CF Partners (UK) Llp v Barclays Bank Plc & Anor

By this claim, CF Partners (UK) LLP (“CFP”) seeks compensation for the alleged breach of an exclusivity agreement, and the misuse of confidential information, in the context of the pursuit and acquisition by the first defendant, Barclays Bank PLC (“Barclays”) of the second defendant, a body corporate called Bryggpipan AB (formerly known as Tricorona AB) (“Tricorona”).

Put very shortly, CFP contends that Barclays used information that CFP presented to it as a client seeking lending facilities and M&A advice to take and exploit CFP’s opportunity for its own profit by itself acquiring Tricorona.

Tricorona operated in the carbon credits market and had a large portfolio (“the Tricorona Portfolio”) of tradable instruments known as Certified Emission Reductions (“CERs”). CERs essentially comprise rights to emit carbon. Controls and restrictions under international protocols or treaties in respect of the emission of carbon or greenhouse gases have in effect required emitters of such gases to acquire such rights in order to (as it were) “frank” their emissions.

CFP had identified the prospect of considerable fees and capital profit from the acquisition and monetisation of the Tricorona Portfolio. To realise this potential business opportunity CFP needed external finance and equity investment partners.

In 2008, and initially through a company called IVC International Limited (“IVC”), which had an established relationship with Barclays (which CFP had not), CFP approached Barclays with a view to obtaining from Barclays financial assistance (by way of debt financing) and also (probably) M&A advice to enable CFP to exploit the opportunity.

CFP code-named the opportunity “Project Arctic Fox”; and that is how it was and is known within CFP. Barclays’ code-name for the same project was “Project Carbonara”.

It is CFP’s case that the valuable business opportunity known as “Project Arctic Fox” by CFP and “Project Carbonara” by Barclays was introduced by CFP to Barclays subject to a duty (contractual and/or equitable) of confidence, and subject also to a contractual obligation of exclusivity; and that Barclays then used that information, not to facilitate Project Arctic Fox, but to assist it to develop what it referred to as a “strategic partnership” with Tricorona which culminated in the acquisition of Tricorona by Barclays for its own account.

CFP contends that the continuum between Project Arctic Fox/Carbonara for the acquisition of Tricorona by CFP with financial assistance and advice from Barclays and the project for the acquisition of Tricorona by Barclays for its own account, cutting out CFP, is illustrated by Barclays’ somewhat blatant code-name for that latter project: “Project Pomodoro”.

Project Pomodoro was completed in July 2012. Barclays thereafter sold Tricorona, pursuant to a project code-named “Project Rose”, for a substantial aggregate profit, with an additional payment due in certain defined events.

Put shortly, CFP contends that Barclays had determined to build a CER portfolio and establish itself in that line of business, and to that end, and only after CFP had revealed to Barclays the true potential or embedded value of the Tricorona Portfolio (often referred to at trial as “the mine”) in Project Arctic Fox/Carbonara, took its own client’s deal for its own account. Its pursuit and purchase of Tricorona pursuant to Project Pomodoro was in breach of its obligations of confidence and exclusivity (as well as any semblance of commercial propriety and morality). Barclays ultimately realised a considerable profit for itself pursuant to Project Rose, from which Tricorona’s management also profited.

Further, this unusual (most of the witnesses thought unique) turn of events was all the more arresting because (as CFP subsequently discovered, but was not disclosed to it at the time) Barclays had had, before it was approached by CFP/IVC, a pre-existing relationship with Tricorona.

That was not a mere encounter: Barclays had previously contemplated acquiring Tricorona (or a substantial part of its portfolio). Barclays’ code-name for this earlier approach was “Project Conifer”. Barclays did not pursue Project Conifer because of its doubts as to the quality of Tricorona’s management and the Tricorona Portfolio.

CFP contends that the test of the quality of the information it provided to Barclays is the fact that it so radically altered Barclays’ perception of Tricorona. CFP’s case is that Barclays’ change of mind about Tricorona was caused by what it learned from information supplied to it by CFP in the course of Project Arctic Fox, and that in the preparation and pursuit of Project Pomodoro Barclays misused that information, and was in breach both of a duty of confidence and a contractual exclusivity provision agreed between Barclays and CFP.

To put it figuratively, CFP’s case is that it provided the lens that revealed to Barclays the propensity for the frog to become the prince; and that it was this revelation, well before the expiry of any contractual or equitable duty of confidentiality, that eventually led to Barclays’ acquisition of Tricorona pursuant to Project Pomodoro, albeit some time later (and after various excursions).

CFP claims compensation (either by way of an account of profits or damages) for Barclays’ breaches of its equitable duty of confidence and its contractual obligations of exclusivity.

CFP contends that these breaches were the more egregious because Barclays fully recognised that it (a) would thereby, for its own advantage, deprive CFP of any recompense for the work it had done, and (b) should at least offer CFP proper recompense but (c) then neglected and refused to do so, dismissing CFP’s complaints in terse correspondence without any or any proper consideration.

CFP claims further that Tricorona is jointly liable to it for Barclays’ breaches of its obligations of confidence, and that similarly Barclays is jointly liable to it for Tricorona’s breaches of its obligations of confidence.

Finally, CFP claims that Barclays is liable for inducing Tricorona to breach the confidentiality agreement between itself and Tricorona, and vice-versa.

It is to be noted, however, that CFP has never sought to contend that either Barclays or Tricorona was in a fiduciary relationship with it or owed it any fiduciary duty. As Counsel for Barclays and Tricorona (together “the Defendants”) repeatedly emphasised, this means that neither Barclays nor Tricorona owed CFP any duty of loyalty, the core duty of a fiduciary, which requires that fiduciary to act in good faith, not to make a profit out of his trust, and not to place himself in a position where his duty and his interest may conflict (see Bristol and West Building Society v Mothew [1998] Ch 1 at 18).

It is Barclays’ case that the opportunity presented to it “consisted of nothing more than a supposed arbitrage resulting from the difference between the market capitalisation of Tricorona and the value (as CFP perceived it) of Tricorona’s portfolio”. Barclays contends that the opportunity, and the information provided by

Barclays further contends that, in any event, it never misused the information provided to it in any material way that damaged CFP; that at most the information provided to it may have re-awakened and galvanised its interest in Tricorona; but it did not misuse any confidential information in determining to acquire it or in any actionable way.

Barclays’ case is epitomised by its principal witness, Ms Harshika Patel (“Ms Patel”), as follows:

“So far as I was aware, in purchasing Tricorona Barclays was not exploiting any business opportunity identified to it by CF Partners during Project Carbonara. Rather…Barclays acquired Tricorona after it was unable to acquire EcoSecurities [the only larger carbon developer] and in furtherance of its strategic objective to expand into the primary market. So far as I am concerned, the identification and exploitation of this strategic objective had nothing to do with CF Partners or any confidential information provided to Barclays by CF Partners.”

Barclays contends also that the opportunity was not only never confidential but in any event transitory, such that by 2009 it was long gone: the perceived arbitrage no longer existed by 2009 because of the unprecedented collapse of the global market in the global financial crisis.

Barclays further contends that it undertook no such obligation as to preclude its own acquisition of Tricorona, and that, in particular, any obligation of confidentiality was defined and confined by express contractual agreement, and had expired before that acquisition. Barclays further contends that the sting is drawn from the unusualness of it having sought to acquire for itself its client’s opportunity by the fact that CFP agreed (pursuant to an agreement headed “Termination of Exclusivity” and dated 30 March 2009) that Barclays should be free to carry out such a transaction. More generally, Barclays maintains (as it was put in its Opening Submissions) that “the contractual regime creates an insurmountable obstacle for CF’s case…”.

Tricorona’s defence complements Barclays’: unsurprisingly, since it has been directed by Barclays on the terms of a Side Agreement between them which was only disclosed in the course of the trial.

Tricorona’s response to the claim against it for breach of obligations of confidence is that it owed no such obligations, and in any event did not use any information provided to it in the course of Arctic Fox otherwise than for the assistance of CFP in the course of Arctic Fox.

As to the inducement claim against it, Tricorona’s case is that it did not knowingly seek to induce Barclays to break its obligations in any way; and Tricorona denies any

For its part, Tricorona (again as directed by Barclays) has counterclaimed against CFP, alleging that CFP was in breach of obligations of confidentiality in the way it used confidential information provided to it by Tricorona.

Both Barclays and Tricorona also rely on the alleged breaches by CFP of obligations of confidence it owed to Tricorona as barring CFP’s own equitable claims against them, on the ground that CFP does “not come to equity with clean hands”. (The Defendants accept that this “unclean hands” defence cannot apply to CFP’s common law claims.)

CFP rejects Tricorona’s counterclaim as a sideshow. It accepts that it made very limited misuse of the information but contends that this gave rise to no, or alternatively nominal, damages. It rejects the suggestion that there is any basis for barring its equitable claims, making the point that the maxim could only assist Tricorona and not Barclays, and is in any event inapplicable in the circumstances.

The case gives rise to a myriad of issues, both factual and legal. It has been hard fought: and it occupied the court for 34 sitting days (and some five more besides for reading the very considerable witness statements, documentation and skeleton arguments). I understand that Barclays’ costs alone are in the region of £10 million: it is litigation on a grand scale.

The written openings of each side well exceeded 300 pages. Written closing submissions were exchanged, each of more than 400 pages. Further schedules were attached. Although within a comparatively short compass in point of time (in effect 2007 to 2010) the factual detail required to be examined has been very considerable.

22 witnesses were cross-examined. Some 200 or so files were collated and presented. All the documents (some 38,000) were loaded onto computer software, but hard copies were also made available. Although this judgment is much delayed, which I regret, the availability of all the material in electronic form has been of immense assistance. I am extremely grateful for the first-class work of the transcribers and those involved in the maintenance of the electronic record.

I have been greatly assisted by the indefatigable efforts of Counsel and their respective teams: Tim Lord QC, Orlando Gledhill and Richard Eschwege, instructed by RPC, for CFP and Ewan McQuater QC, David Quest QC and Sandy Phipps, instructed by Freshfields Bruckhaus Deringer, for Barclays and Tricorona. Their assistance has been exemplary. As I mention later, I am also grateful for their patience, and that of their ultimate clients.

An agreed summary of the factual background, in chronological sequence, is attached marked “Appendix A”. This, together with a list of individuals referred to in it (attached marked “Appendix B”), provides a useful overview of the run of events.

The parties also agreed a list of issues, subject to caveats which included that they were always to be read subject to the parties’ statements of case. The list is a useful aide-memoire and is attached to this judgment marked “Appendix C”.

The main issues that it is necessary for me to determine can for present purposes be summarised as follows:

Inevitably, these primary issues raise a number of sub-issues, as indeed is apparent from the Agreed List of Issues attached marked “Appendix C”.

Before addressing these issues, I first need to describe some of the features of the carbon market, which (since the case concerns an opportunity for the realisation of the value of the Tricorona Portfolio of CERs) is the context in which the dispute arises. By “carbon market” I mean greenhouse emission trading and the regulatory framework and markets for emissions trading developed to comply with the Kyoto Protocol to the United Nations Framework Convention on Climate Change (“UNFCCC”).

The market background and a description of the regulatory framework is important to an understanding of CFP’s case that information relating to that opportunity which it shared with Barclays and Tricorona was both confidential and valuable. It is also necessary to introduce and define the array of acronyms which are deployed in the market, though I also attach to this judgment, marked “Appendix D”, a “Glossary of Key Terms” prepared by CFP (but which I do not understand to be controversial).

I take the description below, without further specific attribution, largely from the expert reports of Daniel Radov (“Mr Radov”) (one of CFP’s carbon trading experts) and Adriaan Korthuis (“Mr Korthuis”) (the Defendants’ carbon trading expert). I have also borrowed from the witness statement of Mr Jan-Willem Martens (“Mr Martens”). Mr Martens, though a factual witness for Barclays and not an expert witness, has substantial knowledge of schemes set up under or in conjunction with the Kyoto Protocol. I believe what follows in this section to be uncontroversial.

The UNFCCC was established in 1992 to begin to address the perceived problems presented by global warming and associated climate change. By 1995, in an effort to strengthen global co-operation on these matters, participating countries launched further negotiations, which ultimately led to the development of the Kyoto Protocol. (Footnote: ¹)

The Kyoto Protocol was signed in 1997 and came into force in 2005, after a sufficient number of countries ratified it. The Kyoto Protocol is a legally binding international agreement in which most of the UNFCCC Annex I countries (Footnote: ²) (listed in Annex I of the UNFCCC) agreed to reduce their emissions of carbon dioxide and other greenhouse gases (GHGs) in the period from January 2008 to December 2012, also known as the First Commitment Period. (Footnote: ³) In November 2012, at the 18^th Conference of the Parties to the Kyoto Protocol chaired by the UN in Doha, a Second Commitment Period running from January 2013 until December 2020 was discussed, with a smaller list of countries proposing targeted emissions reductions cuts, subject to final agreement/ratification. (Footnote: ⁴) Governments aim to agree to a new framework by 2015 involving all countries (removing the split between Annex I and non-Annex I countries) that is intended to then come into effect from 2021. However, the status of these latest commitments and the future international agreements remains uncertain.

In ratifying the Protocol, industrialised countries listed in Annex B (which is nearly identical to the list under Annex I of the UNFCCC (Footnote: ⁵)) accepted target future emissions levels for the First Commitment Period, expressed in proportion to each country’s “Base Year” emissions – in most cases, its emissions in 1990. Each country would then be allocated a certain quantity of carbon emission rights, called “Assigned Amount Units” (“AAUs”). (Footnote: ⁶) Each AAU corresponds to one tonne of carbon dioxide equivalent. The number of AAUs assigned to each country is proportional to the country’s historic emissions level, adjusted to reflect the level of reductions it accepted under the Protocol.

Thus, the overall “cap” on emissions, measured by a fixed number of emissions “allowances” that permit the holder to emit a given quantity of emissions – say, one tonne of carbon dioxide equivalent, or “tCO2e”, is established by the national government; obligated parties are required to measure and report their emissions, and surrender an emissions allowance for each unit of emissions that they are responsible for releasing into the environment. If they fail to surrender allowances, they may face fines or other penalties.

However, as a means of ensuring that environmental targets are met with least impact on the economy, allowances are transferable, so emitters can buy and sell allowances. “Cap-and-trade” systems have developed to enable plants or other emitters covered by the policy more than their allocation to acquire additional allowances from others with an under-utilised allocation, though all within the confines of the overall or collective cap. This trade in allowances establishes a market price, and brokers, exchanges, and other intermediaries who are not themselves obligated parties (Footnote: ⁷) can participate in the market to facilitate trade.

In addition to this basic framework for a cap-and-trade system, many emissions trading systems also include rules that let obligated parties use instruments other than allowances to comply with their obligations. In particular, many systems recognise that it is often possible to reduce emissions from sources that are outside the regulatory scope of the trading system, and include provisions that make it possible to receive credit for reducing these external emissions.

The Kyoto Protocol made provision for this. Thus, having imposed an overall cap on Annex B country emissions and established each country’s corresponding emission rights, it also established three “flexible mechanisms”, which allow emissions trading to be used to facilitate global emissions reductions.

The first flexible mechanism, known simply as the “Emissions Trading” mechanism, allows Annex B countries to trade their AAUs. Countries that expect their emissions over the First Commitment Period to exceed their Assigned Amount may buy AAUs

The two other flexible mechanisms are based on the development of specific emissions reduction projects (or in some cases “programmes of activities”) that generate emissions reduction credits from specific industrial plants or other economic activities.

The first such mechanism, Joint Implementation (“JI”), allows for two Annex I countries to co-operate in their efforts to reduce emissions, creating emissions reduction credits (called “Emissions Reduction Units”, or “ERUs”). For each ERU that a country acquires from another country, the acquiring country’s Assigned Amount is increased by one tCO₂e, and the transferring country’s Assigned Amount is reduced, to ensure that the total number of emission rights within Annex I countries does not increase. (Footnote: ⁹)

The final flexible mechanism is the Clean Development Mechanism (“CDM”), which allows Annex I countries to invest in emissions reduction projects in non-Annex I countries (which are less developed, and which do not have fixed emissions targets under the Protocol) to generate credits (the CERs to which I have previously referred) that can be surrendered for compliance alongside AAUs. The Protocol specifies that the use of emissions trading mechanisms should be supplementary to investment in domestic emissions reductions. A combination of the three types of emission rights – that is, emission allowances (in the form of AAUs) or emissions credits (CERs and ERUs) – may be used by Annex B countries to comply with their targets. Thus, the Kyoto project mechanisms are the main route by which the private sector participates in emissions trading under the Kyoto Protocol.

The admissibility of ERUs and CERs requires control. Whereas AAUs are typically held only by governments, (Footnote: ¹⁰) CERs and ERUs may be awarded to private entities that have invested in emissions reduction projects. To ensure that the emissions reductions represented by CERs are credible, a set of procedures was established under the UNFCCC to regulate project development.

To this end, the governance of the CDM is managed by an Executive Board, answerable ultimately to the countries that have ratified the Kyoto Protocol. Among the Executive Board’s responsibilities are approving project “Methodologies”, which are detailed templates that are approved for use in determining project baselines, as well as approving specific projects as eligible and reviewing applications for the issuance of credits.

To oversee the CDM process nationally, each country producing or using CERs must assign responsibility for the oversight of the CDM within its jurisdiction to a “Designated National Authority” (“DNA”). Each country that is a signatory to the Kyoto Protocol appoints an office or ministry to be the DNA to review and approve the participation in CDM projects. The DNA may also be responsible for designing the national framework governing the development of CDM projects and the use of CERs for compliance purposes.

As to the generation of CERs, credits are awarded to CDM projects for the amount of greenhouse gas emissions they reduce relative to a baseline. Once the project is implemented, actual emissions (if any) are compared to the emissions that would have been expected under the baseline, and the difference is the volume of emissions reductions credited to the project.

A typical CDM project might begin, for example, with a plant owner in a developing country who is considering investing in more energy efficient technology at an existing plant, or in plant equipment that will capture and destroy greenhouse gases, or in a completely new power generation facility with low emissions. To receive CERs, some party must develop the analyses and secure the relevant authorisations to have the project approved as eligible to earn the carbon credits. This party could be the owner or developer of the physical project, or a consultant or team of consultants hired by the owner, or it could be a completely independent company whose main business is overseeing the process of securing CERs, and which takes ownership of them.

At a minimum a CDM project will have an owner registered in the Host Country who has been approved by the Host Country DNA. Generally, there will also be one or more buyers based in Annex I countries that will have entered into contracts to purchase the CERs. (Footnote: ¹¹)

The term “Project Participant” is used to refer to a private or public entity that has been approved for involvement in the project by a country’s DNA, including the owner and approved buyers. An approved Project Participant is bestowed with various rights within the CDM such as being able to communicate confidentially with the Executive Board, appoint and work with UN approved companies, and request activities from the Executive Board, including registration and issuance of credits. Project Participants therefore include the project owner (Host Country Project Participant) and others who have entered into contracts to purchase the expected emission reduction credits from a project (Annex I country Project Participants).

In addition, there are companies or consultancies that have been approved and appointed by the UNFCCC Executive Board that are responsible for the certification of project baselines and the emissions reductions associated with projects. These independent companies perform a kind of auditing role within the CDM process. These companies are referred to as Designated Operational Entities (“DOEs”) and are charged with providing independent assessments of projects to ensure that they conform to the requirements set out by the CDM Executive Board.

Companies whose main business is to acquire emissions reduction credits are often referred to as “project originators”. (In contexts where there is less concern about distinguishing originators from the owners of a physical plant, they may simply be referred to as CDM “project developers”.)

Carbon credit firms also include carbon “accumulators” or “aggregators”, whose activities overlap with originators, although the latter terms may be used more often to describe companies that are less directly involved with the projects themselves.

Project originators may be independent companies with no formal obligations under any emissions trading system, or they may themselves face commitments under such systems. There are many “compliance buyers” – among them companies, as well as governments – that have assumed the role of project originator to oversee the process of securing credits for their own compliance use. (Footnote: ¹²)

In general, the buyer of emissions credits contracts with the seller in the Host Country by agreeing an “Emissions Reduction Purchase Agreement” (known as an “ERPA”). An ERPA specifies the terms of the transaction, including the allocation of risk between the two parties. I discuss the particular structure of ERPAs in more depth later.

The process of having an emissions reduction project (for example, a hydro-electric dam in, say, China, or a wind farm in, say, India) certified by the CDM Executive Board so as to generate approved CERs is technical and lengthy. It is also uncertain, given potential environmental and social concerns, especially in the context of hydro projects. I provide an overview of the CDM project development process in the following paragraphs.

There are three key documents that must be submitted to the CDM Executive Board for review before a project can be registered:

Initially, CDM rules required that all Project Participants – both those in host countries and those in buyer Annex I countries – received Letters of Approval from their respective DNAs prior to the registration of a project. However, a subsequent amendment to the rules was agreed by the Executive Board in February 2005, which meant Annex I country approval was no longer always required prior to registration: for this new class of so-called “unilateral” projects, Annex I approval was only necessary prior to the CDM Registry administrator forwarding CERs to the national account of the Annex I Project Participant (i.e. the buyer of the credits).

Consequently, projects may apply for registration at different stages of their physical commissioning and development, but only after they have completed the three key stages of the process described in paragraph [66] above and secured the required documentation. However, for various reasons, project developers or originators are likely to apply for registration relatively early in the process, before significant funds have been committed to making physical investments. (I should mention that there are also additional areas of complexity and uncertainty as to the requirements for Annex I approval in relation to “Large Hydro” projects: I return to these later.)

After a project is successfully registered, before it can receive any CERs, its actual performance must be monitored, and emissions reductions verified against the baseline set out in the PDD. Monitoring begins as soon as a project is operational and must be carried out and recorded as agreed within the PDD (and approved at the validation stage). Project Participants decide when they wish to apply to the Executive Board for the issuance of CERs. To apply, Participants must first ask a DOE to assess the monitoring and verify the emissions reductions that have been recorded by the project. (Footnote: ¹⁵) To ensure the credibility of the project, under most circumstances the DOE that carries out the verification of emissions levels must not be the same company that carried out the validation prior to registration. (Footnote: ¹⁶) Following successful verification, the DOE then formally certifies the emission reductions of the project for the period during which emissions levels were monitored. This certification sets out the number of credits that the project is entitled to receive for the corresponding period.

Once the DOE has verified the emissions reductions over the relevant period, and the verification has been submitted to the Executive Board, the Board may then issue the corresponding number of CERs to the project. The issuing of CERs is carried out by the CDM Registry administrator, on behalf of the Executive Board. At this point the CERs are created and issued, entering into the Executive Board’s Pending Account within the CDM Registry. (Footnote: ¹⁷)

The final stage of the process is the forwarding of CERs from the Executive Board’s Pending Account into the account of a “Project Participant” (i.e. the buyer or seller of the CERs) within their National Registry. In order for CERs to be forwarded, a request for forwarding must be made to the CDM Registry administrator by a Project Participant. The administrator will carry out various checks prior to forwarding the credits, including that Annex I approval for the relevant Project Participant(s) has been granted.

The verification and subsequent issuance process is repeated each time a Project Participant applies for a project to be issued additional CERs.

Once a CER has been forwarded to an account in an Annex I country, it can be traded with other financial intermediaries or directly with compliance buyers. At this point, the credit becomes what is referred to as a “secondary CER”.

In addition to the process for the certification of CERs and as noted above, JI allows Annex I countries to co-operate with each other to reduce emissions, producing ERUs that can be traded between the participating parties and that can be used for compliance with Kyoto targets. For a JI project to be eligible, it must provide “a reduction in emissions by sources, or an enhancement of removals by sinks, that is additional to any that may otherwise occur”. Moreover, as for other forms of emissions trading allowed under the Protocol, use of JI is intended to be “supplemental” to domestic actions to reduce emissions.

Similar to CDM projects, before any ERUs may be issued to a JI project, the project must have the approval of the Host Party, and Project Participants (Footnote: ¹⁸) must be authorised to participate by an Annex I Party.

The largest emissions trading market is the EU Emissions Trading System, previously called the Emissions Trading Scheme (“EU ETS”). The EU ETS was established by the European Union in Directive 2003/87/EC (referred to as “the EU ETS Directive”), and its sophisticated cap-and-trade system came into effect in 2005.

The EU ETS Directive requires EU Member States to cap carbon emissions pursuant to the Kyoto protocol. The EU ETS is designed to work in conjunction with the system established by the Kyoto Protocol, but it is a separate trading system. It is a cap-and-trade system covering carbon dioxide and other greenhouse gas emissions from large industrial plants or “installations”.

Emissions are licensed by the holding of tradable European Union Allowances (“EUAs”) or other equivalent credits including CERs. The EU ETS did not at first permit the use of CERs or ERUs to meet commitments. However, by Directive 2004/101/EC (“the Linking Directive”) the scheme was amended to allow them to be used (as well as EUAs), thus linking the EU ETS and Kyoto Protocol regimes.

Thus, subject to various limited restrictions, CERs from approved CDM projects may be used by participants to comply with the EU ETS. As to the restrictions, the EU ETS prohibits the use of CERs generated by nuclear facilities and from land use and forestry activities; and, of more direct relevance to the present case, it also requires Member States to ensure that specified criteria and guidelines are observed for CERs generated from hydro-electric power production activities, with special criteria for “large hydro CERs” derived from activities with a generating capacity of more than 20 MW.

