneration of an agent is a commission on a transaction to be brought about, he is not entitled to such commission unless his services were the effective cause of the transaction being brought about.”

The Court of Appeal cited that principle with approval in Foxtons v Bicknell [2008] EWCA Civ 419 (CA); [2008] 2 E.G.L.R. 23.

Of course it is only a principle; the actual meaning of the contract depends on the words used and their factual context. However in this case I have no difficulty in concluding that the words “successful fundraising from the Cavendish exercise” mean that a fee is payable if Cavendish’s work was an effective cause of the deal that was done at financial close.

Mr Sinclair argues that it was. He relies on a number of facts which point to this conclusion, of which the following seem to me to be the most significant:

I accept that factors (i), (ii) and (iv) point in the direction that Mr Sinclair says, but it is also relevant that Cavendish had no connection with Vinci before this transaction. Vinci had no cause for loyalty to Cavendish and Cavendish held no sway over Vinci.

I also accept point (vii) but Cavendish’s role was to introduce finance, not to find a builder; and it was only VCL, not VIL, which remained involved at financial close. If Cavendish had done no more than advise that VCL be given the construction contract, and had not introduced VIL at all, and if VCL had appointed StormHarbour to find the mezzanine finance at KIMS’ expense, Cavendish could not plausibly have argued that the consequent finance was a result of the Cavendish exercise. Yet the outcome in that example would have been precisely the same as the actual outcome.

I accept point (vi) to the extent that Vinci is a prestigious brand and that Magnetar and Clydesdale would been attracted by Vinci’s reputation. Mr Harrison’s evidence was firmly to that effect. However Mr Sinclair’s closing submission that Magnetar would not have involved itself in the project without the involvement of Vinci overstates the case. Mr Newmark’s evidence was that Magnetar would not have agreed to supply finance “without the involvement of a credit worthy construction group of standing such as the Vinci group” (emphasis supplied). Again it must be remembered in this regard that Cavendish’s role was to find funds, not a builder. There is no reason to suppose that Magnetar would not have found Laing O’Rourke acceptable.

I do not accept that point (v) follows from points (i), (ii) and (iv). When Cavendish introduced VIL, it was on the basis that VIL would lend the money or procure another lender to do so. It can only have been contemplated that if this latter course was taken, VIL would behave cooperatively and collaboratively with KIMS in the handover to its replacement. It was not in anyone’s contemplation that VIL would at first pull out altogether, would have to be persuaded to remain on board, would cause another fee to be incurred which would end up being paid by KIMS, would cause considerable delays which threatened the Project and would then exploit the delays which it had (in part at least) caused so as to produce for it (and for its replacement funder) an overwhelming negotiating position and a correspondingly weak position for KIMS. Insofar as the original Heads of Terms dated 23^rd July 2010 envisaged that VIL would introduce another lender, they did not envisage that it would do so in that manner.

Moreover the transaction did not proceed under the structure set out in those Heads, which were superseded; and in order to persuade Magnetar to provide the last £6m at the last minute, KIMS had to concede better terms to Magnetar than had been negotiated with VIL.

Neither do I accept point (iii). StormHarbour was VIL’s agent for the purpose of introducing a funder to VIL (see Schedule A of the Introducing Broker Agreement dated 4^th April 2011), not (as actually happened) to KIMS. Although StormHarbour’s right to act, and its right to remuneration, arose from a contract with VIL, and although it contracted to introduce a funder to VIL not to KIMS, the service it actually provided in the end was to introduce Magnetar to KIMS - a service of much greater benefit to KIMS than to VIL since, as I have already observed, KIMS needed this deal more than VIL did. That is why, in September 2011, StormHarbour’s own financial model showed KIMS paying its fee, and why from at least November VIL was insisting on just that.

It is also relevant in this regard that it was Harpe (retained by KIMS) who introduced StormHarbour to VIL in the first place.

In these circumstances it seems to me to be unrealistic to insist that the agency agreement between VIL and StormHarbour necessitates the conclusion that VIL introduced Magnetar. StormHarbour’s service in producing the Magnetar money was in substance provided to KIMS and KIMS paid for it.