With coverage of sources whose annual emissions total around 2 billion tCO₂e, the

A wide range of companies and other organisations are involved in the market, either in trading the product (EUAs, CERs or ERUs) or facilitating, verifying and assuring transactions and compliance with the scheme’s rules. In addition to the plant operators whose emissions are regulated by the EU ETS, stakeholders include major banks, trading houses, brokerages and hedge funds, as well as exchange platforms and legal and advisory services. Additionally, news, reporting and data management services have been developed to support the market, including for example Thomson Reuters Point Carbon (hereafter “Point Carbon”) and Bloomberg New Energy Finance.

The simplest way of trading EUAs is to transfer them directly from one registry account to another. This kind of transfer can be agreed between the two parties, and can result in essentially immediate transfer between the two accounts. This is in effect a “spot” trade in EUAs, because it involves the immediate transfer of allowances from one account to another. In addition to direct spot trades, there are brokers and exchanges that will facilitate spot trade between two parties, potentially providing anonymity, ensuring creditworthiness, providing liquidity, etc. (Footnote: ¹⁹)

Beyond the simple spot trading of allowances, it is also possible to trade in EUA derivatives. The most common of these is a contract for future delivery of carbon credits on a pre-arranged date, with payment typically made around the future delivery date for a previously agreed price. Like spot trades, such forward contracts can be arranged for trade over-the-counter (“OTC”) or via exchanges. (When forward contracts are traded over exchanges they are typically referred to as futures.) By far the most common forms of forward/ futures contract are those providing for delivery of EUAs in December of each year. There are, however, forward contracts for delivery of EUAs at different times of the year, and it is also possible to trade more complex derivatives, such as EUA options.

Of considerable importance in this case is the distinction usually made by analysts between two different markets for CERs and other emission reduction credits, the “primary” and the “secondary” markets.

Put shortly, the primary market refers to the development, purchase and trading of emission rights before their certification and issuance as CERs: in effect, the primary market trades in “expected” CERs, where there is at least some degree (and sometimes a high degree) of issuance risk. The secondary market refers to trading of

Trade in secondary CERs is similar to trade in other commodities, with standardised contracts. Barclays developed a standard form contract in 2007 which was called the Standardised Certified Emission Reduction Forward Agreement or “SCERFA”. Much of the trading is on exchanges, reducing transaction costs and minimising counterparty credit risks. Not all secondary CERs, however, can be traded on exchanges; and over-the-counter transactions can take place too.

The primary CER market (“pCERs”) is not standardised and is much less liquid, reflecting the much more uncertain nature of a pCER. Primary Carbon credit originators purchase the rights to CERs from the project owner, in the ‘primary market’. The rights are typically purchased at an early stage in the development of the project at a time when there is uncertainty as to how many (if any) CERs will eventually be issued and when.

Thus, participants in the primary CER market are dealing, not in approved and issued CERs, but in “expected” (sometimes more accurately “hoped for” pCERs), which may in the event never be approved or issued: pCERs are thus not entirely fungible; and the value of a pCER is lower than the value of a secondary CER (“sCER”) because a variety of risks must be priced in leading to that discount. 89. That discount would typically reflect a number of factors, including:

The risks are allocated under the terms of an ERPA. ERPAs are thus made to measure, often requiring detailed negotiation; their terms will affect and determine the price/risk ratio and are likely to influence also the types of onward sales agreements that the project originator will enter into with purchasers from it. For example, a buyer is likely to be willing to pay more for a contract that firmly commits the seller to deliver a fixed number of CERs than for a contract that only commits the seller to deliver as many CERs as are actually issued. In the former case, if the project fails to deliver, the seller is contractually obliged to find CERs to deliver to the buyer. In the

The terms of the ERPAs that a project originator has in place with project owners are also likely to influence the types of onward sales agreements that the originator will enter into with other parties seeking to purchase CERs from the project originator. All else being equal, a project originator might be more likely to enter into firm forward sales commitments the greater the security offered by the (collective) terms of its ERPAs with project owners. (Having ERPAs for a large portfolio of projects, spread across different project categories and geographies, also may help an originator to manage the risks of forward commitments, although some risks, such as delays associated with the CDM approvals process, may not be “diversifiable”.) A project originator’s willingness to make firm contractual forward commitments will also depend on the originator’s overall business strategy and attitude towards risk.

The special risks inherent in the primary carbon market, and in dealings in pCERs (as distinct from sCERs), are of some considerable importance in this case. It is CFP’s contention that it was its special experience and expertise in the assessment of those risks, and the further risks relating to Large Hydro pCERs, that enabled it both to identify the potential and also to develop a strategy for the realisation of Tricorona’s unusual portfolio. Barclays, on the other hand, contends that it had such experience and expertise itself, and needed no guidance from CFP; and in any event what CFP provided was not confidential, nor was it of use to, or indeed ever used by, Barclays. I develop the competing arguments later.

Since (as I come shortly to explain) the Tricorona Portfolio largely comprised what are known as “Large Hydro CERs” it is also necessary to explain briefly their nature (and peculiarities).

Large Hydro projects are defined in the EU Linking Directive as hydro-electric power production projects with an electricity generating capacity in excess of 20 MW.

On the one hand, Large Hydro Projects are a considerable source of CERs, and since such projects use well established and reliable technology, buyers of Large Hydro pCERs can have relative confidence both in the physical development of the projects (and thus relatively low “Project Risk”) and in the forecasting of emission reductions to be achieved.

On the other hand, in the context of environmental concerns about the construction of dams and their potentially grave effects (for example, in terms of the displacement of communities and/or the removal of water supply), the Linking Directive placed conditions for the approval of large hydro activities by EU Member State Annex I countries that were parties to the EU ETS to ensure compliance with the guidelines of the World Commission on Dams (“WCD”). Generally, to be used under the EU ETS, Large Hydro projects must have a further letter of approval, known as an “Annex I Letter of Approval” from an EU Member State which acknowledges that the project has been developed according to the WCD guidelines.

The additional criterion imposed on the approval of Large Hydro projects appears to have resulted in some market participants being especially apprehensive about them, and less willing to use them (or buy them) than other project types generating CERs. In particular, the provision allowing Member States to accept conforming CERs from operators within their jurisdictions led some market participants and observers to be concerned that individual countries might draw up specific requirements with respect to the CERs that they would accept for compliance purposes.

Mr Radov, having reviewed a variety of press reports and market and trade publications, identified two key areas of particular doubt. First, there was uncertainty about which Member States would be willing to approve Large Hydro projects at all. Second, there was uncertainty about whether, if one Member State issued a Letter of Approval for a Large Hydro Project, other Member States would be willing to accept (for EU ETS compliance) CERs from that project without having issued LOAs themselves.

In the context of this confusion and uncertainty, in October 2007 the major carbon trading exchanges (in particular, the European Climate Exchange (“ECX”),

In an effort to clarify when and under what conditions Large Hydro projects would qualify for acceptance EU Member States published a set of guidelines based on what was presented as a common interpretation of the WCD report and which were intended to harmonise the assessment within the EU of whether a Large Hydro project would conform and obtain approval. These were the “Guidelines on a common understanding of Article 11b(6) of Directive 2003/87/EC as amended by Directive 2004/101/EC” (“the 2009 Guidelines”).

The 2009 Guidelines were agreed in January 2009. Implementation was to be in April but was delayed until 1 July 2009. The 2009 Guidelines provided recommendations as to how the WCD criteria should be used to screen Large Hydro projects, and included a standard template questionnaire to harmonise the assessment within the EU of whether a Large Hydro project conformed to the WCD report. The 2009 Guidelines stated that if a project had an Annex I LOA under the template, then all Member States agreed to accept CERs from that project.

However, although an obvious step forward in, as it were, bringing Large Hydro into the fold, the 2009 Guidelines left open to Member States the final decision, and may therefore not have answered satisfactorily the concerns of market participants, even though none of the experts had any knowledge or experience of any occasion on which any EU Member State had formally refused to accept for compliance a Large Hydro CER that had originated from a project approved by another Member State.

Undoubtedly, concerns remained. Thus, for example, the 2009 Guidelines:

Those concerns continued to blight the prospect of general market acceptance, despite legal commentary that (a) the uncertainty was misplaced and based on a misreading of the Linking Directive and (b) from a legal perspective, Large Hydro CERs, once actually issued, were fungible with those deriving from other project types. Diminishing concerns were then re-ignited in light of speculation that Large Hydro CERs might not be eligible within the CDM post-2012.

At all events, though Large Hydro CERs began to be accepted for trading on the GreenX exchange in February 2011, and the BlueNext exchange followed suit in May 2011, the other major exchanges (including ECX, Nordpool and EEX) continued to exclude Large Hydro CERs from their platforms. That in a sense is the litmus test demonstrating abiding, even if misplaced, concerns about this particular class of CERs even when issued. Further, their exclusion from such major exchanges continued to make Large Hydro CERs less convenient for players in the secondary market, such as the European trading houses and banks.

The experts disagreed, however, as to the level of demand for Large Hydro CERs overall (including OTC trades).

Barclays’ expert, Mr Korthuis, expressed the opinion in his report that the appetite of utilities for the large numbers of (issued) sCERs at low cost of contract management and low delivery risk available from Large Hydro projects increased strongly after early 2008, and that more especially “it was well known in the market including during 2008-9 that European utilities were buying CERs from large hydro projects”.

He added that his experience whilst working for Climate Focus B.V. (“Climate Focus”), an advisory firm in climate change policies specialising in the carbon market, was that they “were regularly approached by buyers, including mostly utility companies, if the CERs of these projects were already for sale”. Thus, although the exclusion from major exchanges “made large hydro CERs less convenient for players in the secondary market, such as the European trading houses and banks… [who] preferred the convenience and transparency of trading exchange traded products”, nevertheless this was counter-balanced by ever-increasing demand from “the big Chinese parastatal energy companies” and from Endesa and other European utilities.

Mr Korthuis illustrated this by making the point that in April 2008 Large Hydro projects made up 12.6% of the entire CDM pipeline (as derived from a UNEP RISOE CDM pipeline spreadsheet of 9 April 2008), whereas at the date of his report in February 2013 the figure had risen to 20.5% (using a like spreadsheet of 13 December 2012), making it the single largest CDM project category. This was disputed.

Mr Radov disagreed both with Mr Korthuis’s general conclusion and his approach; he disagreed especially with Mr Korthuis’s evidence that demand, especially from the largest and best known European utility companies, was not only strong but well known in the market to be so.

He rejected Mr Korthuis’s attempt to extract support from the UNEP RISOE CDM pipeline spreadsheets, making the point that (a) not all persons listed as a project participant were buyers of CERs: they might be investors in the project for a number of reasons; (b) such persons might, even if buyers, not be buying for their own compliance use but onward sale; (c) Mr Korthuis’s approach focused on numbers of projects, whereas the better test was volume, which resulted in a conclusion (opposite to that of Mr Korthuis) that EU ETS participants continued to prefer other types of CERs.

Most importantly perhaps (since it goes to the crucial question in the case as to whether CFP demonstrated a way of monetising the Tricorona Portfolio that others had not spotted), Mr Radov’s opinion remained throughout that demand for Large Hydro CERs was increasing, but from a very low base (his figures, which Mr Korthuis did not gainsay when put to him in cross-examination, were 0.4% as at April 2009 rising to 2% in April 2010), and that given the slim market, it could be inferred that their profile in the market, and the demand for them, remained restricted, uncertain and opaque. Mr Bode, CFP’s other expert, concurred.

Generally, I found Mr Radov to be the most reliable of the experts. He spoke with a wealth and variety of experience as well as calm assurance. Mr Korthuis was genial: and ready to qualify or correct his evidence when shown to have overstated the position. Although also well qualified, his experience was not as broad as Mr Radov’s, and in my assessment he tended to extrapolate general views of the market, especially as regards the demand for Large Hydro CERs, from his firm’s appointment by, and work for, the largest Spanish utility, Endesa, which I am not persuaded reflected the true general position. I was not persuaded by Mr Korthuis’s efforts to “prove” widespread knowledge of demand, nor his attempt to depict Large Hydro as a major part of the market at the time. I also agree with Mr Radov that Mr Korthuis was not always clear whether he was talking about the primary or the secondary market, contracts for sCERs, or forward sales under ERPAs of pCERs.

This occasional failure to distinguish between the two markets may explain in part why he tended to overstate the development and transparency of the market for Large Hydro CERs, and why (to give an example which also illustrates his straightforwardness) he was constrained to accept under cross-examination the proposition put to him that in the period 2008 to 2010:

“it was not a straightforward exercise to sell forward primary large hydro CERs in significant volumes.”

All that said, I consider that Mr Radov did tend to overstate both the extent to which demand from utilities, actual and prospective, for Large Hydro CERs (both pCERs and sCERs) was developing in that period, and the extent to which that was unknown. I consider it likely that the fact of initially low level and hesitant, but increasingly substantial and concrete, demand for large Hydro sCERs from utilities is likely to have become known to at least some of those in the markets (both secondary and primary) over the course of 2008 and subsequent years (especially from mid-2009). I cannot accept that this was a secret.

Although there are various issues that need later amplification, and others (such as those relating to available remedies) which I shall for the present leave aside, the legal framework within which this case falls to be decided may I think be summarised as follows.

CFP relies on (and claims breach of) both, and the two are often inter-related: but it is necessary to distinguish between (a) a duty of confidence and (b) an obligation of exclusivity.

A duty of confidence relates to the protection of information which has the necessary quality of confidentiality. An obligation of exclusivity restricts the person bound in his dealings with others. The one does not necessarily connote or impose the other, although each may reinforce the other.

The legal principles defining the duty of confidence are well established and there was a large measure of common ground both as to their content and as to their application.

Even in the absence of a contractual relationship and stipulation, and in the absence too of an initial confidential relationship, the law imposes a “duty of confidence” whenever a person receives information he knows or ought to know is fairly and reasonably to be regarded as confidential: see per Lord Nicholls (dissenting on the result, but not on this issue) in Campbell v MGN Ltd [2004] UKHL 22; [2004] 2 AC 457 at [14].

The subject matter must be “information”, and that information must be clear and identifiable: see Amway Corp v Eurway International Ltd (1974) RPC 82 at 86-87.

To warrant equitable protection, the information must have the “necessary quality of confidence about it”: per Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215.

Confidentiality does not attach to trivial or useless information: but the measure is not its commercial value; it is whether the preservation of its confidentiality is of substantial concern to the claimant, and the threshold in this regard is not a high one: Force India Formula One Team Limited [2012] ROC 29 at [223] in Arnold J’s judgment at first instance.

The basic attribute or quality which must be shown to attach to the information for it to be treated as confidential is inaccessibility: the information cannot be treated as confidential if it is common knowledge or generally accessible and in the public domain. Whether the information is so generally accessible is a question of degree depending on the particular case. It is not necessary for a claimant to show that no one else knew of or had access to the information.

A special collation and presentation of information, the individual components of which are not of themselves or individually confidential, may have the quality of confidence: for example, a customer list may be composed of particular names all of which are publicly available, but the list will nevertheless be confidential. In the Saltman case (supra) Lord Greene MR said:

“…it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.”

Or as it is put in Gurry on Breach of Confidence (2^nd ed., 2012) para 5.16:

“Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts. Indeed, often the more striking the novelty, the more commonplace its components…”

Further, and of particular potential relevance in this case, pieces of information which individually might appear to have limited value and marginal secrecy, in combination in particular hands, might have special composite value and confer on the recipient a considerable advantage: as was noted by the New Zealand Court of Appeal in the Arklow case when at that stage (see [1998] 3 NZLR 680 at 700 in the judgment of the majority which was affirmed by the Privy Council).

The parties may by contract agree and identify specified information that is, or is as between the parties to be treated as, confidential, or protected under the terms of their agreement; or they may simply agree that information may not be used whether or not otherwise it would have the quality of confidentiality.

Thus, in Ministry of Defence v Griffin [2008] EWHC 1542 Eady J observed:

“A contract may embrace categories of information within the protection of confidentiality even if, without a contract, equity would not recognise such a duty.”

However, that case concerned obligations to Government of a sensitive nature: and an attempt to restrain the use of information that is not confidential (e.g. because in the public domain) may risk being unenforceable on grounds of public policy as being in restraint of trade. Further, loss and damage might be impossible to establish.

Contractual obligations and equitable duties may co-exist: the one does not necessarily trump, exclude or extinguish the other: see Robb v Green [1895] 2 QB 315 and Nichrotherm Electrical Company Ltd and others v Percy [1957] RPC 207 (both in the Court of Appeal).

However, where the parties have specified the information to be treated as confidential and/or the extent and duration of the obligations in respect of it, the court will not ordinarily superimpose additional or more extensive equitable obligations: and see per Sales J in Vercoe and Pratt v Rutland Fund Management Ltd [2010] EWHC 424 (Ch), who found in that case that the duty of confidence was confirmed and defined by the contract, and observed (at [329]):

“Where parties to a contract have negotiated and agreed the terms governing how confidential information may be used, their respective rights and obligations are then governed by the contract and in the ordinary case there is no wider set of obligations imposed by the general law of confidence: see e.g. Coco v Clark at 419.”

Nevertheless, that does not preclude wider equitable duties of confidence in circumstances that are not ordinary. For example, as it seems to me, a circumstance could arise where the obligations of the parties in respect of information with the quality of confidentiality are not clearly prescribed or governed by the contractual terms but where the use of certain information would plainly excite and offend a reasonable man’s conscience. In such circumstances, as it seems to me, an equitable duty not to use the information having that quality would be recognised, even if that went further than the definition, duration or restraint prescribed by the contract.

Put another way, whilst it will not usually be unconscionable to use information in conformity with, or in a manner that does not offend, the terms consensually agreed, and the contract will shape the commitment, contract does not necessarily assuage conscience, and equity may yet give force to conscience: see per Simon Brown LJ (as he then was) in R v Department of Health, Ex p Source Informatics Ltd [2001] QB 424 at [31]; see also the emphasis on conscience as being the basis of both the duty and any action for its enforcement or vindication per Lord Neuberger of Abbotsbury PSC in Vestergaard Fraudsen A/S v Bestnet Europe Ltd and others [2013] UKSC 31; [2013] 1 WLR 1556.

Furthermore, and again by reference to the roots of the equitable duty in conscience, it seems to me that there may be equitable reasons for declining to regard the equitable obligation as confined by a contractual restriction. An example might be if it is shown that the restriction relied on by one party as confining its equitable obligations was agreed by the other party in ignorance of a fact which, had it been disclosed, would either have caused that other party to withdraw altogether or insist upon the removal, or at least fundamental recasting, of the restriction. (I return to this aspect when considering whether in this case Barclays was in a position of conflict which it failed to disclose when the IVC/Barclays Confidentiality Agreement was made: see especially paragraphs 417 to 467 below.)

It is not a defence to a claim for breach of the duty of confidence that the defendant could have obtained the information elsewhere, if he did not in fact do so: see per Lewison LJ in Force India Formula One Team Limited v Aerolab SRL and another [2013] EWCA Civ 780.

The party complaining must be the person who is entitled to the confidence and to have it respected: per Lord Denning MR in Fraser v Evans [1969] 1 QB 349 at 361; and, as stated by HHJ Hodge QC (sitting as a Judge of the High Court) in Robert Andrew Jones v IOS (RUK) Ltd (in members’ voluntary liquidation) and another [2012] EWHC 348 (Ch) at [40]:

“that requires the claimant to show that he has a sufficient interest in the information to entitle him to maintain an action to restrain its unauthorised dissemination or use.”

But the claimant does not have to demonstrate “title” or “ownership”. To quote again from HHJ Hodge QC in the IOS (RUK) case (see [40]):

“…the appropriate inquiry should be directed to considering whether the claimant has demonstrated that [it] made a sufficient contribution to the creation of the relevant confidential information, in the furtherance of its own commercial interests, to justify the imposition of a duty, recognised by the courts and owed to [the claimant], to keep that information secret, and entitling them to restrain its unauthorised use.”

To found a claim, whether in law or equity, actual misuse adverse to the claimant of information which still retains the quality of confidentiality must be established or inferred. For example, where a defendant had knowledge of a rival bid, through a relationship and information which could have been confidential, it was not sufficient, without more, to show that the defendant was “galvanised” by that knowledge into acting more speedily to use information that had not the quality of confidentiality, where by the time of that use the claimant’s rival bid was public knowledge, and was not shown to have been adversely affected by the defendant’s use of that knowledge: see Arklow Investments Ltd and Another v Maclean and Others [2000] 1 WLR 594.

Similarly, as it seems to me, the fact that the recipient’s perspective is changed by the confidential information he receives is not enough to constitute misuse, unless and until that change in perspective causes him actually to use that information otherwise than for the purposes for which it was provided to him.

Nevertheless, subconscious misuse will suffice: deliberate misuse does not have to be shown. But the confidant must have acquired the confidential information in circumstances where he has notice or is held to have agreed that the information is confidential: and see Attorney-General v Observer Ltd and Others (Spycatcher) [1990] 1 AC 109 at 281B per Lord Goff of Chieveley.

The obligation not to use confidential information attaches only to information which has (or which the parties have contractually agreed has) the necessary element of confidentiality; and it continues only so long as the information remains confidential:

Whether misuse is actionable without proof of detriment to the person to whom the duty of confidence is owed remains a point of debate (see Coco v Clark at 48); but it is a rare case in which proof is not plain and the point arises: and the detriment being plain, it does not do so, in my view, in this case.

CFP’s claim for breach of an obligation of exclusivity is analytically straightforward, but factually tortuous.

An obligation of exclusivity is a creature of contract. It is not based on conscience, or on the nature of the relationship between the parties outside or in parallel to the contract. It is a matter of contractual interpretation.

The difficulty in this case is identifying what was (if any) the contractual engagement between CFP and Barclays, and between CFP and Tricorona.

As to the latter, it is common ground that there was no contractual exclusivity agreement between CFP and Tricorona (although there was a confidentiality agreement, see paragraph 164 below). Tricorona felt itself free to canvass overtures and interest from others including Barclays, and did so. (Whether in doing so it used confidential information is, of course, an issue in the case.)

It is also common ground that there was no initial exclusivity agreement between CFP and Barclays. CFP approached Barclays through IVC; and, as elaborated later, all the initial arrangements were nominally between IVC and Barclays.

Thus, although a confidentiality agreement was made between IVC and Barclays which imposed exclusivity obligations for a period of 18 months after 3 September 2008 (when it was made), it is common ground that those provisions cannot be invoked by CFP nor relied on by Barclays. CFP was not expressed to be a party to that Confidentiality Agreement, and IVC is not a party in these proceedings. Although the Defendants had initially pleaded that CFP was bound to the IVC/Barclays Confidentiality Agreement as IVC’s undisclosed principal, they did not pursue this at trial, and they formally abandoned it by amendment.

Accordingly, although those exclusivity provisions are an important part of the factual background or matrix, CFP bases its case on a promise that it submits was made in the course of, or is to be inferred from, a series of exchanges between CFP and Barclays in January and March 2009, leading to what was described as an Exclusivity Release Agreement made between Barclays, IVC and CFP on 30 March 2009.

The promise alleged by CFP as being in continuing effect at least from January 2009 onwards is that Barclays would not acquire Tricorona or otherwise conflict itself from acting on CFP’s proposed acquisition; and that in the latter context Barclays would not without CFP’s consent deal directly with Tricorona except in relation to day-today business. However, Barclays contest this; and there are disputes as to the effect of the exchanges between Barclays and CFP in January and March 2009, and as to the proper interpretation and application of the terms of the “Exclusivity Release”.

These disputes have moved beyond issues of interpretation to disagreements as to what in fact was the substance of the parties’ agreement, and to claims for rectification and alleging estoppel. CFP claims in the alternative that if (contrary to its case) the Exclusivity Release, on its true construction, released Barclays from its obligations entirely, then its terms should be rectified on grounds of common mistake to conform with the promise CFP contends was made and intended, or on the ground that CFP and IVC made a unilateral mistake. If in such circumstances rectification is denied, CFP relies on an estoppel; and its final alternative is that the Exclusivity Release should be rescinded.

I deal later with the factual disputes in this regard and with the claims that they have generated, which are in ambit considerable, and complicated by the fact that no record or transcripts of the oral exchanges are available.

So far as the principles of law relating to the issues as to the form and interpretation of the agreements alleged are concerned:

As to the legal principles applicable in respect of CFP’s alternative claim for rectification of the Exclusivity Release:

In the alternative to its claims based on a contractual promise of exclusivity, CFP contends that Barclays is estopped from relying on the Exclusivity Agreement as permitting it to approach Tricorona with a view to purchasing Tricorona for itself.

As to this:

Lastly, CFP asserts and relies upon there having come into effect, in consequence of the exchanges and Barclays’ promises in January and March 2009, a collateral contract such as to prevent Barclays relying on the Exclusivity Release.

The relevant legal principles in this regard were set out by Lightman J in Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Ll Rep 611 at [10] as follows:

“ (1) a pre-contractual statement will only be treated as having contractual effect if the evidence shows that parties intended this to be the case. Intention is a question of fact to be decided by looking at the totality of the evidence;

(2)

the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances;

(3)

in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them;

(4)

a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal;

(5)

a representation of fact is much more likely intended to have contractual effect than a statement of future fact or a future forecast.”

CFP (which was originally named Chelsea Financial Partners LLP) was established in December 2006 by Mr Jonathan Navon (“Mr Navon”), previously of Goldman Sachs (and before then Merrill Lynch and Deutsche Bank), as a boutique financial advisory and risk management firm.

Mr Navon was joined first (in September 2007) by Mr Thomas Rassmuson (“Mr Rassmuson”), a friend of Mr Navon, and then (in March 2008) by Mr Simon Glossop (“Mr Glossop”). Mr Navon and Mr Rassmuson both gave evidence and were crossexamined; Mr Glossop left CFP in December 2010 and did not give evidence.

Mr Navon describes CFP (which now has over 34 employees) as:

“a specialised advisory, trading and investments firm active in the renewable, commodities and energy markets. It specialises in providing market participants with: advice as to how to access and risk manage carbon credit positions; carbon credit generation and portfolio management services; carbon emissions trading and brokerage services; trading of other energy commodities; and renewable financing…

[It] has a significant presence in the carbon credit market…In addition to providing clients with advice and execution capabilities, CF Partners has developed its own CDM portfolio with around 47 projects…The firm is active in the voluntary carbon credit market, providing advice and carbon credits to corporates to offset their emissions on a voluntary basis….

In 2011, we were ranked as the best dealer in primary and secondary CERs (ahead of all the major investment banks)…”

Tricorona

Tricorona, a listed Swedish stock exchange company with a market capitalisation in 2007 of some US $100m, was the second largest carbon developer (only EcoSecurities was larger). It had accumulated a substantial CER portfolio, with an aggregate contracted CER volume, as at 29 August 2008, of some 91,865,794 CERs.

In a “Tricorona Business Overview” presented to its shareholders at its Annual General Meeting in April 2008 Tricorona described its business model as:

“Acquiring Emission Credits from emission reduction projects under the ‘Flexible Mechanisms’ of the Kyoto Protocol and sell into Global compliance markets”

Mr Niels von Zweigbergk (“Mr von Zweigbergk”), who was Tricorona’s Chief Executive Officer and who together with Mr John Christer Holmgren (“Mr Holmgren”), under the supervision of the main board, effectively comprised Tricorona’s management team (“the Tricorona Management”). The Tricorona

This was, however, easier said than done; and the Tricorona Management had been more successful at acquiring than selling. There were two material and unusual features of the Tricorona Portfolio of particular relevance to this case: first, the portfolio contained an unusually large proportion of Large Hydro CDM projects, amounting to around 40%; and secondly, and even more unusually, just 6.7% of the contracted volume had been forward sold. That latter figure compared with about 50% for its nearest competitor, EcoSecurities.

The Large Hydro CER proportion did not make Tricorona an attractive take-over target to the market in 2008. Further, as Mr Navon explained, “the relatively low level of forward sales was both unusual among the large CDM project accumulators and fundamental to the opportunity which we had identified”, because to the extent that the portfolio was forward sold, there would no longer be an opportunity to extract additional value from it.

Barclays Bank needs no introduction. Further, it has never been disputed that Barclays was at all material times a leading bank in the secondary carbon market, with extensive experience in the business of buying and selling generic CERs (that is to say, issued CERs traded on the market and not linked to any particular project), either spot or forward.

However, although in their written Opening Submissions the Defendants depicted Barclays as a “market leader in carbon trading”, over the course of the hearing, Barclays refined its position to disclaim both experience and ambition in the primary

By the time of written Closing Submissions, its position was definitively that primary sales to compliance buyers (usually on the terms of an ERPA) was “a market that Barclays was not involved in, was not interested in and never became involved in”.

However, although not interested in the business of primary sales by project managers to compliance buyers, it did become interested in a “CER origination business”, which it described as purchasing primary CERs from project managers for securitisation or sale on the secondary markets (rather than directly to compliance buyers).

As Mr Louis Redshaw (“Mr Redshaw”), who had set up and ran the Emissions Trading Desk, and was Head of Environmental Markets, a team within the Commodities Department which was part of the Corporate and Investment Banking Division (“the IBD”) of the Barclays Group, pithily put it:

“I was looking to buy primary but not sell it.

Q. So you were going to buy it from the project and then ultimately you would sell it in the secondary market?

A. Correct.”

CFP’s principal factual witnesses were Messrs Navon and Rassmuson.

Mr Navon was cross-examined over the course of four and a half longer than usual court days. He remained unruffled, and concise in his answers, throughout.

In my view, Mr Navon tended to over-play and over-sell the value of the confidential information provided by CFP to Barclays, and to assume too readily and too absolutely that such information and the overall “business opportunity” was what caused Barclays to acquire Tricorona. As I explain later, I consider that there were a number of other factors and changed circumstances also in operation. Mr Navon’s flawed approach has led to a greatly exaggerated claim, in amounts which I consider disproportionate and unrealistic.

However, he and his colleagues plainly put considerable work and expertise into Project Arctic Fox, and opened Barclays’ eyes to embedded value in Tricorona that Barclays had overlooked. Yet CFP’s claim for recompense was treated with apparent contempt. Mr Navon plainly felt, and in my judgment, was justified in feeling, a strong sense of grievance against both Defendants.

I consider both credible and convincing his evidence that he would never have approached or confided in Barclays in relation to Tricorona had he known of the fact and ambit of their previous relationship.

I also accept his evidence that he did not know, was not told, and would never have agreed, that employees of Barclays who were privy to that information as members of the “deal team” should operate on both sides of a “Chinese Wall”.

I address the question why he agreed the Exclusivity Release at length later. I accept his evidence, but not the effect sought.

Mr Rassmuson’s evidence over the course of one day’s cross-examination was calm, clear and careful.

He did not claim to be an expert on the CDM process; his experience was in trading and actually doing transactions. His strength was on what he called the “demand side”, that is, in assessing the level of demand for the financial product (or, here, a CER), how to stimulate and elicit it, and how to bring about an actual transaction.

The fundamental gist of his evidence was to bring colour to the “value concept” that CFP presented: that of a leveraged buy-out linked to monetisation of the Tricorona Portfolio, his emphasis being that although a disparity between the apparent value of the CERs and the capitalised value of the company might be apparent from relatively little enquiry or from research, the issue and difficulty was in finding ways to unlock and extract that value by a monetisation programme. He further emphasised the composite nature and value of the package that CFP assembled and presented.

I found Mr Rassmuson to be an impressive, honest and, on the whole, reliable witness. The reservations I had chiefly centred on what I regard as his somewhat over-optimistic assessment as to the viability of Project Arctic Fox after (a) the financial shocks of late 2008 and (b) the breakdown in CFP’s relationship with Tricorona’s management. I elaborate on these matters later.

Mr Nicholls (who joined CFP only nine months after finishing his university degree and after brief stints working as an intern at New Energy Finance and as an analyst for MF Global) was more than a “data monkey” (as he described his initial role) but was largely engaged in collecting data from the UN UNEP Risoe source for inclusion in spreadsheets prepared as part of the presentations for Project Arctic Fox, and in checking the information provided by the Tricorona Management (the “data dumps”).

Mr Goldstein’s evidence concerned whether or not IVC had ever made any real commitment in respect of an equity participation in Project Arctic Fox. Mr Goldstein struck me as obviously straightforward. He confirmed it had not. He also confirmed that (a) IVC had no experience in carbon markets; (b) he would probably have contemplated an equity participation, but the matter never really got beyond an early expression of interest; (c) he would probably have been uncomfortable with a hostile bid; and (d) after the original rather vague overtures, Mr Navon did not in 2009 or 2010 provide any materials or updates or suggest that Project Arctic Fox might continue.

Both Mr von Zweigbergk and Mr Holmgren gave evidence, written and oral, on behalf of Tricorona.

Mr von Zweigbergk was ostensibly polite but unremittingly dismissive of CFP’s efforts and expertise. His objectives appeared to be repeatedly to deny any useful input from CFP and to disparage any suggestion that “what CFP brought to Tricorona confidentially was a route to market”. He ridiculed the notion that CFP provided confidential information: “it is like looking at the moon and saying ‘It’s mine’”, he told me. He refused to see the other side of the story. I sensed that he and Mr Navon never got on.

Mr von Zweigbergk pretended considerable experience in the primary markets, which the evidence suggests he did not have. Further, my impression was that Mr von Zweigbergk was so fixed in his view that the way forward, and his mandate from his shareholders, was sales upon issuance of guaranteed or “delivered” CERs that he tended, if not to ignore, then to underestimate, the alternative strategies; and he was so focused on pursuing what he described as his “dream” of a MBO with the assistance of bank lending that he almost completely ignored the possibilities of forward sales to European compliance buyers until CFP presented that as the route forward.

He conveyed the strong impression that he always regarded Project Arctic Fox as a long shot, and that it was “a dead fox” by the end of December 2008 and thus within a couple of months of its presentation. He sought thereby to seek to justify the Tricorona Management’s use of confidential information in seeking to interest lenders and finance providers (such as Daiwa) and its increasingly close engagement with Barclays thereafter.

I do not regard him as dishonest; but he was not candid. I consider to be unreliable his evidence as to what the Tricorona Management’s plans were after he had pronounced the fox dead. However, he appears to have had less direct contact with Barclays than Mr Holmgren, whose developing understanding with Ms Patel and wish for “strategic partnership” with Barclays is the fulcrum of the case.

Mr Holmgren operated as Chief Financial Officer of Tricorona (although it is only lately that he has been given the title). He was at all material times number two (to Mr von Zweigbergk) in the triumvirate which in effect managed Tricorona. He appears to have taken the lead in discussions with Barclays, and in particular with Ms Patel. Mr Lord, in his written closing submissions, described him as “a very mixed witness”.

Mr Holmgren was both disarming and revealing in his frankness as to the Tricorona Management’s almost complete indifference to CFP’s interests. Thus, for example, he readily admitted that the Tricorona Management never revealed to CFP anything about their discussions with Barclays in July 2008, even though they envisaged monetisation of the Tricorona Portfolio, or at least the acquisition by Barclays of a “chunk” of it. Nor did he attempt to equivocate about the fact that he did not see fit to mention to CFP the Tricorona Management’s overtures to EcoSecurities during the currency of Project Arctic Fox with a view to a merger with EcoSecurities in Project Meltwater/Clearwater. Asked whether it was right that he and Mr von Zweigbergk did not really have any genuine interest in Project Arctic Fox, and simply strung CFP along in case they provided some lead of interest, whilst still exploring other prospects, Mr Holmgren did not disagree.

He was also more straightforward than Mr von Zweigbergk in accepting that the Tricorona Management only ever focused, before the end of 2008 at least, on selling on a guaranteed basis, even to compliance buyers, and that he had no personal experience about the demand for pCERs in the market.

However, in my assessment, he was less than credible in his refusal to accept that what happened at the end of 2008, which impelled the Tricorona Management (in my view, prematurely) to declare Project Arctic Fox dead, was that (as it was put to him in cross-examination) his head “was turned by Ms Patel, by which I mean Ms Patel led you to believe that you could do better business with Ms Patel rather than going with CF Partners through Arctic Fox”. His initial suggestion in his oral evidence that he reported to Ms Patel the demise of Arctic Fox (as he perceived it, from Tricorona’s point of view) simply as “a matter of good manners” did not ring true: he wanted Ms Patel to see the green light to the expansion of the sort of business that they could undertake (as indeed he came close ultimately to admitting). It also seems clear that from January 2009 onwards he and Ms Patel not infrequently spoke on their mobiles rather than on a taped line: on at least one occasion when either or both were in the office with a landline.

Like Mr von Zweigbergk he was dismissive of CFP: he described them as “carbon cowboys”.

Barclays’ first and principal witness, Ms Patel (whom I have already described as the central figure in the proceedings), was cross-examined over the course of many days. This was the more gruelling for her because she was due to give birth shortly (and, as I understand it, happily did so shortly after her days in the witness box).

Ms Patel, who was involved from beginning to end in the events under review, moved out of her Chief Operating Officer role in August 2007 to become “Head of Product and Business Development, Environmental Markets”, which included responsibility for origination.

Ms Patel did not have any specific carbon market experience at that stage: she was chosen for the role, not for any carbon experience, but for her business management skills. She spent August “getting to grips and learning about the primary CDM market” and undertaking a trip to China with Mr Redshaw to learn about the market further and develop contacts.

There can be no doubt as to Ms Patel’s enthusiasm in her new role as head of a team for which the objective was to “become the premier emissions trading house” and “to capture 10% of the global emissions wallet”, with a focus including “buy-out investment in companies sourcing CERs/ERUs: established carbon credit investors, process consultants, developers and capital producers”.

CFP’s criticism of her, which was and remains severe, is that her enthusiasm was at least from the beginning of 2009 onwards entirely focused on the interests of Barclays and her own department within it: having understood the value of the “mine”, she determined to acquire and work it for Barclays, regardless of both the interests of, and her obligations to, Barclays’ client (CFP) and without any due or sufficient regard to Barclays’ own system of controls, and basic proprieties.

CFP characterised her as a “deeply unsatisfactory witness”, who repeatedly misled the court, and whose evidence should be rejected “wherever it is contradicted by the contemporaneous documents, CFP’s evidence, or the evidence of other witnesses”.

Ms Patel struck me as intelligent, engaging and determined to succeed. She undoubtedly charmed Mr Holmgren; but others (most obviously, Dr Swift) were wary of her. In my assessment, her determination to succeed was such that it caused her to over-step boundaries (whether in the form of a Chinese Wall or express directions from her superiors) if that was required to build up her own department.

One of the many recorded telephone conversations in the case made clear her principal motivation: she wanted her team to “come first” in order to safeguard its P&L, her bonus and her standing. In that regard, Mr Martens explained very frankly in answer to a question of mine at the end of his oral evidence:

“MR JUSTICE HILDYARD: At the top of D47/126 Ms Patel said: "I don't give a shit about the rest because it is not our P&L okay?" Did each sort of team have a P&L account to show whether it had been doing well or badly?

A.

Yes, so every transaction you would be involved in, when you are on the sales side you would get sales credits and we had something like shadow credits which were basically a similar type of sales credits and you would keep a record on that and I'm not saying that the bonus structure within the bank like Barclays was transparent, but that was definitely an input, so as a director you would -- at least my understanding you would show your P&L had built up and you make sure -- I recall that towards certain periods in the year there would be very frantic bookkeeping so, you know, have I recorded all my P&L.

MR JUSTICE HILDYARD: So that informed or might feed into the level of bonus? A. Yes.

MR JUSTICE HILDYARD: Is that why, as you understood it, Ms Patel was fairly insistent, "Listen to me, our team comes first", at page D47/128?

A. Yes, I think it was a bit of territory protection in terms of -- MR JUSTICE HILDYARD: Yes, safeguarding the P&L.

A. Yes, it is our P&L versus theirs.”

All in all, whilst I admired her composure and acuteness, especially given her condition, I did not find her a reliable witness where she was seeking to explain conduct which might have benefited herself or her team but which objectively looked contrary to ordinary commercial standards.

It seems to me clear also that the late disclosure of transcripts of telephone conversations which, amongst other things, cast a different light on her intentions towards Tricorona and Project Arctic Fox in early 2009 discomfited her. It also caused her to put in two further witness statements that (for example) gave conflicting explanations about what she meant in urging Dr Swift to assist her to engage with Tricorona in January 2009 because (quoting a transcript of a telephone conversation between them on 21 January 2009) on the basis that “We know more about their portfolio than anyone else”, as I explain later. This further undermined my confidence in her reliability as a witness.

Her disingenuous conduct, with Mr Martens, in Project Clearwater (in which she acted behind the scenes despite having expressly assured one of the parties to the project (a client, EcoSecurities) that neither she nor Mr Martens would be involved) also demonstrated a capacity, perhaps a tendency, for manipulative conduct and occasional indifference to propriety.

She was something of a law unto herself. An illustration of this is her conduct in January 2009 in ignoring entirely an express warning from Mr Zintl (by email dated 15 January 2009) not to make any contact with Tricorona during a period of 14 days whilst (after an update conversation between Dr Swift, Dr Zintl and CFP, when CFP reaffirmed its interest in pursuing Project Arctic Fox) CFP decided whether or not to mandate Barclays formally to proceed. Ms Patel had enquired of Mr Zintl whether there was any “chance of talking to Carbonara about other opportunities”: he was clear that Ms Patel could not contact Tricorona for 14 days. Mr Zintl said this:

“Q. So it looked as though in January 2009 you had thought that when CF Partners were not authorising contact between a deal team member and Tricorona, that was a restriction which the Barclays deal team ought to be respecting. That's what you are telling your deal team member there, aren't you?

A.

Correct, yes and the background to that is that I wanted to make crystal clear to the deal team members that we want to have a very clear channel of communication to the target and to CF Partners. We were clearly under the restrictions of the exclusivity agreement, standstill non-disclosure agreement. I said there should be no ambiguity, let's not talk to them.”

Ms Patel, however, deliberately ignored the instruction and did contact Tricorona. In her oral evidence, she accepted that she had breached Mr Zintl’s instructions. Mr Zintl was not aware that Ms Patel had done so. He professed in his oral evidence not to have been too concerned, since by then he thought the deal would not proceed (which offers an unattractive light on his own outlook): but the real point to emerge is Ms Patel’s determination to advance her strategic partnership without delay and without all but the most formalistic regard for propriety.

The very fact that she is the central figure in all the events in question illustrates both her energy and determination and also her indifference to constraining constructs such as Chinese Walls.

In that context, her insistence that notwithstanding that for the purposes of Project Carbonara she was “wall-crossed” over the Chinese Wall from “the public side” (including the environmental markets team where she habitually worked) to the “private side” (including the investment banking division and leveraged finance, which had initiated and had primary responsibility for Project Carbonara), struck me as contrived. I do not accept Mr Holmgren’s somewhat surprising description of her as a “Compliance Officer’s dream”.

The most senior of Barclays’ witnesses was Mr Gold. He was Head of Client Capital Management and Treasury Execution Services for the Corporate and Investment Banking Division (“IBD”) of Barclays in New York. He worked in conjunction (as co-head of Global Commodities) with Mr Roger Jones who was based in London (which was the centre of Barclays’ carbon space activities). He had previously

Mr Gold quibbled and qualified to an extent which undermined his credibility as a witness, especially when cross-examined about his understanding of Barclays’ policies in relation to confidential information and conflicts of interest. He apparently regarded all compliance as essentially a guideline from which the exigencies of business life would often require departure, though he recommended reference to the Compliance Department in that event. He preferred to delineate no clear boundaries.

I agree with CFP that Mr Gold demonstrated, as did Ms Patel, that “institutional cleverness, taken with its edginess and a strong desire to win” which was identified as characteristic (and productive of “less than ideal outcomes”) in a report by Mr Antony Salz (“the Salz Report”) into Barclays’ business practices (Footnote: ²⁰).

Mr Gold affected vagueness but disclaimed carelessness about CFP’s interests and any conflict between them and Barclays’ activities in 2009 and 2010. He said he trusted Ms Patel to have checked to ensure no breach.

He was the only non-expert witness on behalf of the Defendants to address the issue of quantum and in particular the hypothetical negotiation as to the price to be paid for the release of confidentiality required to be undertaken by the Wrotham Park or “negotiations damages” approach. He was plainly uncomfortable with the process and especially with the notion that the hypothetical purchaser could not “simply walk away from the deal” rather than pay. His lack of experience in the carbon market, his failure to consult with others with more experience in the area, his reluctance to contemplate a negotiation which is required to end in agreement, and his refusal to give any real credence, even for hypothetical purposes, to what CFP contributed, mean that his evidence in this regard had, to my mind, little cogency.

Mr Martens joined Barclays from EcoSecurities in autumn 2007 as an Associate Director in the Emissions Structuring group within the Commodities part of BarCap. He initially reported to Mr Leeds, and subsequently to Ms Patel.

He was brought into the Carbonara deal team at the inception of Project Arctic Fox for “CER emissions portfolio analysis”. Dr Swift described his addition to the team as “extremely urgent”: he explained that this was because “there wasn’t really anyone else within Barclays who would be able to execute a detailed portfolio analysis”. He joined Mr Zintl and Dr Swift in that team, as well as Reto Germann and Martin Gueldenberg (who play no part in the story). He was “wall-crossed” for that purpose. He stated in his witness statement that until then he had never heard of CFP (or IVC).

It was Mr Martens who introduced the analogy of a “mine” to convey the nature of the business undertaken by carbon funds (such as Tricorona or EcoSecurities): the analogy became part of the currency of the trial.

In its written Closing Submissions, CFP portrayed Mr Martens as sound and truthful in acknowledging the confidentiality of CFP’s information and in his description of the application of Barclays’ Chinese Wall policies, but as less reliable in other contexts: at fault in failing to mention in his witness statement Barclays’ portfolio purchase strategy in 2007 and 2008, and its pre-Project Arctic Fox interest in Tricorona; misleading in seeking to downplay his role in Project Clearwater; and even untruthful in his denial of any involvement in Project Silverback.

With regret I have concluded that, like Ms Patel, Mr Martens proved himself capable of materially misleading evidence and conduct; Mr Redshaw (see below) told me that Mr Martens “was always very keen to be either promoted or to get a bonus and ideally both”. I have approached with circumspection any disputed evidence he gave which is not corroborated by the documentation.

Mr Redshaw joined Barclays from Enron in 2004 to set up and run the Emissions Trading Desk. He was at the relevant times the Head of Environmental Markets within the Commodities Team, which itself was part of the IBD of Barclays.

CFP invited me to treat Mr Redshaw as an unsatisfactory and, at times, untruthful witness who did his best to advocate Barclays’ case. I do not think that is fair, and I would not regard him as untruthful, even if I consider some of his answers (especially concerning Barclays’ outlook on Large Hydro) to have been unconvincing and possibly the product of subsequent thought.

Occasionally laconic, he was quite easily riled: and tended when riled to become rather argumentative and then didactic. He struck me as clever and also keen to demonstrate it: for example, Mr Lord’s attempts to question him as to the value of Tricorona on the basis of multi-layered hypotheses developed into an interesting, but ultimately not very revealing, fencing-match. He had a tendency also to anticipate the next question and to accommodate or “contextualise” his anticipated response within an existing answer, not always convincingly: this tended to reduce the cogency of his evidence.

As one of the authors and prime-movers (with Ms Patel) of a strategic plan prepared for Mr de Vitry in the spring of 2007 mapping out Barclays’ objectives in the “carbon space”, Mr Redshaw’s evidence was nevertheless valuable in assisting me towards an understanding of Barclays’ position and objectives at that time and following.

He was straightforward about his views about confidentiality and Chinese Walls. If and when wall-crossed to receive confidential information, he could no longer be involved in trading:

“So I would only be brought in [“taken over-the-wall”] as late as possible in case there was a risk that my trading activity would be compromised.”

Mr Redshaw also gave evidence as to Barclays’ management of Tricorona during its period of ownership in 2010 and as to the profits it made (largely from hedging). I have not had occasion to refer to this.

Mr Zintl was on the M&A side in the IBD, working partly in London and partly in Frankfurt. He was not in the environmental markets business nor was he a carbon expert. His line of communication with people within the carbon business was largely through Dr Swift.

As he saw it, the M&A aspect of Project Arctic Fox was relatively small: he envisaged charging Barclays’ minimum M&A fee in Europe of €3 million. I consider he tended to downplay his enthusiasm for it: it was one of the first deals for his team, which had only been set up in September 2008, and the overall fee was to be £15 million, almost seven times the average for 2009.

Mr Zintl acknowledged that he and Dr Swift probably should have asked for more information before signing off on Barclays having no conflict in the context of the IVC/Barclays Confidentiality Agreement, and agreed that if Barclays had any ongoing relationship with Tricorona in relation to portfolio monetisation at that time, that would have represented a clear conflict of interest.

He took the clear and simple position that if Barclays was provided with information in confidence, it should keep it confidential. He regarded Project Arctic Fox as credible and feasible, even in the troubled financial circumstances of late 2008. He was also clear that for so long as CFP wanted to continue the project, Barclays was on the hook of exclusivity unless and until effectively released: it was not for Barclays to call its end.

However, and in agreement with the depiction of Mr Zintl’s evidence put forward in CFP’s Closing Submissions, I consider that his evidence in relation to the purpose of Chinese Walls in general, and Ms Patel’s operations on both sides of the relevant wall in the particular case, was unconvincing, to the point of contrivance. I consider his oral evidence that Mr Navon expressly permitted Ms Patel to operate on both sides of the Chinese Wall, which Mr Zintl had never previously suggested and was never put to Mr Navon, to be an invention which does him no credit.

Like Mr Zintl, Mr Lim was in the M&A department. He was there from about 2008 to 2012. Unlike Mr Zintl, he was in London full time.

His evidence exposed further frailties in the systems within Barclays for the protection of confidential information: for example, that confidential files from

Mr Lim sought to sing a variation of Mr Zintl’s song on the issue of Chinese Walls; but he accepted that any dealings by a wall-crossed person on the other side of the wall would at least have to be entirely transparent, agreed by the client and sanctioned by the Compliance Department.

Subject to my reservations as to the reliability of his evidence on Chinese Walls, Mr Lim struck me as straightforward and honest.