Moreover the retainer upon which Cavendish has to rely to make good its argument that VIL’s agent introduced Magnetar was in fact novated to KIMS at financial close. Cavendish argues that KIMS was under no obligation to accept that novation. However I am being asked to accept that the deal done on 30^th March 2012 was the result of the Cavendish exercise, and a concomitant of that would have to be that the commercial pressure which VIL exerted was also a feature of the Cavendish exercise; and it was that commercial pressure which resulted in the novation. I accept that the novation was only one way of doing it, and that it was chosen in the end to prevent an unnecessary VAT liability, but the fact is that KIMS ended up paying the fee and so actually novation best reflected the commercial reality.

Accordingly the Magnetar finance was introduced by another broker pursuant to an engagement which ended up being with KIMS, who paid the other broker a fee. The lender introduced by Cavendish did not lend anything. In assessing whether the deal actually done was “a successful fundraising from the Cavendish exercise”, these factors seem to me far to outweigh those advanced by Mr Sinclair even insofar as I have accepted them above. Although there was a factual connection between the Cavendish exercise and the deal which was done, the factual substance is that the deal was not the result of the Cavendish exercise.

I would therefore have dismissed Cavendish’s claim even if its contentions as to the true construction of the September Agreement had prevailed or its claim for rescission of the September Agreement had succeeded.

I have already set out the relevant provisions of the Engagement Letter in paragraph 20 above.

Mr Sinclair’s argument on this point is succinct and I can reproduce it in full as it appears in his helpful written submissions:

I doubt that the Engagement Letter, properly construed, entitled KIMS to terminate exclusivity unilaterally. They could unilaterally terminate the mandate by notice, but could not unilaterally terminate its exclusivity alone. It follows that exclusivity was not terminated unilaterally by Mr Bernstein’s letter of 3^rd June 2011 but only by the September Agreement or by a standalone agreement concluded on 14^th June when Mr Herman sent back a copy of the 3^rd June letter signed by him as agreed.

In my judgment, this agreement terminating exclusivity also brought to an end its provisions relating to post-termination deals. I reach this conclusion because the sentence beginning “In the event that” in the September Letter was intended to replace the sentence beginning with the same words in the Engagement Letter. The two provisions could not coexist.

However, if the post-termination provision of the Engagement Letter was intended to remain in force, then it can only sensibly have been intended that the phrase “period of our appointment” in the fourth sentence was intended to mean “period of the exclusivity of our appointment”. It would be nonsense if Cavendish remained entitled to a fee if a deal was concluded with someone not introduced by Cavendish but spoken to outside their period of exclusivity. Mr Sinclair did not argue for this. His argument, rather, was that the words “termination of our appointment” do not mean “termination of the exclusivity of our appointment” but are to be taken literally to mean termination of the appointment itself. So, he says, if discussions took place with Magnetar before 14^th June (after which date Cavendish does not rely on its exclusivity), then the post-termination provision applies because the appointment itself (as opposed to its exclusivity) was never terminated so financial close did not occur more than 6 months after its termination.

I cannot accept that construction for two reasons. First, it requires the word “appointment” to bear two different meanings in the same sentence. Secondly, if the post-termination provision of an exclusive mandate was intended to be transposed to a non-exclusive mandate, I would have expected it to be transposed as a post-exclusivity provision. So the natural meaning of the words and the commercial objective of the parties coincide and are against Mr Sinclair’s submission.

A similar construction obtains if I am wrong that exclusivity could not be terminated unilaterally by KIMS without terminating the mandate itself. In that event, as a matter of construction of the Engagement Letter itself as opposed to the Engagement Letter amended by the September Agreement, the words “termination of our appointment” and “period of our appointment” must mean “termination of our appointment or its exclusivity” and “period of our appointment or its exclusivity”.

Since there elapsed more than 6 months between termination of exclusivity and financial close, the claim would fail even if the exclusivity provisions of the Engagement Letter remained in force.