Mr Manahilov was a Managing Director in the Commodities Group of BarCap in New York. He no longer works for Barclays. He was brought into Project Pomodoro by Mr Gold to advise as to possible capital structures for the deal and its financing in light of regulatory restrictions.

Mr Manahilov did not work on Project Carbonara. In his witness statements as originally served he said he had only become aware of CFP at the time of CFP’s letter to Mr Diamond after hearing of Project Pomodoro in June 2010. He had to correct these at the outset of his oral evidence, to acknowledge that the name CFP or CF Partners did appear on a number of documents that he would have seen in his work on Project Pomodoro. He accepted also that he had used CFP’s spreadsheets, though he did not know who had prepared them or for what purpose.

Mr Manahilov struck me as reliable and honest; but he was not central to the story.

Mr McKay was (and is) a director in Barclays Corporate Development (“BCD”), part of Barclays. BCD is an internal M&A team within Barclays, responsible for all principal account M&A for Barclays (that is, acquisitions by Barclays itself).

He was not apparently aware of Project Carbonara (a client deal) before Project Pomodoro (a principal deal directed by BCD). His evidence focused on the process of Project Pomodoro and Project Rose.

He was evasive when questioned about how Barclays managed its risks in the acquisition. His evidence did not assist me.

Mr Ord was (and is) a director in the M&A team in the IBD of Barclays, which he joined in August 2008. He thus worked with Mr Lim (whom he described as a “junior banker” who would provide a “senior banker” such as himself with background information and assistance, and did so in Project Pomodoro). His expertise was and is in public company takeovers.

Mr Ord’s involvement was confined to Project Pomodoro. However, he was aware of Project Carbonara. In the course of Pomodoro he received emails and documents from Mr Lim, including an email link to the project folder in Barclays’ electronic files of the M&A project and an attachment entitled “BarCap Transaction Details – Oct 08 (from client).pdf” extracted from Project Carbonara files. The latter related to Tricorona’s debt capacity.

Mr Ord gave long answers or speeches. As was put to him by Mr Lord he sought to create a semblance of some separation between the two sauce-named deals; but his evidence was glib, added little, and did not dispel the impression that Pomodoro was a revival of Carbonara, and information and analysis assembled in Carbonara did have continuing relevance in the analysis of Pomodoro.

Dr Thomas was in the IBD from March 2007 until 2010, when she moved to become head of Group Products (a business development role which she described as focussing on cross-selling products from other bank divisions to the Corporate Bank client set). At the material times she was in the Barclays Leveraged Finance Team, whose role was to support the M&A team and to assess how much debt could be lent against Tricorona in order to assist CFP with its purchase and how it should be structured. Although initially nervous, Dr Thomas had quiet authority.

She described Project Carbonara, which she agreed was a confidential deal for the client, CFP, as “one of the very few transactions that I was working on” after the “credit crunch”. She suggested it was given attention because of that: she thought it had little hope of success, primarily because Global Financial Risk Management (“GFRM”) were becoming increasingly conservative (and the four-year bridging facility of up to €200 million sought by CFP was considerable). She nevertheless saw value in Barclays’ relationship with Tricorona; for example, in an email in mid-June 2009 she noted its “strategic importance to our carbon trading team”.

Dr Thomas appeared to me to apply somewhat flexible standards to Ms Patel’s behaviour, especially in the context of Project Clearwater. But I consider that this is simply a further indication of lax institutional standards, not private dishonesty. She struck me as honest in her evidence.

Mr O’Malley was and is a Vice President in the IBD of BarCap.

He had very little involvement in any of the relevant events or matters, except that on 2 July 2009, at Dr Swift’s request, Mr O’Malley sent her a revised Discounted Cash Flow Model (or DCF) based on the Carbonara valuation model, which was plainly confidential to CFP. He plainly should not have done so. He unconvincingly suggested that he was unclear whether the material was confidential, even though he knew it was sourced from a project file.

Again, Mr O’Malley struck me as honest and straightforward; and again, what he did, he in effect did on instructions, which once more reflects institutional laxity or indifference and not any departure from personal probity.

Despite this long cast list, there were various notable absences.

Barclays did not call a number of individuals who were heavily involved at a senior level, such as Roger Jones, Brian Smith and Jonathan Whitehead, and it did not call anyone from the Compliance Department. This meant that there was no witness from the upper echelons of Barclays (save Mr Gold who was not involved until late) who could support Ms Patel and Mr Martens’ version of events and outlook on Chinese Walls. As to the Compliance Department, the reason offered was that only at a late stage did CFP focus on the issue of conflicts and Chinese Walls. However that may be, it meant that the evidence of Barclays’ witnesses, such as Mr Martens, who told me that they had had clearance to speak to Tricorona, was not corroborated.

The most conspicuous absentee, however, was Dr Swift. Throughout Project Carbonara she shared the project management role with Mr Zintl. She, together with Ms Patel who reported to her, was a central participant for Barclays in Project Carbonara. Telephone transcripts of conversations between Dr Swift and Ms Patel, which were not originally disclosed (there having been apparently some difficulty in their retrieval), were a feature of the trial and of particular importance in providing an insight especially into Ms Patel’s objectives and Dr Swift’s reaction (and some were repeatedly played). The conversations related to some of the most contentious aspects of the case, as did a witness statement provided by Dr Swift after the telephone transcripts had been retrieved and disclosed (for which a hearsay notice was given on 2 May 2013). (No witness statement was provided for her when the parties exchanged their main evidence at the end of October 2012.)

Quite what the reasons were for her being unavailable is not clear: but at the PTR the court was informed that she had a condition such that “she ought not to give oral evidence”.

CFP submitted that in the circumstances, and in view of the contentious matters that she addressed, the court should attach no weight to her witness statement wherever it contradicts CFP’s evidence, the evidence of other witnesses or the contemporaneous documents. In the event, it has not been necessary to go that far; but I have ascribed little weight to her evidence when thus contradicted.

The principal consequence has been that I have had to form an unfavourable view as to Dr Swift which she might have been able to persuade me against. That view is of a cautious person, careful to emphasise legal and regulatory obligations, and concerned not to be seen to step over the correct lines; but in practice ready to turn a blind eye. For example, she was not above warning Ms Patel not to put anything in writing or implicitly encouraging Ms Patel not to use a “taped line” in her conversations with Mr Holmgren.

I sense that Dr Swift was somewhat apprehensive in her dealings with Ms Patel, at once both admiring and wary of her dynamic and “go-getting” approach, and she resorted more than once to suggesting that Ms Patel should seek the advice of Mr Zintl as to what she could and could not do. In short, she tended to abdicate responsibility: she would warn, occasionally remonstrate, but then row back from any attempt to restrain. My overall impression is that Dr Swift was uncomfortable with the way matters in the event unfolded.

One other “missing person” I should mention is an employee of Tricorona, Mr Moe Moe Oo (“Mr Oo”). Mr Oo was head of sales in Tricorona and the third of the triumvirate with Mr von Zweigbergk and Mr Holmgren that managed Tricorona. He did not give evidence, though he still works for Tricorona and gave evidence in entirely separate proceedings brought recently by a third party against Tricorona in Stockholm.

I can only assume this was for the same reasons as were offered on behalf of the Defendants for not including him as a disclosure custodian in the context of the disclosure process, that is that “he did not have a material role in the events the subject of these proceedings in relation to matters with which Mr von Zweigbergk or Mr Holmgren were not also involved”.

This surprises me. Mr Oo was the one of the triumvirate most closely involved with the discussions between Tricorona and Barclays in July 2008 which led to the agreement of the NDA between them on 3 July 2008 in the context of (I accept) discussions for the acquisition by Barclays of a “chunk” of the Tricorona Portfolio. Further, according to Barclays’ Closing Submissions, it was Mr Oo who (with Mr Larsgard, another employee of Tricorona) was involved in the subsequent dealings between Tricorona and Barclays in August-September 2008. His evidence might have assisted on the issue (also dealt with later) as to the extent to which Tricorona’s and Barclays’ relationship was still on-going when the question arose as to whether Barclays had a conflict of interest such as to preclude it acting in Project Arctic Fox, or at least require fair disclosure.

Mr Oo might also have assisted me in determining the substance of an important and disputed part of Mr von Zweigbergk’s evidence (which CFP rejected) that Tricorona not only was fully aware of compliance buyers that might be interested in its portfolios but had itself approached them. Mr von Zweigbergk told me that it was Mr Oo and Mr Larsgard who would have prompted and participated in such discussions. In the absence of them both, and there being no written record of such approaches, there is no corroboration of Mr von Zweigbergk’s evidence in this regard.

I suspect that Mr Oo might not have toed the line. However that may be, even in his absence, his emails cast an interesting light on an important area of the story that I elaborate later, which is the development of Barclays’ relationship with the Tricorona Management in 2009. He wrote in an email to Mr von Zweigbergk dated 24 July 2009

(by which time Barclays and Tricorona were embarked upon their search for

“strategic partnership”) that:

“Especially with Barclays, it’s like he [Mr Holmgren] ‘wags his tail every time they pat his head’ so to speak. I hope you don’t mind me being blunt about this.”

That accords with my assessment, which I elaborate later, that from early 2009 to the conclusion of Project Pomodoro, Barclays and Tricorona were open to, and when the opportunity arose, worked towards ever closer association.

Central to the case is whether CFP had some insight into opportunities in what Ms Patel called “the carbon space” which neither Barclays nor Tricorona had appreciated before Project Arctic Fox. Before turning to the chronological sequence of events I should provide a little more detail as to the parties’ respective track records and expertise in that regard.

CFP’s focus on and specialisation in marketing and brokering sales of CERs and pCERs came about largely accidentally. Mr Navon’s original intention was that the firm would specialise in providing advisory and risk management services to corporate clients, with a focus on debt deals. This accorded with his previous experience (and that of Mr Rassmuson) at Merrill Lynch and Goldman Sachs.

In May 2007, CFP received its first major client mandate: this was from a South African renewable energy investment firm called Sterling Waterford, and CFP’s role was to introduce debt investors to the project (the construction of bioethanol plants in the Republic of South Africa (“RSA”)). The plants were to issue carbon credits. This awakened Mr Navon’s interest in the carbon markets, and especially origination and primary markets.

That transaction did not, in the event, proceed; but it led to another instruction from Sterling Waterford in November 2007, this time in relation to a €100 million carbonlinked note, which was to be structured and issued by BNP Paribas, with the interest payments linked to CER prices (rising as CER prices increased).

CFP’s mandate was to distribute the note to investors and corporates which were seeking to manage their exposure to the carbon markets. CFP targeted a wide range of potential buyers, mostly large financial institutions and money managers; but also some energy companies (such as Total).

Mr Navon relates in his (first) witness statement that it quickly became clear to him that hedge-fund and money managers with no existing exposure to the carbon markets had little interest either in the note or in investing in carbon-linked products more generally. He formed the impression that they had little understanding of the asset

It was this perception that caused him to shift the focus of CFP’s marketing efforts for the note (and subsequently more generally) to utilities, energy companies and industrials which had a demand for carbon credits for compliance purposes, including major companies such as Shell, BP, ESB, RWE, Drax Power, Vattenfall (one of the largest European utility companies), Electrabel, E.ON and Enel.

More particularly, Mr Navon’s and Mr Rassmuson’s evidence, which I accept, was that CFP (and in particular, Mr Navon and Mr Rassmuson) developed both a number of contacts with utility and energy companies, and a detailed insight into their needs and the demand for carbon credits for compliance purposes. They identified the following features which presented, in their perception, a considerable potential opportunity:

Mr Navon’s perception of an opportunity was matched by CFP’s receipt of a number of mandates in early 2008 from the contacts he and Mr Rassmuson had made in seeking to market the Waterford/BNP Note. These contacts included Electrabel (a large Belgian power company); Enel (Italy’s largest power company); Vattenfall and two other interested utilities, namely Kansai Electric Power Co and EnBW. According to Mr Navon, CFP also attracted interest from the utility Tokyo Electric Power Co, the project developer Carbon Resource Management and the steel companies, Nippon Steel and Mittal Steel.

The point stressed on behalf of CFP, however, is not so much its success in matching seller and purchaser, but its growing experience and expertise in the niche and complex context of the primary carbon market, and especially Large Hydro pCERs. Its mandates, of which the above are merely examples, occasioned discussions with (so Mr Navon estimates) over 300 compliance buyers and 50 financial institutions; and many of these discussions focused on issues of considerable complexity including due diligence concerning the underlying CDM projects (to assess Project Risk), the projection of volumes likely to be issued as a proportion of the project’s contracted volumes (“risk adjusting”) and thus the likely allocation of issued CERs, delays in issuance and allocation of actual CERs, and counterparty credit risk.

This experience and expertise in evaluating a pCER source of portfolio, including volume, price, credit, political, operational, commissioning and reputational risk, and in the demand for large volume pCERs (especially Large Hydro pCERs) attracted a growing number of further mandates over the course of 2008 and 2009. It was recognised by (for example) Vattenfall, which, following a competitive tender process, commissioned it (in June 2009) to prepare a report for it on carbon market participants and to design a CER procurement strategy for Vattenfall.

To develop its expertise and gear up to fulfil its mandates, CFP grew its team of professionals: as indicated above, Simon Glossop joined in March 2008, as did Richard Nicholls (who had previously worked as an analyst for “New Energy Finance” (which I am informed was and is a leading industry publication) and for a brokerage firm also with expertise in the CER markets).

Mr Navon, in paragraph 40 of his first witness statement (on which he was not challenged in cross-examination), identified the following factors as setting CFP apart:

“40.1

Our approach to arranging primary CER deals, which I mention above, involved presenting a book of interest (rather than just the highest or lowest price) to sellers or buyers so that they could understand the range of demand or supply. We also provided detailed feedback to clients participating in the sale so that they could understand their position in the bidding process.

40.2

Connected to the first point above, we also spent a lot of time speaking to our clients in an effort to understand their needs, and, as a result, the types of deals which would interest them and how those deals would need to be structured. Our focus was on targeting corporate clients as opposed to financial institutions or traders.

40.3

As a result of the Large Hydro CER deals which we arranged and structured, the thorough, book-building approach we adopted to arranging such deals and by targeting compliance buyers, we had a better understanding than anyone else in the market as to who would buy and sell primary Large Hydro CERs, and the volumes and prices they would trade at. This information was highly confidential to CF Partners and very valuable.

40.4

Although I considered that Large Hydro CERs had become our particular specialism, we also had market leading expertise in arranging primary deals and the distribution of CERs generally, and in-depth knowledge of the demand that existed in the market.

40.5

As a result of our understanding of the demand and pricing of primary CERs, we were in a unique position accurately to price and value primary CER portfolios, in particular those including Large Hydro CERs.

40.6

Because of our background in the more developed and sophisticated fixed income markets and from our discussions with CER compliance buyers, we were uniquely positioned to structure and risk-manage large primary CER portfolios.”

Mr Navon explained more specifically that, building on mandates to sell 1.4 million CERs from a Chinese Large Hydro CDM project which the firm received from Electrabel (the large Belgian power company) in March 2008, and another mandate from Enel (Italy’s largest power company) in June 2008 for the forward sale of 6.5 million Large Hydro CERs, CFP developed considerable insight into and expertise in relation to primary CER transactions and other carbon advisory services, focusing especially on Large Hydro CERs.

According to Mr Navon (whose evidence was not challenged in this regard), by July 2008 CFP had marketed and found potential buyers for a total of 20 million Large Hydro CERs to be sold on a primary forward basis, and had developed an understanding of the particular concerns, risks and difficulties associated with such transactions, and of the demand base for them.

The Defendants, a substantial part of whose evidence was devoted to disputing that they had ever had anything to learn from CFP, disputed that CFP had developed any substantial expertise by the time of Project Arctic Fox. In their written opening they suggested that CFP had by then “had little experience of the carbon business” and had “done no real business of any kind”. One of Tricorona’s witnesses, Mr Holmgren, described CFP in an email and in the course of his evidence as “carbon cowboys”, though it is notable that Tricorona’s management appeared content to work with them.

Mr Navon was constrained under cross-examination to accept that by the end of April/early May 2008 when CFP approached Tricorona, CFP had not yet arranged any completed CER sales at all. Nevertheless, I have been persuaded that CFP had, by April/May 2008, already engaged sufficiently in the process preparatory to an actual CER sale, in speaking to utilities, researching CDM projects and their originators, sourcing CERs, and building a book of interest, to have developed an insight into the development, purchase and trade of, and demand for, CERs (or more accurately “expected CERs” or “pCERs”), and especially the demand base for Large Hydro pCERs.

Tricorona had developed considerable experience on the origination side, in identifying suitable CDM projects and in assisting them to achieve registration and certification. It had pursued a policy of stockpiling large volumes of CERs with a view to their sale in guaranteed volumes at guaranteed prices.

The difficulty with the strategy was that the volumes of CERs which will result from projects are of their nature uncertain and unreliable; commitments to sell guaranteed volumes at guaranteed prices from an uncertain and unreliable source carried delivery risks which could only prudently be undertaken with capital backing, or as Mr von Zweigbergk put it in his oral evidence “if you would be owned by someone who had a balance sheet…”. Tricorona did not have the requisite capital backing for guaranteed sales to the secondary market.

The accumulation of primary CERs without any forward or other hedging arrangements in place obviously represented a risk (as well as an opportunity in the eyes of CFP). Mr von Zweigbergk told me that the risks were mitigated under the terms of Tricorona’s ERPAs, which reserved to Tricorona considerable flexibility as to delivery dates and (again, as he put it) “to walk away from the project…”. But that only mitigated the risk of being called for payment; it did not address the problem of the assets not performing.

Under pressure from its main board and the shareholders (including its predominant shareholder, Volati, which also controlled the board), the Tricorona Management did begin to change its business model in 2008/9, given its exposure in difficult times and its need to show some returns: and it began to contemplate non-guaranteed sales. But the Tricorona Management had limited experience in the market for large scale nonguaranteed sales, and favoured the higher margins for guaranteed sales. As to the latter, although Mr von Zweigbergk did not accept this, I saw nothing to suggest that either he or Mr Holmgren had any real grasp of that part of the market or the demand for non-guaranteed delivery of CERs.

Barclays itself was aware of these difficulties. As mentioned in the introduction to this judgment, one of the many arresting facts in the case is that, some time before CFP presented to Barclays the proposal that CFP contends revealed the true (but unappreciated) value of Tricorona and reawakened Barclays’ interest in it, Barclays had (in March/April 2007) itself considered acquiring it pursuant to its Project Conifer, but had rejected the notion, having met its management and considered its portfolio.

The quality of Tricorona’s management is another matter in dispute, since it bears on the central question whether it was CFP’s experience and its collation, presentation and provision of information relating to the Tricorona Portfolio that identified a gem and the way to polish it and realise its true value.

Suffice it for the present to note, first, that when Barclays initially (in April 2007) considered acquiring Tricorona and rejected the idea, it was scathing about the Tricorona Management. It described them in a note in April 2007 as “opportunistic and lucky rather than brilliant”. It also noted disquiet at the quality of the Tricorona Portfolio, the apparent lack of any underlying due diligence and the failure in its risk management. Secondly, Barclays was so unimpressed that it declined even to contemplate making available credit facilities. Thirdly, although throughout 2008 (after its rebuff from Barclays) the Tricorona Management approached a number of financial institutions to discuss forward sales of its portfolio, none of these approaches succeeded.

As indicated above, at the beginning of 2007 Barclays’ focus and experience were almost exclusively in the secondary market. Thus for example, and alone among its principal competitors in the “carbon space”, Barclays had no team of “dedicated originators”: it had a “dedicated trading team only” of just three people (compared for example to BNP Paribas and EDF Trading, each of which was described as having “significant origination capability”).

Barclays’ focus on the secondary market and its scepticism about and neglect of the primary market had been partly the consequence of its preference for commodities trading (which is in effect the secondary market) over carbon project investment (which is in effect what the primary market entails) and partly the product of its perception that:

As to the latter point, Mr Redshaw accepted that neither he personally, nor his team at the time, had any material knowledge or experience of forward selling primary CERs. His evidence to me was as follows:

“Q. So at this stage Barclays were not in the business of forward selling primary CERs, were they? A. No, definitely not.

Q. And that would include large hydro primary CERs, wouldn't it?

A. Well, they are all CERs so absolutely.

Q. That's a yes, isn't it, that would include large hydro primary CERs?

A. Well, it would include all CERs, yes.”

In March/April 2007, and at a time when the spread between pCER and CER prices appeared to be widening as pCER prices dropped, Mr Redshaw and Mr Richard Lewis (who had been Mr Redshaw’s boss when he first joined Barclays and was then head of BarCap Principal Investments) began to contemplate expansion into the primary market by buying a Project Developer (such as EcoSecurities and Tricorona).

On 15 March 2007, Mr Redshaw sent an email entitled “Let’s buy something …” and asking whether Mr Lewis had run a slide rule over the “various listed CER funds”. Mr Redshaw suggested that Barclays might acquire EcoSecurities or take a “chunk” of Point Carbon, saying that in most price scenarios Barclays should make a reasonable return and would “really benefit from the flow” (meaning, most likely, the flow of CERs through Mr Redshaw’s emissions trading desk). Mr Lewis was interested in the idea and met with Mr Redshaw to discuss it.

At around the same time, Mr Redshaw, at the request of higher management (Mr Jerry del Missier and Mr Benoit de Vitry) was drafting a “strategic plan” for Barclays’ emissions (or “Environmental Markets”) business (“the Strategic Business Plan”). In this task Mr Redshaw was assisted by Ms Patel, then the Head of EMEA Commodities Structured origination within the IBD.

In an email dated 10 April 2007 to Mr Paul Dawson in the Commodities team, circulated to (amongst others) Mr Redshaw, and attaching a first draft (which Mr Redshaw had previously circulated to Mr de Vitry), Ms Patel described the project’s objectives as follows:

“Think big

Outside of the box & blue sky

Therefore the plan presupposes no restraints. Assume we are Barclays and not just Barcap and therefore what we would do as a bank. Reason I say that is because Benoit wants to share this document with senior management and therefore I think we should be as encapsulating as possible…”

In a draft of the Strategic Business Plan completed in March 2007, there was an assessment of the competition to Barclays under the heading “Competitor Business Models” as follows:

“Most other banks are gearing up to catch up with Barclays in the EUA market so there is not a great deal we can do in this space beyond improving our customer flow…and continuing to innovate.

In CERs the other banks are generally ahead of us. All of the banks in the competitor comparison table have taken long term (up to 7 years) long positions in CERs by contracting directly with CDM projects in developing countries or investing in funds and buying stakes in CER (and ERU) developing companies…

Our view to date has been that the reward does not justify the risk…

Our appetite at current low EUA prices (Euro 15.00) for primary, project sourced CERs is now stronger because for the first time in 2 years there is more chance of upside than downside (provided that we can pick up medium risk CERs for Euro 8-9).”

As to the proposed business model, Mr Redshaw described the available opportunities under three headings:

One of the strategy ideas discussed in the draft plan was for Barclays to move into the origination field by doing a “big deal” in the primary market. In this regard Mr Redshaw stated (under the main heading “Strategy” and the sub-heading “We need to do a big deal”):

“An analysis of our competitors reveals that they have all entered into sizeable CER transactions and our closest competitors in regular commodities markets have made strategic investments in carbon funds, consultancies and projects. We need to:

l.

Acquire a large portfolio of CER investments and/or

2.

Make a large ERU investment and/or

3.

Working with Principal Investments, look for opportunities to take an equity stake in a carbon focussed company and/or

4.

Create a strategic partnership (not JV) with a large CER/ERU seller (fund or preferably producer, e.g. UES of Russia)”

On 5 April 2007, Ms Patel sent a further draft of the Strategic Business Plan to Mr de Vitry, Mr Jones and Mr Redshaw. Under the heading “What do we need to do more of?” this draft of the plan included: “CER origination — we need a [sic] build big CER portfolio — when we judge that the time is right”. The section from Mr Redshaw’s original draft quoted above was retained; but the heading to the section was re-named: “CER elephant deal hunting”.

The objective, as explained in a presentation in July 2007 made to Mr del Missier by a team including Mr de Vitry, Mr Jones, Mr Redshaw and Ms Patel, was to lay out a “framework for building a £150m global Emissions business by 2010”.

Among the strategies outlined in the presentation was the “establishment of an emissions structuring team (9 structurers / originators) which will be responsible for emission product development, and sourcing of origination opportunities through the Barclays group wide sales force”. The presentation went on to explain that the proposed new “origination / structuring team” would, among other things, be responsible for new product development and the origination of credits. In full, the envisaged role for the team was as follows:

“– New product development for corporate and institutional clients, covering EU ETS, CERs, NOx, cross-product, etc

–

Identify and source emission credits (origination)

–

Act as execution team for more complex origination opportunities

–

Education of global sales force/bankers on market, developments & new ideas

–

Participation in trade bodies, lobbying etc

–

Development & implementation of Barcap Green branding & product strategy

–

Assisting Group with Green product development”

The presentation further recommended that, additionally to the recruitment of the proposed new team, Barclays’ principal investments would “complete our presence in the emissions value chain” by looking to invest in “carbon projects, carbon funds or exchanges”. This was to include considering a “[b]uy-out investment in companies sourcing CERs / ERUs: established carbon credit investors, process consultants, developers and capital producers” with a view to increasing Barclays’ “access to primary credits and companies participating in the CDM / ERU market”. The proposed new origination and structuring team was to work together with principal investments on this strategy, “focussing on pure play projects yielding carbon credits”.

The dedicated carbon structuring and origination team thus established comprised principally Mr Redshaw (who headed carbon trading), Mr Leeds (emission sales) and Ms Patel (who, though she was not a primary market expert, was brought in as head

As part of the same initiative, Barclays hired a team of specialists in autumn 2007 to try to grow its primary business organically. The EcoSecurities team was hired “to assist the bank to build a portfolio of carbon credits”. Mr Martens, who was one of the team, said that it was only at this point that Barclays “took [origination] seriously”; his evidence was that before then, Barclays did not really have any expertise in the primary CDM market.

The team of specialists all came from EcoSecurities. They were CDM project experts. They plainly had experience on the origination side: and the Defendants, by way of reinforcing their case that they had no need of CFP’s help, given their in-house expertise, described them as an ‘unrivalled primary team’.

However, CFP made the point (which I accept) that there is no evidence that they had any substantial experience on the primary demand side and in forward selling primary CERs in large volumes.

Although the Strategic Business Plan made no reference to Tricorona, work on the plan was taking place at the same time as Mr Lewis, Mr Owens and Mr Redshaw were evaluating Tricorona and meeting with the Tricorona Management in Stockholm. It seems to me to be plain that Barclays’ interest in Tricorona in 2007 was part of its “CER elephant deal hunting”.

In their Closing Submissions, the Defendants examined in detail and at very considerable length the history of this hunt, especially as it related to Tricorona, dividing the sequence of events over the course of 2007 and 2008 into four phases.

I agree that the history is of some importance because it is relevant to three central issues in the case: (a) whether Barclays had an interest which conflicted with CFP from the inception of their relationship; (b) whether Barclays was on the look-out for elephant deals throughout, but rejected Tricorona as a suitable quarry until CFP revealed its true potential; and (c) whether in the course of activities Barclays built up its own fund of knowledge of the primary market or whether its source of knowledge and the changes in its perception were in reality primarily or entirely based on what it learned from Project Arctic Fox/Carbonara.

However (and although I elaborate later on the nature of the relationship as it stood between Barclays and Tricorona when CFP/IVC presented Project Arctic Fox to Barclays in September 2008), I do not think it is necessary to rehearse that history here to any greater extent than summarising those phases, as follows.

From early 2007, Barclays developed the “Environmental Products” strategic business plan, to which I have previously referred. This included the possible acquisition of a carbon portfolio or project developer at a convenient time and whilst CER prices seemed low. Mr Redshaw recommended the strategy to Mr Richard Lewis of Barclays’ principal investment department saying that in most price scenarios Barclays should make a reasonable return and “would really benefit from the flow” (meaning, it was suggested to me and as seems likely, the flow of CERs through Mr Redshaw’s emissions trading desk). Barclays’ initial targets were identified as the acquisition of EcoSecurities or to take a “chunk” of Point Carbon.

Tricorona was not on Barclays’ initial list: it was identified as being a potential candidate, having been introduced to Mr Redshaw by an Icelandic bank which had a stake in it that it was looking to sell.

The Tricorona material provided to assist Barclays in its assessment was not impressive: Mr Lewis described it as “amateurish to say the least”. However, he decided that he needed to talk to Tricorona to see if they “sounded better than they looked”.

In April 2007, three Barclays representatives (including both Mr Redshaw and Mr Lewis) had a meeting with the Tricorona Management in Stockholm to explore a potential acquisition of Tricorona by Barclays under the code-name “Project Conifer”.

Mr Redshaw and Mr Lewis were again not impressed, either by Tricorona’s management team or by the materials they provided, which Mr Lewis stated, in a note of the meeting, appeared to reflect little or no “dd on the underlying projects” and “no attempt to differentiate from one project’s probability of delivery and another”. He noted also: “The CEO even said they signed some ERPAs without reading the full contract. Doesn’t bode well for the quality of the pipeline”. Mr Lewis characterised the Tricorona Management as appearing to him to have been “opportunistic and lucky rather than brilliant” and citing their carelessness as another reason why Barclays “needed to look at other developers”. A colleague of Mr Redshaw’s in IBD (Mr Gareth Owen) stated in an email after the meeting (which he also attended) that he was “astonished” that Tricorona did not, in his view, have a “decent grip” on the quality of its pipeline and what could be sold from it.

Project Conifer was not pursued; and, for example, in a list of possible primary origination partners made by Barclays in July 2007, Ms Patel recorded “Tricorona (no go)”.

Tricorona re-appeared in August 2007 as a “tier 2” potential partner in a further review of potential carbon partners undertaken in August 2007. In August Tricorona was promoted to tier one, even though it had scored only 2.5 out of 5 on an internal Barclays scoring system. It is not clear why.

Although Barclays had a look at others, the strategy of bolting on an established carbon credits accumulator as a source of CERs was relegated in late 2007 in favour of seeking to build, through its newly hired team of origination specialists, Barclays’ own “organically grown” origination business.

Through 2007 and 2008, there was only sporadic contact between (in particular) Mr Garcia of Barclays and Mr Frank Larsgard of Tricorona, with a view to developing a trading relationship. This too went nowhere. On Barclays’ side the principal issue seems to have been an unwillingness on the bank’s part to take any credit risk on Tricorona, and on Tricorona’s side there appears to have been insufficient attention

By about spring 2008, it was becoming clear that the “organic growth” strategy was not succeeding; and around Easter 2008, Barclays reverted to its earlier strategy of purchasing CER portfolios or parts of portfolios in order to supplement its own origination efforts. An illustration of the Credit Department’s and Mr Jones’s lack of regard for Tricorona is that when Mr Garcia applied for a USD 25 million line the application was not only rejected for reasons of “credit risk” but the refusal was accompanied by a blunt rejection from Mr Jones: “We had the ex CEO in last week saying the company had been loosing [sic] money for the last few years. You REALLY want a 25 MM line??? Please send me an email justifying this line size.” Mr Garcia, chastened, responded with a request for a much-reduced line in order to facilitate spot trading:

“Roger

I agree with you that my initial credit line was not adequate for this company — please accept my apologies.

Having spoken with the client we may however be able to buy between 200k and 400k CER on a spot basis (during 2007) which would require very little or no credit. With this idea in mind I have entered a new request in AOS for a 1 month line of 400kusd - this is my estimate of how much PFE we would need for 400k CERs with delivery 2 days after the trade date. Moreover, we may push for same day delivery and the client is willing to post a letter of credit if needs be.

The CER business with Tricorona is interesting for us because they have focused on "high quality" or "gold standard" projects i.e. projects perceived to be of the cleaner type such as biomass and renewable energy. We have seen increased demand for these type of CERs coming particularly from our Japanese clients and new clients from the carbon offsetting business. Hence I would expect to make between €0.30 and €0.40 per CER so between 80kusd and 200kusd for 2007 depending on the volume.

Please find below the link to the sign off for this new credit limit request.

Thank you”

However, obtaining even that much-reduced credit line still proved difficult for Mr Garcia. Mr Jones eventually signed off on a Tricorona credit line on 21 May 2007, but only for a tiny USD 4,000 with a one-month tenor. The consequence of this failure to obtain any significant credit line, coupled with the delay in dealing with draft contract documentation, was that Barclays and Tricorona did not conclude any actual transactions in the period at all.

On 14 April 2008, Ms Patel and Mr Martens circulated a “Portfolio Purchases & Securitisations” plan, “outlining our portfolio purchase and securitisation strategy”. The plan set out ways for Barclays to access the primary CER market, so that Barclays could marry up its presence in the secondary market with the primary source of credits. As Ms Patel explained:

“...the purchase goes hand in hand with the securitisation. Portfolio purchase means you get access to a portfolio of CDM credits and securitisation is then offloading the risk associated with buying the portfolio of credits...”

Tricorona was once more identified as a portfolio purchase target. The plan set out steps of a draft structure whereby Barclays would buy the primary credits, “warehouse” the risk, and build up the portfolio, and then securitise the portfolio to its clients.

The general plan (not focused on Tricorona) was “fleshed out” on 16 April 2008. It was a “roadmap” that set out all the detailed ways in which Barclays could carry out a portfolio purchase. The objective was simple: “Target structures to purchase portfolios ... [Barclays] to purchase portfolio outright from originators”.

Principally through Mr Garcia (whose usual contacts at Tricorona were Mr Larsgard and Mr Oo), Barclays discussed a variety of possible transactions with Tricorona in the first half of 2008. These included possible CER forward transactions, spot trades, and trades under the umbrella of an ISDA (on which, remarkably (and indicatively of the curious lack of expertise within Tricorona), Mr Larsgard needed “legal help” because he was not familiar with the form).

They also included discussions about portfolio monetisation: or, as Mr Leeds put it in an email to Mr Larsgard and Mr Oo after a Carbon Expo event in May 2008, “the idea of buying a chunk of your portfolio directly and possible prepayment structures” (in which Mr Larsgard expressed interest).

However, and although in July 2008 Barclays and Tricorona did agree a standardform NDA to cover the portfolio monetisation and forward selling discussions that (as Mr von Zweigbergk confirmed to me) Barclays and Tricorona were having, discussions were never translated into any actual transaction except for one small offexchange spot trade between them in October 2008: and there is no evidence that any confidential information was passed between the parties.

The importation in November 2007 of the team of specialists (including Mr Martens) recruited by Barclays to grow its origination business, and the appointment of Mr Leeds as “Head of Environmental Sales” (to focus on sales to corporate clients and to clients looking to purchase CERs for use in the EU ETS) and Ms Patel as “Head of Product and Business Development, Environmental Markets” (to focus on origination), led to renewed assessment of the potential for collaboration with or acquisition of carbon developers, including EcoSecurities, Camco and also Tricorona, and renewed sales efforts to European clients.

Barclays’ Credit Department throughout continued to regard Tricorona as a poor credit risk. More generally, Barclays’ Credit Department tended to be sceptical about

That email is of interest also because it led to an email exchange with Mr Garcia as follows:

Although under cross-examination Ms Patel presented this swift encouragement to Mr Garcia as simply directed to provision of credit for dealings with Tricorona on a forward basis, these emails and Ms Patel’s presentation need to be set in context.

This context included, in particular, that although Barclays had not abandoned its strategy of organic growth, increases in the price of carbon credits and competition in the market had, from March 2008 onwards, caused a re-orientation once more towards portfolio acquisition. This was further accentuated by a perception of a widening market. A note of a meeting of the sales and emissions teams in March 2008 summarised this as follows:

“Market situation, observations by the team:

•

Margins between primary and secondary are getting smaller

•

People are paying more and more for primary (13.50 for wind in China)

•

Market is widening. More competitors in the market. In terms of banks; CS (China), Goldman (China), BNP (Me, Africa), ABN (LATAM), ML (China), Dresdner (Eastern Europe), Fortis (Un Fund), Deutsche (China/ Eastern Europe), Standard bank, Worldbank. In terms of carbon funds/aggregators; CCC, ECF, EEA, CAMCO, Natsource, Syndicatum. Also increased activity by technology providers.

•

Corporates are building their own origination teams; Statoil, Arcelor, Enel, EnBW, CEZ, Dong, Thyssen Krupp, RWE, EON, EDF, Endessa, Essent, Lafarge, Holcim, Shell.

•

UN process of approving project is slow. Projects are delayed a lot.

•

Validators not available till beginning of August

(DNV no until August 1^st)

•

Significantly more tenders

•

Typical deal size getting smaller but on the same hand more bundling taking place; 1 bundle 1 ERPA but also 1 bundle several ERPAS.

What makes you win a primary deal; price (pre pay, financing), price (pre paying on PDD costs), credit.

Barcap situation: Strengths:

•

Balance sheet

•

Name in the market

•

Client network

•

European sales team

•

Our team

•

Global presence

•

Structured products

•

Trading franchise (liq. provider)

•

Risk management capabilities (e.g. Rabo can be our client for this) Weaknesses:

•

Pricing – sales credits

•

Contacts of sales force

•

Working relationship IBD

•

Risk warehousing

Internal champions on sales side in terms of origination:

•

ABSA

•

Vikas

•

Will

•

Maria

Barcap have come to the market fairly late. Building a portfolio from scratch might not be that realistic

Rather we should focus on;

1)

buying a portfolio,

2)

acting as a conduit (e.g. EEA) being the distributor of choice, 3) co-originating.

White labelling candidates:

•

ABSA

•

Expobank

•

Egypt – business banking

Additional actions: to develop top 10 client list for each country/region._”

Although Ms Patel (supported by Mr Martens) denied a move back to the objective described by Mr Redshaw back in the spring of 2007 as “CER elephant deal hunting”, a further meeting of the sales and emissions team returned to consider potential “partnerships”.

An email note of the meeting sent the same day by Mr Martens recorded that 62 “initiatives” had been reduced to three shortlists, namely “Following up with brokers”, “Co-origination” and “Portfolio buy-out”. The note said further that two people had been assigned to each partnership “to make sure we always have a backup”, and in relation to the last of the three shortlists said:

“Portfolio buy-out:

–

EEA HP / CL

–

TriCorona: VH / CL”

A minute of a meeting of the emissions structuring and sales teams in June 2008 noted, under the heading “Securitisation and portfolio procurement”:

“Meetings arranged with target portfolios

…Tricorona VH/CL – identify portfolio opportunities

ESI: VH/HP dormant”

The note of a further “team meeting” held on 30 June 2008 records in the entry for Tricorona, “NDA sent. Awaiting response”. On 3 July 2008 Mr Oo signed a copy of the draft NDA and returned it to Mr Leeds. Mr Leeds sent it on to the legal department for execution. It was sent back duly executed to Tricorona on 28 July 2008 (after Mr Leeds had had to chase the legal department).

Mr Redshaw acknowledged that the execution of the agreement indicated that the emissions team must have thought that there was something worthwhile advancing with Tricorona in relation to the possible portfolio procurement.

A curiosity much dwelt on by CFP at trial was that there are no minutes disclosed of any emissions team meetings after 28 July 2008, although according to Mr Martens these continued more or less weekly. It is indeed an oddity in a large organisation such as Barclays. It may be that Ms Patel discontinued the practice of proper minuting when she took over the team, together with “responsibility for all primary CDM origination” and also “work on other origination opportunities on the sale side, such as securitisation and project portfolio purchases”. Ms Patel was unclear, stating in her oral evidence that she did not know why the notes had stopped, despite having apparently told Freshfields (according to Mr McQuater QC) that it was not her practice to make or ask for them. She preferred WIP reports: but these did not start until February 2009, and the WIP spreadsheet for 16 February 2009 contains no reference anywhere to Tricorona.

In the absence of any minutes or other record, no Barclays witness could recall what the status of Barclays’ interest in Tricorona was at the end of August 2008, or what happened after July 2008 to Barclays’ portfolio purchase strategy in relation to Tricorona.

Mr Martens, who was at the heart of the strategy, could not assist beyond noting that “the trail has gone dead” and reflecting (as already quoted, and revealingly) that, in the event, the opportunity re-emerged in the context of Project Arctic Fox. Mr Redshaw had no recollection. Mr Gold was not involved and so was unable to assist. Ms Patel could “not actually remember…on the basis that I wasn’t covering the client. So I can’t actually remember”. All she could say was that perhaps Mr Leeds or Mr Helfferich could explain what happened with the NDA: neither was called by the Defendants. The best she could do was speculate: either Tricorona was removed from the carbon team because of Arctic Fox/Carbonara or the discussions fell away.

Mr von Zweigbergk of Tricorona could not remember either; but he said this:

“Q. So you can't actually help with what became of that project, the project we see described in the NDA?

A. It is nothing that was stopped, I think it was an ongoing discussion and the idea with the NDA and the relation was to be able to transact when opportunities came.

Q. Yes, so the idea was to maintain a sort of ongoing relationship really in that respect?

A. Yes, like many other parties in the market.

Q. In the context of portfolio monetisation?

A. In the context of selling CERs in different ways. The banks and others they were naming those things and I think the main point to CF Partners as well on their difference, they were labelling trades so they should look like much more than they were, and banks and Barclays did the same. But it was a different kind of transaction, selling projects or selling CERs.

Q. If we have D14/176 again, it is right, isn't it, that there was a difference between spot trading CERs and buying a chunk of a portfolio? Those were different things, weren't they? A. Yes.

Q. And it is right, isn't it, that what prompted Barclays to get in touch in 2008 was buying a chunk of the portfolio?

A. Yes, that was most of the attempts that we got. And again, as I explained before, at that time our portfolio was developing, so they wanted to come in early to be able to take a bigger part of the margin.

Q. So as far as you were concerned, let's say in July/August 2008, you had an ongoing relationship with Barclays in relation to the portfolio monetisation ideas that had been raised in May 2008?

A. Yes.”

It was submitted on behalf of the Defendants that the reliance placed by CFP on Mr von Zweigbergk’s evidence is misplaced or cannot bear any substantial weight, on the basis that he was not in fact involved in any discussions himself. The Defendants also rely on evidence from Mr Holmgren that he was not aware of any such discussions. He said:

“To me the discussions with Barclays was something handled by the trading desk. I had seen an NDA and I had a draft ISDA on my desk which I did not have time at the time to work on, so to me there was no real discussions going on with Barclays at the time.”

The state of the evidence is incomplete, in some instances contradictory, and accordingly somewhat unsatisfactory. But the question whether there was ever any, or

Barclays’ case is stated as follows:

“In summary, the portfolio purchase discussions between Barclays and Tricorona, such as they were, do not appear to have been progressed beyond the initial call on 18 June 2008 and the execution of the NDA. Once again, therefore, these events could not have created an actual or potential conflict for Barclays in August-September 2008.” 343. I do not accept Barclays’ case in that regard.

Without otherwise attempting to resolve, and notwithstanding, the abiding mystery as to the lack of any documentary record of any relevant discussions between Tricorona and Barclays after the execution of the NDA, and the equally remarkable lack of recollection on the part of any of the Defendants’ witnesses, I consider that the position as regards the relationship between Barclays and Tricorona as it had developed prior to the presentation of Project Arctic Fox can be summarised as follows:

In such circumstances, I am not persuaded that the “trail went cold” or that Barclays’ interest in substantial portfolio purchases from Tricorona “died away”. That interest had subsisted, even though with varying degrees of enthusiasm, since 2007; it had become in 2008 a primary target; and Ms Patel’s enthusiasm and encouragement to Mr Garcia to try to do deals with Tricorona is obvious. The problem was that its portfolios appeared to be unsuitable.

The general tenor of the oral evidence, as it struck me, was that those concerned accepted that, though (as it were) on the back-burner, the relationship continued, in case opportunities arose, especially for monetisation of the Tricorona Portfolio.

Thus, according to Mr von Zweigbergk, the relationship was ongoing. (See his crossexamination quoted at paragraph [339] above.)

Mr Martens, who as an Associate Director in Emissions Structuring within the Commodities group at Barclays Capital was in a position to know, told me:

“Q. But you remember, do you, actively discussing Tricorona at that time?”

A. No, I don't remember. I do remember that Mr Helfferich and Mr Leeds were responsible for it, but at some point it died out and then it came back to us via Carbonara and I remember feeling okay about it because it wasn't one of the other names where we were actively in discussions with, because then I would have felt compromised if it would have been one of those names.

Q. So it died out but it came back via Carbonara?

A. Yes.

Q. Yes. So what came back, Mr Martens, what effectively came back -- the Tricorona portfolio purchase opportunity presented itself at the end of August 2008 in the form of Project Carbonara, didn't it?

A. Yes. No, not in that way. Tricorona as a client presented itself as a ...

Q. But what happened, Mr Martens, you just said, what happened was that Barclays' interest in the Tricorona portfolio gave way to Project Carbonara which was all about CF Partners trying to buy the portfolio, wasn't it?

A. I think our interest, as in a potential client being Tricorona, with whom we are eager to discuss purchasing a part of their portfolio, which had died away for unclear -- you know, I think Mr Leeds himself may not have gone on the right entrance there, it died out, and fortunately it came back as another potential business opportunity.

Q. For Barclays?

A. For Barclays.”

I return later to discuss at greater length whether these prior engagements and future possibilities with Tricorona put Barclays in a position of conflict and if so what are the consequences; but in summary, as it seems to me, both their past relationship and Barclays’ openness to reconsider Tricorona in view of the slim competition were facts such as would plainly have been of interest to CFP before passing to Barclays confidential information as to the potential of Tricorona under Project Arctic Fox.

CFP’s focus on Tricorona was, in part at least, accidental. Mr Navon describes in his first witness statement how, in December 2007, he met a close friend of his brotherin-law, Mr Goldstein, namely Mr Lennart Perlhagen (“Mr Perlhagen”), whose son ran Volati, a small private equity firm which had recently made a substantial investment in Tricorona. Mr Perlhagen, knowing of Mr Navon’s involvement in the carbon sector, suggested that CFP might be interested in Tricorona and its portfolios.

CFP’s initial interest was with a view to buying or selling CERs as a broker on its behalf. Mr Rassmuson initiated contact in April 2008: he telephoned Mr von Zweigbergk (a fellow Swede) and followed up by email dated 25 April 2008, describing CFP as “a specialist financial advisory platform focusing on carbon trading and risk management based in London” and on providing

“market participants with best execution in the carbon markets. This includes a variety of products such as sourcing and distributing carbon credits (e.g. EUAs, CERs and JIs on a guaranteed and non-guaranteed basis) and providing innovative risk management tools. Our approach is to work on specific mandates on behalf of our clients to acquire or sell projects or portfolio of projects with the minimum size of 1 million tone [sic] over the strip…”

(I note that he was careful to describe himself and Mr Navon as “former Merrill Lynch and Goldman Sachs employees”: I assume because CFP had as yet a low profile; Mr von Zweigbergk had never heard of them: indeed it seems that Mr Rassmuson’s email went first to Tricorona’s spam filter.)

They agreed to meet at the Carbon Expo event in Cologne between 7 and 9 May 2008. Ahead of that meeting, Mr Navon and Mr Rassmuson reviewed Tricorona’s website and information about Tricorona which was publicly available on the web. This research was not in-depth. However, from it Mr Rassmuson established that Tricorona had a portfolio of close to 200 million carbon credits. Without claiming any detailed analysis, Mr Rassmuson put it this way under cross-examination:

“What happened was I looked at this information on the website. I could see that they had a portfolio of close to 200 million carbon credits. I could see just estimating that assume they got 50 million of these credits out of the portfolio times a price of 13, if I did my maths correctly we end up around 650 million euros worth of a carbon portfolio for a company that has a market cap of 140, 130 million. That to me sends some signals that there was something here that could be of interest. It wasn't a detailed analysis. We never claimed to make a detailed analysis. It was a quick and dirty analysis, we call it in the financial market, and it was just looking at the portfolio and seeing the opportunity there.

At this stage I would have discussed this internally and that's how we left it.”

Mr Navon’s evidence in his first witness statement was to the effect that even despite the limitations of this exercise, it was apparent to them that the intrinsic value of Tricorona’s CER portfolio alone (disregarding the other parts of its business) was substantially greater than its market capitalisation (then in the region of €140 million). It struck both Mr Navon and Mr Rassmuson that, albeit on that crude analysis, Tricorona might offer a very attractive acquisition prospect or arbitrage opportunity.

Mr Navon described his perspective in his main witness statement as follows:

“46.

It was difficult for investors to see the value in Tricorona’s business because, by early 2008, it had produced little revenue and was a loss-making business. Few of the CDM projects in its portfolio had started issuing CERs, but significant costs associated with acquiring the CDM projects and getting them registered with the UNFCCC were incurred up-front, and so it would potentially take time before the projects would produce any revenue for Tricorona. Tricorona also had (so far as we were aware) no equity research coverage.

47.

CF Partners also noticed that Tricorona’s CDM portfolio had a number of particular features, some of which were apparent to us from the outset and others which we only discovered once CF Partners had commenced discussions with the Tricorona management. These features were unlikely to make the company an attractive target for many players in the market, but we were of the view that we had identified a valuable opportunity. I recall that there were broadly four features of Tricorona’s CDM portfolio which were of interest to us.

Large Hydro CDM projects

48.

We were aware from publicly available information at the outset that Tricorona’s portfolio had a large proportion of Large Hydro CDM projects. We felt that the difference between the market capitalisation and portfolio value was likely due to the market’s concerns and misunderstanding of the eligibility and value of Large Hydro CERs.

49.

Large hydroelectric power production projects (some with reservoirs and dams) can sometimes cause the displacement of local people and negative environmental impact. Such projects had therefore been the subject of criticism from some environmental and development groups.

50.

Because of the environmental concerns, in addition to a Large Hydro project meeting UNFCCC requirements, most Annex I countries and compliance buyers require a Large Hydro CDM project to comply with environmental and development criteria specified by the

WCD (World Commission on Dams). Annex I countries in the EU require compliance with the WCD criteria in order for Large Hydro CERs to be eligible for compliance purposes within the EU ETS. If the project is approved and compliant, the host country of the project or the Annex I country issues an LOA (Letter of Approval) in respect of the project. Annex I countries may also have their own separate requirements for Large Hydro. A Large Hydro project without a WCD report could still be used outside the EU ETS, by, for example, Japanese buyers.

51.