In any event, I am satisfied that discussions did not take place between KIMS and Magnetar until long after 14^th June 2011. There may have been discussions between Magnetar and VIL or its agent StormHarbour, but not with KIMS. On its true construction the Engagement Letter exclusivity clause would only entitle Cavendish to a fee if KIMS or its agent was party to the relevant discussion during the relevant period.

Cavendish’s pleaded case is that the Magnetar deal “was procured in breach of the Claimant’s exclusive right, following and under the Engagement Letter or (if the Claimant is not entitled to rescind it) the New Engagement Terms, to assist in effecting the c£28m of funding to be provided by Vinci Investments or a replacement funder.”

I do not understand how Cavendish claims to be entitled to an exclusive right under the September Agreement (referred to in its pleading as the New Engagement Terms) since it was that agreement which brought its exclusive right to an end and its Reply to Defence makes clear that it does not rely on any exclusive right after 14^th June 2011. The claim must be confined to a claim for breach of the Engagement Letter’s exclusivity terms and can only be based on activities taking place before 14^th June 2011.

The claim is very vaguely pleaded. Although it is alleged that the Magnetar finance was obtained in breach of the exclusive right, the nature of the breach is wholly unparticularised. The loss alleged is the loss of the right to a success fee (and not, for example, of the value of the chance of earning that fee). The causation of that loss is also not particularised.

In the event Mr Sinclair relied on one single breach of contract, namely Harpe’s approach to VIL after the latter announced its withdrawal on 9^th March 2011. It may be that that approach did infringe Cavendish’s exclusive mandate since at that moment there was no mezzanine finance in place and Harpe’s approach was aimed at getting it (back) in place. I say that it may have been a breach because Mr Bernstein pointed out that the aim of the approach was only to restore the very position which the exclusive mandate had achieved. If the breach had actually been particularised, it could have been considered and possibly answered. But even if it had been established as a breach, that approach by Harpe did not cause the loss of Cavendish’s fee.

The only other way in which Mr Sinclair puts the case is that if StormHarbour acted as financial adviser to KIMS, then that was in breach of the exclusive right of Cavendish. However he does not argue for that conclusion and no such case has actually been made by Cavendish. None of Mr Sinclair’s cross examination was intended to adduce evidence that StormHarbour acted for KIMS and Mr Sinclair called Mr Newmark of StormHarbour to give evidence (inter alia) that StormHarbour was appointed by VIL not KIMS. So the claim for damages cannot succeed on that basis.

Finally Mr Sinclair says that Mr Bernstein’s letter of 3^rd June 2011 contained an admission that KIMS had been in breach of the exclusivity provisions for several months. That may be so, but even if it was an admission (which Mr Bernstein denied) it did not identify what breach had been committed and would at most have provided evidence to support any allegation of breach that Cavendish chose to plead. It was not itself a breach.

For these reasons the claim for damages for breach of contract fails.

KIMS deliberately side-lined Cavendish even before terminating its exclusive mandate. Cavendish was kept ignorant of matters which it feels it should have been told. I have born these facts firmly in mind and have scrutinised my conclusions in the light of them.

Mr Ramery insisted in evidence that Cavendish’s exclusive mandate entitled it to be kept informed of material developments. He said that Cavendish would not have signed the September letter if it had known that VIL had engaged StormHarbour. However it was not Cavendish’s case that it had the right to be told that. If KIMS had owed Cavendish a duty of good faith or of full disclosure in negotiating the amendments; or if there had been an implied term that KIMS would not side-line Cavendish or would not promote an outcome that resulted in Cavendish not earning a success fee; or if the circumstances had in some other way given rise to a duty to inform Cavendish of VIL’s attitude and of StormHarbour’s involvement; or if KIMS’ failure to inform Cavendish of material facts could itself have been construed as a representation that those facts did not exist; then in any of these circumstances the outcome might have been different. None of those allegations was made, no doubt because they would have been untenable. The only case which Cavendish felt able to advance must fail for the reasons I have endeavoured to explain.