Unlike other CERs, Large Hydro CERs were not traded on the major exchanges, because the exchanges were not in a position to confirm the necessary WCD compliance. But Large Hydro CERs could still be traded over the counter (“OTC”) (i.e. directly between counterparties) and they remained eligible for compliance purposes, including within the EU ETS, if issued by a WCD-compliant project.

52.

Although the inability to trade Large Hydro CERs on exchange may not in practice have been an issue for compliance buyers (since they required the credits to surrender for compliance), the fact that they were not exchange-traded or exchange-tradeable did affect how they were perceived by financial institutions and other market intermediaries and, indeed, most compliance buyers. A financial institution will typically want to hedge any exposure to the CER price through an exchange-based trade of some sort. Because they were not easy to trade and could not be delivered into futures contracts, financial institutions tended to trade them little and consequently had less knowledge of the buyers that would in practice purchase this type of CER.

53.

As I explain at paragraph 26-40 above, because of CF Partners’ involvement in the primary markets, including through the structuring of deals like the large Vattenfall/Enel Large Hydro CER sale, we had developed good relationships with a number of large utilities which had an interest in purchasing Large Hydro CERs. This was not just a matter of knowing which utilities would purchase Large Hydro CERs, but also having a relationship with the key personnel within the compliance departments of those utilities. Through these relationships, CF Partners was, unlike other market participants, able to recognise the demand for, and hence the true value of, the Large Hydro CDM projects in Tricorona’s portfolio. Without this understanding, it would have been difficult both to see the acquisition opportunity and to execute the deal.”

There was a dispute as to whether it was Mr Rassmuson who first mentioned that Tricorona was undervalued, or whether it was Mr von Zweigbergk. I accept Mr Lord QC’s submission that it is inherently unlikely that it would have been Mr von Zweigbergk, whose own evidence was that he thought CFP were only interested as brokers (and thus not as, or acting on behalf of, acquirers); conversely, I would not think it unlikely for Mr Rassmuson to make the point, with a view to encouraging Tricorona that CFP might be a good channel for realising best value.

But I also accept Mr Lord’s submission that it does not ultimately really matter: for though the gap between market capital value and the “headline” value of the CERs was obvious as well as arresting, the key was in understanding that the factors tending to discount the value of the portfolio could be overcome, and the portfolio actually monetised, via a leveraged buy-out, without the discounts or difficulty that others (including the stock market and even Tricorona’s own management) had assumed.

At all events, that first meeting went well, and very shortly after Carbon Expo, on Sunday 11 May 2008, Mr Holmgren emailed Mr Rassmuson, thanking him for “a profitable meeting” and suggesting a conference call on the following Tuesday morning (13 May 2008). I accept CFP’s submission that the warmth and swiftness of this response is inconsistent with Tricorona’s efforts at trial to disparage CFP and its proposals, and reveal the level of the Tricorona Management’s initial interest, especially as to how a buy-out (from which they too might profit, and which Mr von Zweigbergk described as his “dream”) could be structured.

However, I accept Mr Holmgren’s evidence (which indeed was not contested) that the Tricorona Management had other options, and was already exploring a management buy-out with a company called Greenko under a project code-named “Project Golf”, and also a proposed merger of Tricorona with EcoSecurities under “Project Meltwater”.

I also accept that Mr Holmgren and Mr von Zweigbergk had had a previous experience of a covert “raider” (named Trustor) and from the outset tended to be wary of CFP and to suspect that they were trying a take-over rather than a buy-out.

Thirdly, I accept that the correspondence between CFP and the Tricorona Management following their meeting developed a bad dynamic as each jockeyed for a larger equity stake after a buy-out. CFP gave the impression that it thought little of the Tricorona Management beyond marvelling at its fortune in accumulating a large portfolio, and that only it had a key to unlock its value. Tricorona’s management, on the other hand, fancied themselves as carbon market experts, resented CFP’s condescending attitude, and conveyed the impression that they regarded CFP merely as a “transaction vehicle” to be parked as soon as the funds were raised.

Thus, for example, in a letter of 30 June 2008 to Mr von Zweigbergk, Mr Navon stressed that CFP offered not only crucial skills in “efficiently arranging leverage and optimising the capital structure” but also would “bring value to grow the overall business in the future”. The following extract from a draft letter prepared by Mr von Zweigbergk (always the more combative of the management team) which he planned to send (but in the event did not) in response to a letter from CFP betrays his irritation:

“The plain true [sic] is that it does take a good organisation to extract the value from the portfolio, which we will take care of. And we do think we are slightly more than a plain procurement company.”

In short, after initial enthusiasm, CFP and the Tricorona Management never really gelled: it was an engagement of convenience, which never progressed beyond vague “understandings”; and the Tricorona Management kept an eye out for other suitors, and the more so once they had concluded that CFP could not “deliver” Volati, whose agreement was needed to realise the “dream”.

Nevertheless, on 15 July 2008 CFP and Tricorona agreed a confidentiality agreement (“the CFP/Tricorona Confidentiality Agreement”). This provided (by clause 3) for mutual protection of any “Confidential Information” disclosed by one to the other, subject to limited exceptions (set out in clause 4), and was clearly intended to protect both. The agreement had a term of two years.

At the same time, CFP also negotiated with the Tricorona Management an incentive structure setting out their respective shares in the available equity if the buy-out was completed. After difficult discussions, and some initial reluctance on the part of Tricorona’s management to contemplate CFP having an equity stake of more than 20%, they executed a Memorandum of Understanding on 22 July 2008. This provided for a 54:46 equity split between the Tricorona Management and CFP after the allocation of equity to any other equity participants. It was agreed that CFP should put together the deal structure for the leveraged buy-out, and it was also envisaged that CFP would have seats on the board.

This understanding, which gave CFP more than Mr von Zweigbergk had originally contemplated, reflected the reality that the Tricorona Management did not have a strong hand, and its shareholders (and especially Volati) were restless. By early 2008 Tricorona and its management were little regarded in the market: the main component of its portfolio (Large Hydro pCERs) was not appreciated by the market; the business had produced little revenue; it was loss-making; and its management’s efforts to arrange forward sales of a portion of its portfolio had come to nothing. Tricorona’s management very much wanted to achieve a leveraged buy-out: CFP offered a possible route.

In that context, and in parallel with their discussions with the Tricorona Management, CFP opened discussions with a number of potential participants to provide debt finance. One of them was Citibank, which indicated interest.

On the equity side, Mr Navon commenced discussions with Daiwa SMBC Principal Investments (“Daiwa”), Daiwa being CFP’s preferred institutional investor if further external capital was required.

CFP also had discussions with Asian Development Bank (“ADB”), SE Banken (“SEB”) and Calyon. CFP established confidentiality agreements with each.

These potential participants inevitably required further more detailed information than the publicly available material to which CFP was restricted until after the Confidentiality Agreement was made. When that had been signed, on 28 July 2008, Mr Navon sent to Messrs von Zweigbergk and Holmgren a detailed request for information under the heading “Due Diligence Questions”. These included requests for more detailed information about Tricorona’s CDM portfolio, the terms of its ERPAs and its financial position.

By email of the same date, Mr Holmgren sent Mr Navon an “excel/data dump” of the Tricorona Portfolio, to enable CFP to assess it and determine how best to present it to the market and financial institutions professionally and credibly. This was followed (on 30 July) by what Mr Holmgren described as “a more complete excel dump” which included details of individual project registration, commissioning dates and project references.

The information provided details of Tricorona’s CDM projects, and especially the Tricorona Management’s assessment of the risk of some shortfall in the ultimate volume of CERs to be derived from each project in the portfolio (a process known as “risk adjustment”).

The process of risk adjustment is, obviously, vital to the assessment of the true value of the portfolio. The information provided by Tricorona revealed that its management risk adjustment process resulted in a total adjusted portfolio volume of (in aggregate) just 31,640,397 CERs, based on deep discounts on the headline portfolio volumes.

After review and analysis of the information provided, CFP did not share this conservative evaluation. There were, in the perception of Mr Navon and his colleagues, important features of the Tricorona Portfolio which were not reflected. In his first witness statement he described these as follows:

“117.1

Tricorona was the sole focal point for all the projects in its portfolio. This meant that all CERs issued to the projects would be delivered directly from the UNFCCC to Tricorona. This removed a potential source of delivery risk and credit risk (for example, the risk of an intermediary refusing or being unable to deliver the credits in accordance with its obligations under the ERPA). This information could not be obtained from public sources.

117.2

None of the projects in Tricorona’s portfolio had been refused registration by the UNFCCC. This was a very important point. In late 2006, many CDM portfolios looked promising on paper and appeared to have the potential to issue large volumes of CERs, generating large future cash flows. However, some CDM portfolios would remain stagnant, with projects being rejected for registration or subject to such long delays that they would never actually issue any CERs. The fact that none of Tricorona’s projects had been rejected was an important indicator that this was not the case for Tricorona’s portfolio and that the rest of the CDM projects in the portfolio were likely to be registered in due course. When this was combined with other information of which I was already aware, such as that Tricorona’s portfolio had a historical issuance rate of around 92% of contracted CER volumes (according to UNEP Risoe), it suggested that a sizeable proportion of the projected volumes would actually be issued.

117.3

We were already aware that Tricorona’s average ERPA acquisition cost was in the region of €8/CER. However, the second “data dump” provided a detailed breakdown of the costs on a project-by project basis, including consultants’ and other fees. The accurate CER costs were fundamental to an accurate projection of the future profits from the portfolio. It was highly confidential information which could not be obtained from public sources.

118.

The key commercial terms of the sample Tricorona ERPAs which Christer provided were also important. Although much of the wording was market standard, as well as the obligation to purchase CERs issued up to 2012, the ERPAs also granted Tricorona an option to purchase CERs post 2012 and post-2020. Although, as I have mentioned, the materials that we had reviewed when we first started looking at Tricorona and its portfolio had suggested that Tricorona had some form of interest in post-2012 CERs, it was important to see the language used in Tricorona’s ERPAs, because of the various forms this purchase could take and which were seen in the market. For example, an ERPA might contain an option to bid, a right of first refusal, a ‘last look’ right to buy, or a specific contract to buy the post-2012 CERs, all of which would affect the valuation of the post-2012 CERs.”

Furthermore, it emerged in conversations between Mr Navon and Mr Holmgren that Tricorona’s approach to risk management had been determined for the purposes of projecting the maximum volume that it would be willing to commit to sell from each project on a guaranteed basis. That was understandable and prudent in the context of commitments to sell on that basis: but the approach seemed to Mr Navon inappropriate in the very different context of an acquisition where (as he put it):

“the company should be valued on the number of CERs expected to be issued from the CDM projects as opposed to the number of CERs that it would be prudent to guarantee to deliver to a third party.”

By contrast with this conservative approach to valuation, the Tricorona Management’s failure to protect the value of its portfolio from adverse risk and movements in the CER price, through, for example, forward sales, was a point of vulnerability and concern: indeed, Mr Navon’s evidence was that by 13 August 2008 it was clear to him and his colleagues at CFP that the ability to forward sell a sizeable proportion of the Tricorona Portfolio was fundamental to the successful execution of the transaction: only in that way could the requisite leverage be developed.

That was particularly so in light of a CER cost base which Mr Navon described in an email to Mr Rassmuson and Mr Glossop of 22 July as “higher than anticipated”, such that the deal was “not a no-brainer”. This is further reflected in his email to Mr Rassmuson and Mr Glossop dated 13 August 2008 as follows:

“Unless I have made some huge error, the deal is not obvious. I think it is unlikely that any bank that has no carbon experience will lend. The only way to get them on board will be to pre-sale around 20m tons and show them that they will be taken-out [sic] right away…”

To assess the viability of the deal, present an attractive but not inaccurate picture of Tricorona’s prospects, and to attract both the lending and the investment without which it could not succeed, it fell to CFP to develop a composite presentation of the Tricorona Portfolio and its potential.

Working with information obtained from the Tricorona Management by means of the “data dump”, CFP worked on an iterative process of compiling a portfolio spreadsheet based on that data which was passed between them over the course of 7 September to 7 November 2008. This process enabled development of successive versions of the spreadsheet with increasing detail and accuracy.

The objectives of the various iterations of the spreadsheets were:

Before turning to describe the circumstances in which CFP introduced Project Arctic Fox to Barclays I should also mention another aspect of CFP’s preparatory work: its efforts over the course of August and September 2008, to solicit “Expressions of Interest” from some of its own clients to demonstrate demand for large volumes of CERs, including Large Hydro CERs (being both the biggest single element of Tricorona’s overall portfolio, and also the most problematic).

A fundamental part of what was envisaged by the Arctic Fox proposal, and the route to the leveraged buy-out which it proposed, was the forward sale of a significant proportion of Tricorona’s largely unhedged portfolio, in order (1) to lock in margins on the sale of CERs in the future and reduce Tricorona’s unusually marked exposure to a fall in CER prices, and (2) to ensure Tricorona’s ability to repay the acquisition facility and service the interest payments under that facility.

To persuade Barclays, or any other lender or finance provider, CFP recognised from the inception that it would have to show how that could be done, and the realistic prospect of it actually being done.

The Expressions of Interest were intended to vouch for real interest from compliance buyers to buy on a forward basis very substantial numbers of primary CERs, in the millions, as Mr von Zweigbergk acknowledged. They were intended to evidence actual or potential demand, the order of magnitude of which could potentially finance a leveraged buy-out. Mr von Zweigbergk agreed that if the Expressions of Interest could be converted into an actual forward sale, the forward sales would be very valuable.

Each document apparently confirming an Expression of Interest was informal: and each was drafted by Mr Navon himself, leaving space for further clarification or delineation of particular interest or need by the person completing the document (and thereby expressing particular interest). The Expressions of Interest relied on by CFP had been sent out as attachments to emails to a number of organisations, all in similar form. Both the form and substance of what was said came in for criticism by the Defendants, who depicted them as unreliable, if not worthless.

The covering email from CFP to Shell is illustrative; it reads:

“As discussed, CF Partners is currently working on the opportunity to sell Certified Emission Reductions from a well diversified portfolio of carbon reduction projects. The project portfolio consists of emissions reductions projects located in a Non-Annex I Country, which have or will be registered by the Executive Board under the Clean Development Mechanism (CDM), established and defined under Article 12 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change.

…

We'd be grateful if you could review and return the document as a mark of interest.”

The email attached a pro-forma expression of interest, in the form below:

CFP received back Expressions of Interest filled in (with a varying degree of apparent care) from what it described as its key clients: namely, Shell, Vattenfall, Electrabel, ADB, and E.ON.

As to each completed Expression of Interest:

Vattenfall’s expression of interest was couched as follows:

“Vattenfall would be interested in a portfolio sale of up to 10 million CERs, subject to type of technology, due diligence and all necessary internal approvals…

Vattenfall has a preference for a well diversified portfolio of technologies with a preference away from Large Hydro”

CFP’s case is that these Expressions of Interest (a) were collated in order to, and did, reveal the identity of the small group of potential purchasers for large volumes of Large Hydro pCERs, (b) were equivalent to CFP’s client list which had been built up over the course of its work in the primary markets, and (c) were both highly confidential to CFP and extremely valuable.

On the other hand, the Defendants were dismissive of the value of these Expressions of Interest, which they described as “mail shots”. They emphasised also that:

There is some force in these criticisms. As to their genesis, it is the fact that Tricorona did not know anything about the offer of its portfolio, nor about the resultant Expressions of Interest: nor, just as strikingly, did CFP ever show any of the Expressions of Interest to Tricorona. CFP did not have Tricorona’s authority to hawk its portfolio around: and, in suggesting that Tricorona was itself seeking the expressions of interest, the documents were incorrect, as Mr Navon was constrained to accept. However, I do not accept the Defendants’ harsher criticisms, and their depiction of this as dishonest: it committed Tricorona to nothing, and the pretence of authority in this exploratory exercise was a means of facilitating an objective that Tricorona shared.

As to their status, the Expressions of Interest do appear rather scrappy. I must admit that initially at least, these “Expressions of Interest” struck me as too informal, and too general (or, perhaps more accurately, unspecific) and carelessly completed, to be given credence and weight as indications of substantive demand. Further, of course, an indication of interest requires no outlay, nor any commitment.

I consider that CFP went too far insofar as it sometimes appeared to be claiming that the Expressions of Interest demonstrated an unqualified appetite amongst compliance buyers previously unknown to Barclays for Large Hydro pCERs; but the Defendants went too far in suggesting there was a bias against Large Hydro CERs from buyers of which they were already well aware.

In my assessment the Expressions of Interest, despite their frailties, did indicate (a) volume demand from a source that, though in a sense obvious, Barclays had not explored, and (b) a willingness, in order to achieve really substantial volumes, to consider a class of CERs that Barclays and other financial institutions had effectively classed as untradeable.

Barclays’ note of the 7 October meeting, quoted in paragraph [545] below, captures the essential message, which did register with Barclays, of a greater source for asset sales than Barclays had originally perceived to a segment of the market (compliance buyers of primary CERs) which it had not itself explored and of which it was therefore surprisingly ignorant. As Ms Patel accepted under cross-examination, Dr Swift’s report (see paragraph [545]) “implies that there was interest by other players to procure some of the credits”. That was the essential message of Project Arctic Fox, the central plank of CFP’s justification for the very considerable loan finance that it was seeking.

I note also that Mr Bode gave this as his expert evidence:

“My experience with expressions of interest is that they are -- even though they are non-legally binding they are notoriously difficult to get signed, 1; 2, my experience with expressions of interest is that I had a 100 per cent conversion rate from expressions of interest going into legally binding transactions, so based on that I would be very hesitant to trivialise any of these EOIs based on that fact.” Similarly he said:

“ ... in my experience an expression of interest from a serious counterparty is not signed lightly and in my experience the conversion from expression of interest to a deal has been extremely high, in my specific case 100 per cent. That's why based on my experience I conclude that these expressions of interest could indeed provide comfort.”

I do not take much from Mr Bode’s evidence of his own 100% conversion rate of expressions of interest to actual sales (since it is difficult to extrapolate from such general evidence any reliable proposition). However, I do attach weight to his other uncontradicted evidence that in the market, the signature on behalf of a compliance buyer of such expressions of interest, and the identification of their needs, is significant of real potential demand. After all, a slip in the Lloyd’s market is often merely a bit of paper: its consequences are greater than its form might suggest: in other words, it is a question of market practice, and, except as regards the issue raised by the Defendants that by the time they were of any potential relevance they had become stale, I have no real basis for rejecting Mr Bode’s evidence in that regard.

The Defendants relied on the fact that Shell and Vattenfall needed further persuasion to sign, and indeed CFP persuaded Shell by telling it that it should sign “if you want to be able to look and decide later if you participate”, and Vattenfall was induced to sign by CFP falsely representing (1) that there was urgency because the seller wanted feedback within days and (2) CFP had the exclusive mandate for the portfolio and Vattenfall would not see it anywhere else. However, whilst taking those inaccuracies into account, in some ways the fact that such compliance buyers needed persuasion seems to me to add some credence to Mr Bode’s evidence that, in the particular market, prospective buyers deliberate with some care before completing and returning a signed expression of interest.

Thus, even though the interest expressed was tentative and apparently informal, and the Expressions of Interest were requested on the express basis that they would be non-binding and that further information about the portfolio would only be provided if the documents were signed, the reluctance of, in particular, Shell and Vattenfall to sign them seems to me to offer some support to Mr Bode’s evidence that such expressions were signed with more care than their format might at first blush suggest.

In summary, as it seems to me, the Expressions of Interest (allowing for their frailties) provided a snapshot of (a) substantial compliance demand for CERs and pCERs within both Europe and the EU ETS from (b) well known and financially secure compliance buyers who (c) were primarily interested in non-guaranteed CERs and the lower prices for volume amounts they represented and (d) although preferring diversity, nevertheless (e) were prepared to accept a proportion of any sale being of Large Hydro pCERs which, given the large overall volumes in which they were interested, (f) represented substantial potential overall demand in the millions of tons such as (g) could potentially finance a leveraged buy-out (as Mr von Zweigbergk agreed).

I shall return to the obviously important crucial issues as to whether the Expressions of Interest had any real effect on either Tricorona or Barclays; whether, even if initially confidential, they remained so; and whether (and if so, when) they were “used” by the Defendants. I note, however, that it is common ground that neither Barclays nor Tricorona ever followed up any of the Expressions of Interest with a view to contracting.

In the meantime, I turn to consider the circumstances in which Project Arctic Fox was presented to Barclays with a view to obtaining debt finance and the arrangements subsequently agreed between the parties in relation to it. I then address more particularly the systems and structures within Barclays for the protection of confidential information.

Having worked on the information supplied by Tricorona over the course of May 2008 (following their meeting in Cologne to which I have referred in paragraph [350] above) through to August 2008, CFP identified and decided to approach Barclays as a potential source of debt finance.

As at August 2008 CFP had no past or existing business relationship with Barclays. Mr Navon arranged for its proposal to be introduced to Barclays by IVC (an asset management group founded by Mr Goldstein and Mr Vipin Sareen, to which I have already made reference) which had an existing relationship with the bank.

Messrs Goldstein (who is Mr Navon’s brother-in-law), Sareen and Navon had also been discussing with CFP the possibility of IVC making an equity investment in Project Arctic Fox, in the region of €20-40 million (though the discussions were informal and never got to the point of fixing on a precise amount).

Mr Navon resolutely refused at trial to accept that he was using IVC in effect to “front” the transaction for CFP: he maintained that IVC was not CFP’s agent, and he insisted that IVC was only used to introduce CFP to Barclays. He emphasised that:

“from the first meeting that we had with Barclays it was myself and IVC in the meeting and I did most of the talking…”

However, it appears plain that at least at the outset IVC was presented to Barclays as being its potential client, and that is what Barclays initially assumed.

The use of IVC, however it is to be characterised, necessitated back-to-back confidentiality agreements between CFP and IVC and between IVC and Barclays. These comprised:

The CFP/IVC Confidentiality Agreement is simple and unremarkable, reflecting the close pre-existing relationship of trust between them. However, CFP stressed that even in the context of that close relationship, CFP considered information about

The IVC/Barclays Confidentiality Agreement was more strenuously negotiated, with Mr Navon back-seat driving Mr Sareen of IVC. Negotiations focused principally on the issue as to the duration of the duty of confidence. That was, I accept and find, a matter of importance to Barclays: inherently, and also because of its “Global Policy on Confidential Information”, which (though not disclosed to IVC at the time) drove the legal department negotiating on behalf of Barclays.

This provided as follows:

“No confidentiality agreement should be entered into without having been reviewed and approved by the Legal department. A copy of the signed agreement should be forwarded to the Legal department who maintain a database of the firm’s obligations of confidentiality for use by both themselves and the Compliance Control Room.

It is important to note that it is not unusual for confidentiality agreements to contain provisions that were the firm to accept them, would have the effect of unduly restricting the firm's ability to undertake business. Examples of such provisions would include:

(i)

Confidentiality agreements of unlimited duration;

(ii)

Obligations to return or destroy confidential information without being given notice or without the ability to retain a copy of such information;

(iii)

Provisions precluding the firm from working with a competitor of such client (i.e. exclusivity agreements);

(iv)

Provisions preventing Barclays Capital from trading in the securities of such client (i.e. standstill agreements); and

(v)

Agreements binding the Barclays Group as whole.

Any decision to accept one or more of the above provisions will only be taken after careful consideration of the impact of such provision on Barclays Capital on a case by case basis.”

As to the relevant terms of the IVC/Barclays Confidentiality Agreement itself , clauses 6 to 11 provided as follows:

“6.

You hereby acknowledge that the Confidential Information is being furnished to you, in consideration of your agreement that, subject to your internal conflicts clearance process, you will not, directly or indirectly, for a period of 18 months from the date hereof, approach directly or indirectly the CC Owner with a view to executing any transaction with the CC Owner the purpose of which is the financing of the CC Portfolio or the purchase of the CC Owner, unless the Company has consented in writing in advance to you doing so (which consent shall not be unreasonably withheld or delayed); provided that, we agree that if the Possible Transaction and/or CC Portfolio do not constitute or stop constituting Confidential Information in accordance with the terms of this letter; or (ii) we decide not to pursue the Possible Transaction or negotiations between us and the CC Owner or its shareholders with respect to the Possible Transaction come to an end (and we agree, in each case, to notify you as soon as possible after either such event occurs), you shall no longer be bound by the obligations set out in this paragraph.

7.

Notwithstanding paragraph 6 above, nothing in this agreement shall prevent or restrict (i) your ordinary course client order facilitation (execution only) sales and trading activities that, as required by applicable rules and regulation, operate behind a “Chinese Wall” from your investment banking business or (ii) Barclays Private Equity, which manages third party private equity funds behind physical separation and information barriers from your investment banking business.

8.

References to the parties include references to our respective successors, including, without limitation, an entity which assumes the rights and obligations of the relevant party by operation of the law of the jurisdiction of incorporation or domicile of such party.

9.

This letter sets out the full extent of your obligations of confidentiality owed to the Company in relation to the information the subject of this letter. The terms of this letter and your obligations under this letter may only be amended or modified by written agreement between us.

10.

A person not a party to this letter may not enforce any of its terms under the Contracts (Rights of Third Parties) Act

1999.

11.

The obligations in this letter shall cease 12 months after the date hereof.”

A number of points may be noted:

These contractual provisions must also be set in the context of the “applicable rules and regulation” to which they refer. In that regard, Barclays’ “Global Confidential Information and Chinese Walls Policy”, as revised in July 2007, first describes the nature of the information to be protected and the continuing nature of the obligation, even if the transaction does not proceed.

As to the “nature of the information to be protected”:

“The requirements of this policy, as described below, apply to all information of a confidential nature. It is important to note that the firm may be deemed to be under a legal obligation of confidentiality concerning information provided to it by a third party irrespective of whether it entered into any agreement to that effect. Accordingly, employees are required to treat all information of a non-public nature provided by a third party as confidential (including, but not limited to, price sensitive information) and are therefore required to abide [by] the terms of this policy with respect to all such information.”

As to the “continuing nature of obligations of confidentiality”:

“It is important to note that obligations of confidentiality are continuing obligations, and therefore the occurrence of events such as the completion of a transaction, or a decision on the part of a client not to proceed with a particular transaction, or to engage the services of another institution, will not, of themselves, act to bring the firm’s obligations of confidentiality to an end. Typically, obligations of confidentiality will only cease with respect to a particular piece of information in the following circumstances:

(i)

The information in question comes into the public domain;

(ii)

The information ceases to be relevant by becoming stale (i.e. where information has ceased to be relevant or reliable over the passage of time); or

(iii)

A set of events occurs that, under the terms of any confidentiality agreement entered into by the firm, results in the firm’s obligations of confidentiality towards such information coming to an end.”

In relation to Chinese Walls, the policy sets out a number of provisions:

These provisions of general applicability were then supplemented by more particular “wall crossing” memoranda, to which I shall return. Their importance in enabling Barclays to fulfil its duties to its client whilst being able to conduct its other business is obvious.

It will be recalled that clause 6 of the IVC/Barclays Confidentiality Agreement expressly referred to, and was expressed to be subject to, “your [Barclays’] internal conflicts clearance process”. It will also be recalled that CFP considered and IVC presented the Arctic Fox proposal to Barclays as being so sensitive and confidential that it was not willing even to reveal the name of the target without a commitment on the part of Barclays to keep the information confidential and not to use it.

Mr Navon’s evidence that CFP was not willing to provide any confidential information to Barclays (other than the name of the target) before Barclays conducted a conflicts check with negative results was not disputed, and is reflected in the structure of the IVC/Barclays Confidentiality Agreement.

Mr Navon also said (in paragraph 185 of his first witness statement) that he:

“expected that Barclays’ conflict check would involve checking whether anyone within the bank was working on, or had worked on, any transaction with or involving Tricorona and, if there were any transaction, that those involved would be asked whether or not it could potentially conflict with an acquisition of Tricorona.”

Barclays denies that it had any conflict; but it also contends that even if it was in a position of conflict at the outset of Project Arctic Fox (whether because of its prior overtures to Tricorona or for any other reason which a conflicts check should have revealed), it did not owe a duty to CFP to avoid or disclose that conflict.

Barclays’ case on this is a stark one. It is that CFP’s contention that Barclays was obliged to reveal that conflict is legally misconceived, because

“where there is no fiduciary relationship, the law on conflicts of interest does not and cannot apply…If there is no duty of loyalty then there cannot be a conflict of interest, because in all other cases parties are entitled (and in some cases obliged) to act in their own interests and prefer them to the interest of other parties.”

Whilst Barclays concede that there may be cases where a non-fiduciary has conflicting interests, such as to be in what Mr McQuater characterised as a “commercial conflict”, the non-fiduciary is not obliged to disclose the conflict to either client, and he may advance his own interests as he sees fit.

As previously foreshadowed, a duty of confidence (that is, a duty to respect confidential information) is not to be confused with the duty of loyalty (including to put the interests of the person to whom it is owed paramount, which is the characteristic duty of a fiduciary): and see Arklow Investments Ltd and Another v Maclean and Others [2000]1 WLR 594 at 600A-E (PC).

It is also, to my mind, important to distinguish between (a) a duty to disclose conflicting or competing interests and (b) a duty to prefer the interests of another party over one’s own. In my view, only a fiduciary relationship gives rise to or is constituted by the latter duty: non-fiduciaries may pursue their own interests even to the disadvantage of others, unless restricted by a contractual term or regulatory provision.

However, whether in other circumstances than the present a non-fiduciary ordinarily owes a duty to disclose a conflicting or competing interest is not necessary for me to consider: for in this case, the fact is that Barclays, after undertaking (to the knowledge and with the encouragement of CFP) what was meant to be a comprehensive conflicts search, gave an express assurance to IVC that it had no conflict, and CFP’s case is simply that it was entitled to and did rely on those assurances.

The real question in this case in this context is not whether Barclays had a duty to disclose a conflict of interest: it is whether its assurance that it had no such conflict (or perhaps more accurately, none such as to prevent it being willing and able to proceed) was correct.

That raises three different legal questions, which are (i) whether Barclays’ prior contacts with Tricorona or any then existing plans for the future (whether bilateral with Tricorona, or unilateral or in-house) were of relevance and materiality such as would reasonably be taken to be matters such as to falsify the assurance given; (ii) what steps were taken within Barclays to check whether it was conflicted; and (iii) whether, in any event, Barclays’ commitment to exclusivity negated any potential conflict or the effect of it not having been disclosed. There then arises a further question as to (iv) the consequences and effect of any failure to disclose that which was required to be disclosed.

I address first the question whether the fact and nature of Barclays’ relationship with Tricorona was such as to give rise to a conflict of interest, actual or prospective, and if so whether it was of such materiality as to require disclosure.

I have set out previously a description of Barclays’ dealings with Tricorona over the course of 2007 and 2008, and the reasons for my conclusion that Barclays continued to keep open the possibility of further dealings, although I consider that Barclays should in any event have disclosed those prior dealings and the subsistence of its interest. But, especially since Barclays has argued that had the past been disclosed it would not really have been likely to cause CFP not to present Project Arctic Fox to it, I need to address how serious a conflict there was in terms of the potential for Barclays’ interest, as it was in September 2008 (so not taking into account what it learned from Project Arctic Fox), conflicting in the future with Project Arctic Fox.

Although Barclays’ various witnesses sought to advance the notion, which became something of a refrain that was later echoed in the context of Barclays’ defence against the claim that it breached its exclusivity obligations, that Barclays’ interest was confined to “portfolio structuring strategies” (limited to valuing the portfolio, funding, and hedging in the secondary market) and did not (at least in 2008) extend to any “portfolio purchase strategy”, I do not find this persuasive. Mr Martens himself conceded that structuring “might have involved a purchase”.

Mr Zintl accepted under cross-examination that the context of Barclays’ NDA with Tricorona in April 2008 was Barclays’ identification of Tricorona as a “potential target”. Mr Zintl also agreed that if Barclays had any active interest in the Tricorona Portfolio as at the beginning of September 2008, that would have represented an actual conflict of interest.

Mr Zintl suggested a refinement to the argument: this was to suggest that there was a distinction between, on the one hand, occasional work in selling or purchasing CERs on behalf of or from Tricorona, and, on the other hand, monetising its portfolio (that is, selling its carbon credits, such as Project Arctic Fox envisaged). The first, he suggested, would not give rise to a conflict with the second. He accepted that the boundaries between the two were unclear: “a grey area”.

I cannot accept this refinement: first, because such distinctions are difficult to draw in practice and undermine the rationale of requiring conflicts of interest to be identified; and secondly, because the fact, as I see and find it to be, is that Barclays’ interest in Tricorona was not so confined. I consider that in view of his sketchy knowledge of it, it was implausible for Mr Zintl to have suggested that he did not perceive there to be a conflict.

Ms Patel was characteristically bullish. She disagreed that Barclays had (at that time) any strategy or plan that would conflict with Project Arctic Fox. But she was unable

Mr Whitehead and Mr Jones were not called to give evidence. If Mr Whitehead had been aware of the portfolio purchase strategy that included Tricorona as a target, he would not have been able to say that there was no conflict.

The truth, as I see it, is that Barclays’ relationship with Tricorona was material and did put Barclays in a position of conflict: it should have disclosed its identification of Tricorona as a “potential target client to discuss portfolio hedging or acquisition” of some, or all, of the portfolio.

Barclays’ Conflict of Interest Procedure Manual provided (in relevant part for present purposes) as follows:

“A. Conflict Check

The principal mechanism through which potential conflicts of interest are identified on a transaction by transaction basis is through the conflict clearance process, which is managed by the Compliance Department’s Control Room. The Control Room operates on a global basis, and, in addition to all private side transactions notified to it through the conflict clearance process, it has information concerning all of the Firm’s trading activity and details of the activities of the Firm’s staff that may give rise to a potential conflict of interest. Therefore, it is essential that the Control Room is notified of potential transactions at the earliest opportunity.

When to contact the Compliance Control Room

In order to consider and assess potential conflicts of interest at the earliest possible stages of a transaction, it is recommended that Private Side personnel notify the Compliance Control Room of any pitches to be made in order that a conflict check can be performed. Similarly in the event that the Firm enters into any meetings or substantive dialogue outside of any pitch process which is viewed as likely to give rise to Barclays Capital’s involvement in a transaction, the Control Room should be duly notified.

Ultimately, the decision of when to contact the Control Room rests with the deal team members, as they are in the best position to determine the likelihood and timing of a contemplated transaction. However, please bear in mind that the sooner the Control Room is notified about a potential transaction, the easier the conflict clearance process will be to manage and the less likely that there will be adverse consequences for a transaction.

Notwithstanding the above, a conflict check must be performed prior to:

•

accepting material, non-public information;

•

entering into a confidentiality agreement;

•

committing to a client on a project; or

•

adding a company to the Firm’s Watch List or

Restricted List.

In the event a potential conflict is identified, the Control Room will discuss the most appropriate course of action with the deal team and/or Senior Management.”

Barclays recognised that taking on Project Arctic Fox might limit its other activities. Under the process agreed, Barclays was not obliged to take on the project if its conflict checks proved negative.

Dr Swift noted in a call with Mr Zintl and Mr Oliver Cox of the Compliance Department on 1 September 2008, that if clearance was given then Barclays would be “foregoing any acquisition financing or procurement of carbon portfolios”. Dr Swift’s email of 2 September 2008 set out the position:

“Upon clearance conflict check with the company name, Roger [Jones] will be able to decide whether to forego on any business with this entity as we are quite active in funding discussions/portfolio purchase with small carbon credit companies.”

Mr Zintl and Dr Swift had a conversation the same day that recognised the importance of the conflicts check. Further to that, Mr Zintl and Dr Swift drew up a briefing note for Compliance.

On 4 September 2008, Mr Zintl submitted a “request for exclusivity regarding Tricorona ...” which explained the basis of the transaction and the reasons why Barclays should accept exclusivity, including the “very significant revenue potential from financing and monetisation of carbon credits”. It noted (erroneously) that:

“The environmental markets business have had no prior contact or knowledge of Tricorona and we are unlikely to have alternative opportunities on this opportunity.”

On 4 September 2008, Barclays’ Compliance Department circulated Mr Zintl’s memorandum to various heads of departments, all of whom agreed to proceed.

On 5 September 2008, Mr Zintl informed IVC that Barclays had no conflict of interest.

Barclays’ Compliance Department had forgotten, however, to send the memorandum to Roger Jones, head of the emissions business, and Co-Head of Commodities. Mr Jones had given clearance in principle on signing the IVC/Barclays Confidentiality Agreement, as he understood that Barclays would have the chance at conflicts clearance to decide whether to forgo business with the target.

Dr Swift realised that there was a “potential issue”. The most likely issue was Barclays’ interest in the Tricorona Portfolio; Mr Zintl did not know and could give no other explanation. Dr Swift appears to have spoken to Mr Jones. (Footnote: ²¹) When Mr Zintl’s memorandum was sent to Mr Jones, he said:

“We have had some senior contact with Tricorona in the past that led us to believe the quality of their CER portfolio may be very questionable.

I

think we need a very high standard of DD on this one ... . My concerns were so great I refused to authorise a line with the C[ounter]P[arty] last year.” (Footnote: ²²)

The senior contact in the past seems to be a reference to the meeting with Tricorona in April 2007. Nevertheless, Mr Jones was “fine” with the proposal and gave his approval for Barclays to go ahead.

After Mr Jones had given the go-ahead, the memo was sent to Mr Whitehead to see if there were “any further issues”. During the trial, a further email dated 5 September 2008 from Mr Whitehead to Dr Swift was disclosed. It read:

“Have received from compliance. There is no conflict at all. We do know them but have no significant dealings with them.

I

would question the revenue opportunities though (at least until we know what the portfolio looks like)

I would also advise that there is no way we will give anything other than an indicative number by Tuesday. Not even firm subject to dd. In addition, louis redshaw is out next week.”

However, Mr Whitehead would only have been able to answer in respect of Commodities Sales.

In that regard, and in response to my questions at the conclusion of his evidence at trial, Mr Gold told me the following:

“MR JUSTICE HILDYARD: Just a couple, Mr Gold, I'm sorry to detain you further. One arises out of a document you have just been shown in re-examination, which has caused me some puzzlement. It is the one at {H1/753} from Mr Jonathan Whitehead, who you confirmed was the head of commodities sales.

A. Correct.

MR JUSTICE HILDYARD: Now, he presumably is -- and say if you can't really answer this, but he would only really be able to answer in respect of commodities sales aspects, not other aspects?

A. Correct. The way that the compliance control room works is that they will contact the relevant groups, so they would have either -- either they or somebody on the private side would have then asked and said, "Do you in commodities have any reason that this is causing a conflict?", they gather the information and the control room then assesses it. So he would have just been responding for commodities.

MR JUSTICE HILDYARD: His answer appears to be confined to whether there have been any significant dealings in terms of commodities sales between Barclays on the one hand and Tricorona.

A. Yes, that's what I believe this says.

MR JUSTICE HILDYARD: And it may follow from that that he is not turning his mind and may not know whether there have been any other sort of interest or dealings between Tricorona and Barclays in the past, is that right?

A. I believe he could speak to commodities sales, at least for the period in time in which he was managing the group, which I think covers the period that we are discussing. I think it would be limited to the interactions of commodities sales.

MR JUSTICE HILDYARD: Yes. So if, for example, in another department Barclays had earlier expressed interest in Tricorona which ultimately was not pursued, he would not necessarily know about that?

A. It is possible if he was involved, but it is not necessary, whereas he has -- you know, he has regular meetings with his sales staff, the others, you know, there was no guarantee that he would have known.

MR JUSTICE HILDYARD: Yes, one can't really tell.

A. Yes.

MR JUSTICE HILDYARD: So I felt possibly, but I would like you to comment, that you went a bit far in saying in answer to Mr McQuater, who asked: "Question: In view of what he says there did it appear to you appropriate or inappropriate for Barclays to give conflicts clearance in relation to this deal?" And you said: "Answer: It would seem to be appropriate." That seems to go further than that response from Mr Whitehead could justify, doesn't it?

A. I agree with that. I'm reading this because there is a formal control room inquiry which I'm assuming that's what this email is about, and again I'm making an assumption there, that the control room would have been inquiring to others and they would have cleared it. The most likely conflict would have been commodities and so if he cleared it most likely it would have been cleared, but I am making assumptions.”

It is common ground that Mr Zintl’s reference to the Environmental Markets team (Footnote: ²³) having had no previous contact was wrong: Ms Patel accepted that it was “clearly not correct”. (Mr Zintl could not recall the basis on which that statement had been made to Compliance; he assumed it came from discussion with Dr Swift. Mr Zintl assumed that Dr Swift would have spoken to that team, but he did not know. Dr Swift gives no evidence on the point. It remains a mystery. (Footnote: ²⁴))

In short:

However, and even if Barclays was in a position of conflict that its checks should have but failed to reveal and which was not therefore disclosed, the Defendants contend that “the relevant effect of [the agreement for exclusivity] was that, even if Barclays was somehow in a position of conflict when it was approached by IVC, that conflict was negated”.

CFP rejects this contention, principally on the basis that (i) the conflicts check was required to be and was undertaken after the agreement containing the exclusivity provision had been agreed: there would be no point in having to check conflicts if the agreement eliminated their relevance; (ii) the provision of exclusivity cannot excuse or justify the incorrect statement as to Barclays having no conflict, and Barclays’ reliance on it is “unattractive”; and (iii) exclusivity would only govern the future, and was not of itself sufficient assurance, as Mr Rassmuson explained:

“I think if we knew that they had looked at acquiring Tricorona we would never have given that much information to them and provided them with all the different things. I can assure you that we would not have gone into this detailed discussion with them.”

I am not persuaded by CFP’s point (i): it is not disputed that Barclays was undertaking conflicts checks at least in part for its own benefit and so that it could be satisfied that in committing to Arctic Fox it did not undermine its own greater business interests, activities and plans: Barclays had reserved the right not to proceed if its checks revealed these.

Point (ii) begs the question whether the promise of exclusivity meant that the confirmation of no conflict was not incorrect, because looking only to the future.

It is CFP’s last point (iii) which seems to me to be crucial. In my view, the essential questions in this context are whether CFP reasonably understood Barclays’ confirmation that it had no conflict to be separate and additional to its promise of exclusivity, which it was entitled to and did rely on in proceeding to pursue Project Arctic Fox with Barclays and in providing confidential information to Barclays in that context which otherwise it would not have provided; and whether (and if so, how) that affects the confidentiality and exclusivity provisions contained in the IVC/Barclays Confidentiality Agreement.

The promise of exclusivity it made to IVC did not discharge that obligation: for that gave control of the situation to Barclays, whereas CFP should have been provided with the information to which it was entitled in order to let it decide whether to proceed at all.

In my judgment, the express promise (by Barclays to IVC) of exclusivity was additional to Barclays’ implied promise that it was not conflicted; the one did not disarm or negate the other.

Except in one respect, Barclays sought to minimise the importance of this nondisclosure as not ultimately assisting in the determination of the really crucial questions as to whether the information provided by CFP had the requisite quality of confidentiality about it, and if so whether any actionable misuse occurred. The only issue to which Barclays accepted that the matter went was to whether the failure to disclose undermined Barclays’ argument that the terms of the IVC/Barclays Confidentiality Agreement, though not enforceable by CFP, nevertheless defined the ambit of any parallel equitable duty, including as to its maximum duration.

Plainly it does go to that issue; as it seems to me, however, the failure to disclose its conflict also heightened the need for Barclays to ensure that those involved in its previous relationship with Tricorona (which gave rise to the conflict) should be prevented from deepening the conflict by advancing both interests in tandem and ultimately in competition.

That in turn puts sharper focus on the systems adopted to that end, and in particular the “Chinese Walls” that Barclays was obliged to set up, not only by the terms of the IVC/Confidentiality Agreement and inferentially by its parallel obligations to CFP in equity, but also by its own internal policies.

Before addressing the issue, which developed considerable heat in argument, as to the purpose and effectiveness of the Chinese Walls that were established by Barclays, I digress briefly to consider a point that floated in and out of the evidence as to whether CFP was treated as Barclays’ client and whether it matters.

It is common ground that CFP never formally became a client of Barclays: although an engagement letter was prepared (at the end of November 2008), with CFP as its addressee, it was never signed.

There was some debate in the evidence as to whether, nevertheless, Barclays treated (or was obliged to treat) CFP as a client: but I accept the Defendants’ submission that the point was moot. Indeed, I think it became common ground that it was not relevant: the duty of confidentiality and the obligation of exclusivity relied upon was not dependent on CFP being or being treated as a client, and no duties or obligations beyond that were prayed in aid.

CFP also contends that Barclays’ failure to disclose its conflict of interest, and the result that CFP shared with Barclays confidential information in a way and on terms that it would never have agreed to had the conflict been disclosed, was compounded by the fact that Barclays continued to deal with Tricorona for its own benefit through (amongst others) individuals with knowledge of CFP’s confidential information, such as Ms Patel and Mr Martens, who should have been prevented from so dealing by a proper and effective system of information barriers and Chinese Walls.

Although not originally pleaded, there was considerable dispute between the parties as to whether Barclays was obliged to erect and maintain Chinese Walls to maintain confidentiality, whether it did so, and if it did not (or did not effectively) what are the legal consequences. The parties had very different starting points and perspectives, although it was common ground that a breach of an internal compliance policy, including one prescribing Chinese Walls, does not of itself give rise to a cause of action.

CFP contends that, as in the case of its reliance on the negative conflict clearance, it shared with Barclays information that it considered highly confidential on a false factual premise that there would be sufficient and effective Chinese Walls to protect the information; it contends that it would not otherwise have shared the information; and that without it Barclays would not have pursued Tricorona as a takeover prospect because the revelation of Tricorona’s true value and the means of realising it would have been confined to those on CFP’s side of the Chinese Wall.

CFP further contends that Barclays’ failure to establish and maintain appropriate Chinese Walls, in breach of its internal policies, is a further reason why any contractual limitations in point of time on its obligations of confidentiality should not be applicable.

Perhaps most important of all, however, may be the point that it was the failure to enforce its own procedures for Chinese Walls and the protection of confidential information which provided the opportunity for Ms Patel to develop the relationship with a mind “saturated” with confidential information derived from CFP in the course of Project Carbonara; and it is precisely because key personnel such as Ms Patel and Mr Martens were not prevented from dealing on both sides of the wall that Barclays is in effect incapable of rebutting the presumption that in everything they did in relation to Tricorona on their own account they were informed by what they had learned from CFP, and thereby misused that information.

On all these bases, CFP presents the issue of Chinese Walls (and Barclays’ failures in that context) as being “at the heart of this case, and is what allowed Barclays to take its client’s deal for itself”.

Barclays, on the other hand, maintain that there was no such premise, nor any representation made by it (whether to IVC or CFP) that it would maintain Chinese Walls effective to protect the information shared with it.

Again, Barclays dismisses as legally incoherent any suggestion that its failure (even if established), after the conclusion of the Barclays/IVC Confidentiality Agreement, to maintain Chinese Walls can result in any of the terms of that agreement becoming ineffective to define and confine the duties of confidentiality there prescribed. Barclays accepts that its failure, if established, means that it cannot rely on its Chinese Walls as a defence to any allegation of misuse of confidential information; but it repeatedly emphasised that this was not how it put its case.

Barclays concluded that “the question whether Barclays’ internal policies were breached does not advance the ultimate inquiry of whether Barclays breached any duty of confidence to CF Partners”.

The Defendants sought to dismiss this as a “red herring” in their Closing Submissions, on the basis (in summary) that it can only relate to the claim in respect of breach of confidence, and the only real question in that regard is whether there was in fact a breach, and not whether Barclays should have had more restrictive procedures (such as Chinese Walls) established.

I address the factual issues later; but as to legal principle:

In this context, I should note a suggestion made by some of Barclays’ witnesses (including Ms Patel, Mr Zintl and Mr Gold, with a somewhat discordant chorus from Dr Thomas) to the effect that the restriction only applies to dealing with the “listed securities” of the entity about which the confidential information relates, the policy being (so, as I understood it, the suggestion went) aimed at preventing insider dealing rather than the protection of confidential information. Mr Zintl did later qualify this

In its Closing Submissions Barclays sought to support this suggestion by pointing to a number of references in the Chinese Walls policy that appear to demonstrate a particular emphasis on price-sensitive information.

Thus, clause 4.4 provides:

“The departments described as comprising the “private side” of the Chinese wall are so-called because they routinely have access to confidential client information which is price sensitive and yet to be brought into the public domain.” 480. Clause 4.7 (“Effect of the Chinese wall”) provides:

“No communication of price sensitive confidential information is permitted to take place between individuals on opposing sides of the Chinese wall, unless such communication is undertaken in accordance with this Policy. This also applies with respect to the communication of confidential information between personnel located on the same side of the Chinese wall but separated by an information barrier (e.g. between, IBD and Private Equity).” 481. Clause 4.9 provides:

“The purpose behind the operation of Chinese walls is to ensure that those departments that routinely deal with material nonpublic price sensitive information (the private side) are appropriately segregated from those departments for whom access to such information would have the effect of precluding them from conducting their day-to-day activity (the public side).”

Barclays built on this to submit that although the protection of confidential information is always required and expected (Ms Patel described it as “part of my day-to-day job”), a “Chinese wall is only required where there is a particular risk of misuse, that is, where the information is price-sensitive in one way or another in that it affects the relevant market”.

Barclays characterised a Chinese Wall as essentially facilitative rather than restrictive:

Barclays sought also to present this interpretation as that in fact adopted within Barclays, and relied on the evidence of Ms Patel and Mr Gold to that broad effect.

Ms Patel was, again characteristically, stubborn in her insistence that the ordinary Policy did not apply to limit activities which she personally considered permissible to undertake: this is illustrated in the following passage from her cross-examination:

“Q. Ms Patel, I suggest to you that in a claim for breach of confidence where it is alleged that you have breached confidence in relation to a particular M&A deal, it is clearly a relevant part of that dispute, clearly relevant whether you have crossed a Chinese wall. The Chinese wall was put in place to safeguard the confidentiality of the deal information, wasn't it?

A. So, my Lord, to that particular question, in my day-to-day I receive confidential information from a client and there isn't a Chinese wall, or clients specifically give me confidential information and a Chinese wall isn't set up, so I deal with confidential information every day and either I'm -- and basically I have my ethics and my FSA supervisory approval to take into account to manage that confidential information, so hence I don't mention the Chinese wall because protecting confidential information is part of my day-to-day job.”

Mr Gold was a little more circumspect. But he told me, for example, that the policy would not ordinarily apply in the context of commodities dealing, since it would be rare for any of their dealings to be in listed securities. He added (somewhat delphically, to my mind) that:

“during my time in commodities we had many conversations with compliance about trying to get the nuances of the commodities market expressed in the policies. However the compliance department’s opinion was to take the securities’ interpretation and broadly apply it.”

Nevertheless, although Mr Gold preferred to equate the policy, at least in its application to commodities or what he termed “unrestricted activities”, to a “benchmark”, the application of which he felt was open to case-by-case “clarification”, he eventually accepted in answers to my questions at the end of his oral examination, as follows:

“MR JUSTICE HILDYARD: The thought was this, that I think you answered yesterday in relation to, in particular, Chinese wall arrangements -- which I think you felt slightly uncomfortable with in their application to commodities dealing as opposed to in their application to securities dealing.

A. I think to clarify and just because I would like the opportunity to clarify anyway, the Chinese wall policy that we have covers a number of things. It covers client confidentiality and conflicts issues, it covers insider dealing and regulatory requirements and it covers a need to know kind of an attempt to -- independent of either of those keep things restricted. I felt yesterday I was uncomfortable because frequently the restrictions for insider dealing were being applied to something that didn't have insider dealing and I was trying to keep them very separate because the client confidentiality conflicts part is in commodities, the insider dealings part is different, so somebody in the securities business will have both and somebody in the commodities business doesn't necessarily have to have both because the insider dealing approach is for securities and frequently the question of materiality is considered in commodities which is a different threshold.

MR JUSTICE HILDYARD: Yes. And I can understand that and that's helpful, but as a matter of fact the conflicts policy issued by Barclays does not on its wording discriminate in that way, does it?

A. That's correct, it does not.

MR JUSTICE HILDYARD: And that must be Barclays' policy, therefore, whatever reservations you may have about its exact replication in the commodities field?

A. Correct...”

Of course, notwithstanding Mr Gold’s seniority, that view is not an admissible aid to construction. I quote it because his outlook, and indeed the views expressed by Barclays’ witnesses more generally, may offer insights as to the importance (or lack of it) accorded by Barclays to information imparted in confidence, as well as on the quality of, or justification for, Barclays’ conduct in failing to maintain any effective Chinese Wall in the circumstances of this case.

For the avoidance of doubt, as to the point of construction, I do not consider that the references in the Policy to the particular case of price-sensitive information override the statement in clause 3.1 that it applies “to all information of a confidential nature”. I accept CFP’s case that, on the contrary, the restriction is expressed in the widest terms and intended to apply to usual activities “with respect to those entities or instruments” about which the confidential information relates.

The following has particularly weighed with me in reaching that interpretation of the Policy:

I also note that in addition to Mr Gold’s somewhat reluctant acceptance of this interpretation, all of Barclays’ witnesses, except initially Ms Patel and Dr Zintl, recognised the application of the Policy to all confidential information. Thus:

In short, it is clear that the activities of a wall-crossed individual are restricted once the individual crosses the Chinese Wall. That is why it is a decision that has a detrimental impact on his day-to-day activity (see paragraph 4.10 of the Policy). Unless the Compliance Department advises otherwise, the restriction is total. There is no warrant for restricting the application of the Global Chinese Walls Policy to the context of dealings in securities; it means what it says; in all aspects of business where a Chinese Wall is erected:

“the receiving party will be prohibited from undertaking their usual activities with respect to those entities or instruments about which the confidential information relates or otherwise affects.” (paragraph 4.11, emphasis added)

As to that last point, I should also perhaps note clause 7 of the IVC/Barclays Confidentiality Agreement, which provided as follows:

“Notwithstanding paragraph 6 above, nothing in this agreement shall prevent or restrict… your ordinary course client order facilitation (execution only) sales and trading activities that, as required by applicable rules and regulations, operate behind a “Chinese Wall” from your investment banking business…”

Both Ms Patel and Mr Zintl suggested under cross-examination that this provision constituted a permission to an individual such as Ms Patel to engage in such execution-only activities with Tricorona, and indeed that Mr Navon later (in January 2009) personally confirmed that this was so. I do not accept either that interpretation or that evidence.

As to that interpretation:

As to Mr Zintl’s later evidence, I deal with that in chronological sequence later:

The restrictions intended to be imposed by the Chinese Wall Policy described above were further fortified by the provision of an “Over-the-Wall memo” to every wallcrossed individual. This typically provided (in relevant part) as follows:

In my view, and as submitted by CFP:

I return to the chronology and more particularly to consider the response of Barclays to the introduction and presentation of Project Arctic Fox, and to the facts as they developed thereafter.

Once the IVC/Barclays Confidentiality Agreement (which was signed on 3 September 2008) was in place, and Barclays had through Mr Zintl on 5 September 2008 confirmed (in fact wrongly) that it had no conflict of interest such as to preclude it from acting or wishing to act, CFP began the process of providing and explaining the information and material comprising Project Arctic Fox to Barclays and engaging with Barclays and Tricorona on the iterative process of its further refinement and development.

IVC set up a meeting with Barclays on 9 September 2008 at IVC’s offices. CFP also attended. IVC and CFP told Barclays that they were looking for a facility of up to €200m, structured as a short-term bridge loan to cover the initial acquisition and thereafter to be refinanced, in part by the sale of CERs from the portfolio and the balance by a syndicated or club term loan. It was envisaged that Barclays would be co-leaders with SEB.

CFP had already spoken to SEB and SEB had (on 1 September 2008) produced draft non-binding indicative terms for a potential €175m 12-month bridge facility. However, that offer was indicative only: the terms were of course subject to “all approvals within [SEB], further due diligence and satisfactory documentation”. The portfolio was to be part of the security and one of the conditions precedent was that there would be “pre-sale and hedging agreements relating to the CER portfolio satisfactory to [SEB]”. SEB had already told CFP that it had a major concern related to “the open price risk on the part of the portfolio that would not be pre-sold… it will be vital to have pre-sale arrangements in place asap”. SEB was also intending to discount Large Hydro CERs by 50% in the eligible security.

By this time, the credit crunch had been worsening for a year, culminating in the insolvency of Lehman Brothers in September 2008. The credit markets were seizing up; there was little or no appetite for leveraged debt; and most of Barclays’ leveraged finance team had been laid off. Barclays submitted that, on the other hand, the lack of other work for the (much reduced) leveraged finance team meant that CFP’s proposal received rather more attention than it might have done in busier times. The carbon market experts on Barclays’ team were Ms Patel and, in particular, Mr Martens.

As was of course likely, given the role it was to play, it seems clear that Barclays looked at the project, initially at least, in terms of credit risk. Its focus was on projected cash flows of Tricorona post-acquisition. That meant assessing the portfolio of CERs to project what cash might be generated from them. (It will be recalled, however, that by now Ms Patel had sought to educate the Credit Department as to carbon accumulators such as Tricorona being more akin to a corporate with Commodities exposure as opposed to hedge funds (see paragraph [327] above).)

Initially the channel for the provision of information to Barclays was IVC, reflecting the structure of the contractual arrangements. In reality, IVC’s sole involvement (after effecting CFP’s introduction) was to send on information which CFP had provided to it. It is not disputed that fairly soon this circuity was abandoned, in the wake of the distracting crisis following the collapse of Lehman Brothers in September 2008 and the following financial storm: IVC was, it seems, simply too heavily engaged to act as a postbox in a transaction in which, despite the contractual appearances, it was always on the peripheries. It was not disputed that at, and at all times after, the 9 September 2008 meeting CFP took the lead in the project, rather than IVC.

Prior to the 9 September meeting (on 5 September 2008) CFP sent (via IVC) the then version of its Spreadsheets analysing the Tricorona Portfolio; but not the Expressions of Interest. Mr Martens used that information to carry out an initial analysis of the portfolio over the weekend of 6/7 September 2008. Mr Lim of Barclays, who assisted Mr Zintl and Dr Swift, then used Mr Martens’ work to create a discounted cash flow (DCF) model, which formed the basis for Barclays’ lending review. Mr Martens had not at that stage been given Tricorona’s internal volume risk adjustments but used risk adjustments based on research into market information which he had been carrying out with Barclays’ quantitative analysts since 2007.

The results of Mr Martens’ initial analysis formed the basis of two initial discussion documents prepared by Barclays:

That indicative total portfolio value of €298m (NPV) suggested by Mr Martens contrasted with CFP’s estimate of €385m including the post-2012 portfolio and €315m excluding the post-2012 portfolio. Mr Navon dictated an email for IVC to send, arguing that Barclays had underestimated the value of the assets and that IVC disagreed with Barclays’ views as to CER prices, NPV discount rate, and the discount applied to Large Hydros. IVC duly sent the email in exactly those terms to Barclays.

Barclays, primarily Dr Swift and Mr Martens, prepared a pitch-book presentation for the meeting, entitled “Project Carbonara Discussions Materials September 2008”. This assigned no value to Large Hydro CERs, (Footnote: ²⁵) and set out Barclays’ thinking on Large Hydro CERs:

“Large Hydro are not eligible CER for EU compliance so this portfolio will be treated separately.”

Barclays’ presentation further stated that “Pricing of Large Hydro CER projects is based on client demand and cannot be projected”, and eligible buyers were Australasian and Japanese corporates (not Europeans). Barclays was focused on “Eligible CERs (Large Hydro route to market provided as service post acquisition)”. The risk management hedging strategy involved purchasing CER options on exchange, but this could not be a hedging strategy directly relevant to Large Hydro CERs.

Mr Navon gave the following account of the presentation at the meeting:

“The position clearly from the presentation was that they said that large hydro CDM envisaged projects are not eligible under the EU ETS and in fact the only buyers that they know that can purchase these type of credits are, if I remember correctly, Japanese, Australian clients and sovereigns and not European corporates and pretty much the entire -- the remaining part of the meeting was to explain to them that that view was fundamentally wrong and that you can sell large hydro CDM projects for compliance reasons under the EU ETS to European corporates.”

What is most interesting about these statements and this record of Barclays’ presentation is not so much that they were wrong (as indeed Mr Korthuis and all the experts agreed they were); it is that this was not only Barclays’ apparent mindset as at the time, but it seems to have been the outlook of its carbon experts, and, in particular, Mr Martens.

In that regard, Mr Martens, who was at pains to stress that when at EcoSecurities he was a director of consultancy and one of his areas was EU ETS advisory services, was, with Dr Swift who had no experience in the area, the author of the report. He sought (under cross-examination) to gloss this by saying that it was an “unfortunate error” which failed to make clear that they might be eligible if certain criteria were fulfilled. He accepted that it was he (and not Dr Swift) who prepared the slides for the presentation. His explanation for the error was that he had been very busy.

I have puzzled over this. Mr Martens had and has considerable experience and expertise in the carbon markets: it is difficult to ascribe his mis-statement as based on ignorance, but difficult also to be content with the explanation of hurried carelessness. I have concluded that, even if Mr Martens knew that under certain conditions Large Hydro CERs could be eligible for EU ETS trading, his overall perception was that the difficulties were such that as a practical matter (and for credit capacity assessment purposes) they should be treated as if they were not.

This may have formed, but in any event was consistent with, Barclays’ outlook at the time; and, for example, in an internal email dated 10 September 2008, replying to Dr Swift’s report of a meeting with CFP which had pressed for the recognition of some value for Large Hydro CERs, Mr Roger Jones (the head man on commodities, it will be recalled) stated:

“We must massively caveat any valuation…Nicholas [Zintl] knows my views.

As regards the ‘large-hydro’ component, I would not touch this and the notion that it sells easily to Japan or to the acquirers [CFP’s] European utility contacts is diametrically opposed to our experience.”

Further, Barclays appears to have been generally sceptical about the asset class. Mr Garcia described Large Hydro CERs in an email to Frank Lasgard at Tricorona as being on Barclays’ “Black List”; and Barclays’ attitude is encapsulated by an email exchange on 2 September 2008 between Mr Martens and Ms Patel with regard to a Hydropower station project:

“Ms Patel: do we want to look at large hydro or not bother?

Mr Martens: Conclusion: not bother.”

That mindset was also reflected in Barclays’ lack of experience or interest in trading Large Hydro CERs and pCERs generally. Its head of Emissions Trading (from 2004 to 2013), Mr Redshaw, had no experience at all of forward selling primary CERs. He told me frankly that he had “never taken risk in primary and then forward sold primary, no”. He recollected that someone else had been involved, once, in a deal between Anhui Conch and the Kingdom of Norway (“the Conch deal”) in 2008, but apart from that, he did not believe anyone else in the team had any experience of forward selling primary CERs either: “It would have been impossible”, he said.

A corollary of this perception was, as Mr Navon agreed with Mr McQuater in crossexamination, that Large Hydro pCERs were heavily discounted for market evaluation and the more so for all lending purposes. Barclays, in common with most other lenders, refused to recognise any substantial value in them for lending purposes (other than, as Barclays itself described them in a paper on “Project Carbonara Financing Considerations” dated 16 September 2008, “buffer for debt service considerations”) unless hedged (that is, already forward-sold).

Barclays’ approach thus attached a hugely discounted value to the Tricorona Portfolio, which was largely comprised of Large Hydro CERs (which Barclays thought ineligible) and was almost entirely unhedged (and Barclays thought therefore of no utility as security). All this seems to echo the pessimistic views of Tricorona that it had always reverted to in its own earlier overtures in 2007 (both in and preceding Project Conifer).

It was suggested to Mr Navon in cross-examination that he did not take up the issue in the meeting because he sensed that it was a mistake on Mr Martens’ part which he would swiftly have sought to correct. But this makes no sense except with the inverted vision of hindsight. Mr Navon would have wanted Barclays to share CFP’s rosier view at the time, as indeed it thereafter sought to encourage it. I accept therefore, CFP’s submission that there was no basis for the Defendants to question Mr Navon on the hypothetical basis of the “factual likelihood” of what Mr Martens would have said: Mr Martens gave no written evidence on what he did say, let alone what he would have said, at the meeting. Indeed, Mr Zintl recalled that Mr Martens “said that we are uncomfortable including large hydro and that Jonathan Navon argued against that in some shape or form ...” In his oral evidence, Mr Martens could not recall the precise nature of the discussions, but he did say:

“What I do recall is discussing large hydro during the meeting and to what extent they could be eligible for our collateral credits, and to me that was the key to the criteria. I was only having in the back of my mind: we are going to face a credit committee, we will have to convince them with a CDM portfolio we are confident about.”

I accept that what CFP reasonably took away from the meeting was as described by Mr Navon:

“It was very clear in the discussions that we had with Barclays that they did not understand that large hydro is eligible under the EU ETS subject to certain conditions. That was the focus of the meeting, that was – the main takeaway we got from that is that Barclays is struggling to understand the eligibility of large hydro CERs in this market.”

Dr Swift’s contemporaneous note of the meeting provides a record of what happened, and it substantiates CFP’s account. Her note repeats the mistakes in the presentation.

“A portion of the CER portfolio (i.e. approx. 1/3) is in the form of large hydro projects which are not eligible CERs for compliance purposes within EU ETS. They are therefore targeted at compliance buyers in Japan/Australasia so correspondingly trade at a discount to eligible primary CERs.”

Dr Swift’s note is revealing of Barclays’ knowledge at the time. It identified buyers for Large Hydro CERs in Japan and Australasia but not within the EU ETS. Mr Navon explained the relevance of such identification:

“effectively all you are saying is that you can only sell large hydro credits to a small number of corporates around the world. Japan is a voluntary market, so they don't actually need to buy credits for compliance reasons. The only compliance market that was available at that time was the EU ETS, which often meant that prices that you achieve in the compliance market is higher than what it is in the voluntary market. So it is excluding first of all a significant demand base for the credits, being all of Europe, and it is also not valuing them correctly because of that demand base.”

No Barclays’ individual corrected Dr Swift’s note. As Mr Martens accepted, at least some members of the Barclays’ deal team did not appreciate that there was EU ETS compliance demand for Large Hydro CERs. He never corrected the position. Ms Patel suggested that the error was a “terminology thing”, but it was far more than that. Ms Patel said that the “exact statement [Dr Swift] should have used was [Large Hydro CERs] were eligible but with a lot of conditionality”; that would be the opposite of what Dr Swift wrote.

Following the 9 September 2008 meeting, Mr Sareen of IVC sent Barclays a revised version of the Tricorona Portfolio spreadsheet, which included the ERPA cost for each project, as requested by Barclays at the meeting. The ERPA cost was critical to any valuation of the Tricorona Portfolio. Mr Navon also sent the Tricorona template ERPA to Barclays. In addition, information about Tricorona’s forward sales was sent to Mr Zintl. There is no real dispute that these items of information were confidential.

I have already quoted above (see paragraph [515]) the sceptical response of Mr Jones (the Global Co-Head of Commodities) to Dr Swift’s note of 9 September. Mr Martens agreed that Mr Jones would not touch Large Hydro with a barge pole.

In her evidence, Ms Patel said that Mr Jones took a “much stricter stance” towards Large Hydro than she said she would have taken. But she explained that all she meant was that “if I could have found a buyer on the other side” that would have satisfied her – which seems to be a statement of the obvious. She accepted that she “wouldn’t take outright risk on large hydro…”.

Her own scepticism as at September 2008 is illustrated in an email she sent to Mr Jones dated 10 September 2008 (circulated also to her team, including Mr Martens):

“Valuation – Jan-Willem ran some prelim nos on the portfolio (excl large hydro) and valuation came out to approx Euros 200m. I have looked at the assumptions and they look reasonable versus what we are seeing in the market. This is not far off the market cap and hence at first sight it is difficult to see where the potential buyer sees the value – the buyer’s numbers suggest a much higher valuation which at this stage we don’t have the background to. Obviously there is also large hydro to be included but can’t see how that can make it so lucrative...”

Indeed, Ms Patel admitted that she “didn’t think there was any untapped value in the portfolio”. Dr Swift took a similar view; she was interested in (in the sense of dubious about) where CFP saw the “incremental value”.

On 11 September 2008, Barclays sent CFP “Follow up materials” which contained an indicative valuation of the portfolio. It excluded altogether Large Hydro CERs from the “EU eligible CER portfolio”, thus repeating the same mistake about eligibility.

Mr Martens could not explain in his cross-examination why the mistake was made again: “I don’t know. I can’t explain”. The incorrect but revealing demarcation between “EU eligible CERs” and “Large Hydro” was repeated throughout the document. Once again, it seems, Barclays continued for whatever reason to overlook the same omission and resulting error.

In its revised valuation Barclays attributed a value of €189 million to the “EU Eligible CER Portfolio” and €298 million to the “Total Portfolio” (which excluded post-2012 CERs). The “Total Portfolio” figure was thus not far away by now from CFP’s valuation of c. €315 million excluding the post-2012 portfolio, and €385 million including it. However, for lending purposes Barclays still refused to attribute any value to non-eligible elements of the portfolio (i.e. Large Hydro): any value attributed to Large Hydro was discounted altogether when it came to lending, and excluded from Barclays’ analysis. In Mr Navon’s words,

“the whole value in Arctic Fox is unlocking that large hydro value, so I understood [Barclays’] position, but their position was wrong and we are educating them to understand that their position is wrong to unlock the value that ultimately became – was central to Arctic Fox.”

In response, therefore, Mr Sareen emailed Barclays some text prepared by Mr Navon:

“Our initial response is that your indication provides a conservative valuation of the portfolio which underestimates the intrinsic value of the assets and is not consistent with the overall objectives of the proposed acquisition…In particular, we have different views on your methodology concerning

•

The CER Price Curve Discount for various technologies and maturities

•

The Large Hydro discount

•

The discount ratio used for the NPV analysis…”

As a result of CFP’s queries, Mr Martens’ initial valuation came under the spotlight within Barclays. On 12 September 2008 he told Dr Swift that his valuation was “certainly not conservative”. Dr Swift thought that there was something

“fundamentally different”. The difference lay in the appreciation of the value of Large Hydro; as Mr Smith noted on 3 November 2008, the “key issue remains treatment of large hydro...”.

Mr Martens’ explanation for Barclays’ valuation exercise and its differences with CFP’s was that Barclays had to focus on the question of what would be acceptable collateral:

“what did we think we could get -- convince a lending committee, credit committee, as an acceptable collateral package. That was the key question in our heads...” He said this:

“... I really remember we were having a lot of discussions about large hydro and eligibility of large hydro was of course a key point in our consideration of this portfolio, but the key essence of the eligibility is the eligibility of large hydro credits as part of the Barclays collateral package. That was where we were concerned about. If we wanted to proceed with a transaction of this nature, we were convinced that we had to treat large hydro credits differently and the reason why -- I agree it is not correctly formulated, but the point is we had to treat them differently. If we want to convince any Barclays credit committee or lending committee to provide lending against this portfolio or for me to purchase the credits, whatever structure we would choose to engage in this transaction, we would have to treat large hydro differently and I think that's the key point which we were trying to make and I think whether it refers to ETS or not is a small point.”

In particular, Mr Martens suggested that Barclays’ carbon team would need to convince the credit committee: the deal team was not prepared to follow CFP’s guidance on Large Hydro CERs because “we know that our standing with the credit committee, we would be shot down”.

But there would have been no reason for the credit committee to reject CFP’s proposed valuation unless it did not understand the rules governing Large Hydro eligibility and the demand for Large Hydro CERs. The committee relied on the carbon team to make its decisions:

“MR JUSTICE HILDYARD: And who informs the credit committee about the eligibility and value of large hydros?

A. [Mr Martens] Well, that's a good question, but in the end they would comprise of senior Barclays management I would think.

MR JUSTICE HILDYARD: We have seen nothing about that and I wondered whether the credit committee might rely on someone like you for that purpose?

A. Well, it would rely on the various staff and I think definitely – so I think if we had a conviction that there was a good case to say, "Look, large hydro can be used, we know you have outdated views on it because there was illiquidity but things have moved on, we disagree with that", then we would have to substantiate our case and make an effort to do that. So in that sense -- and I think when I say we were not able to convince the credit committee I mean we were not able to prepare an argument that we would currently convince them with that, that okay we haven't been using large hydro until so far but now you can use it for this project, you can actually do it because X, Y, Z.

MR JUSTICE HILDYARD: So they might have been influenced by your view as to the eligibility and value of large hydro if you pushed it, is that what you are saying?

A. If we pushed -- yes, if we had good arguments for it, yes.”

In its written Closing Submissions, CFP described in detail and at substantial length the various steps which, as CFP would have it, demonstrate the gradual education of Barclays by CFP as to the available arguments and their robustness. In their much shorter treatment of the exchanges and presentations between CFP and Barclays, the Defendants sought to dismiss any suggestion that Barclays’ position changed.

It is, in my view, plain that over the course of September 2008, Barclays did gradually become convinced of the argument, pressed by CFP largely through dogged repetition, that Large Hydro CERs were eligible for the EU ETS and were potentially an asset class to which value as collateral could be attributed in assessing the overall value of Tricorona’s portfolios for lending purposes.

I accept that this was a change of perception and attitude on Barclays’ behalf which was predominantly brought about by CFP’s material, as well as its perseverance.

I do not think it is necessary to chronicle, as CFP did, each document relied upon as demonstrating the change. I think it sufficient to summarise the evolution of Barclays’ attitude as follows:

Further comfort that there existed EU ETS compliance demand for Large Hydro CERs, which CFP had identified and could tap, was provided to Barclays by reference to the Expressions of Interest at meetings on 7 and 27 October 2008.

CFP showed (but did not supply copies of) the Expressions of Interest to Barclays at a meeting on 7 October 2008 further to a presentation outlining the project in more detail, including draft key terms of the proposed debt package, and explaining CFP’s refinancing strategy, including forward sales to key compliance buyer clients of CFP.

That presentation included the following statement about demand from compliance buyers:

“In order to address the lender's concerns on liquidity, volume and price risk, we have approached four clients (targeted approach due to the sensitive nature of this transaction) to establish the interest to acquire 10 million CER portfolio of the Target portfolio

Within a week, we have been able to secure over 33-35 million CERs in interest in portfolio sales from compliance buyers for a total notional amount of €440 million plus. This highlights the high level of liquidity of the Target Portfolio

•

Utility: c. 10 million CERs

-

Up to 50% guaranteed @ CERs * 85% to 92% and/or €17-19/CER

-

Unguaranteed @ CERs * 80%, and/or €13.5-

14.5/CER

•

Major oil company: up to 10 million CERs

-

Up to 3.6 million in Large Hydro

-

Non-registered @ €9-13/CER and @ Registered at €14-18/CER

•

Utility: up to 10 million CERs

-

Will provide additional terms once project information is disclosed

•

Industrial group: Interest up to 3-5 million CERs

-

Will provide additional terms once project information is disclosed”

Dr Swift’s report of the 7 October meeting, in a “Call Report” which was substantially amended by Mr Zintl, includes the following and confirms the centrality of the Expressions of Interest to the way CFP presented the project’s potential:

“They see the window of opportunity for closing the deal as 3-6 months…

CF are considering a bid at approx 35% premium. If current market turmoil persists and Target’s share price continues to slide, the premium could be higher…The Target’s market cap has dropped from about EUR175 m levels to EUR150m this week…

They perceive the undervaluation of the Target to be partly from not being covered by Equity research; from the fact that the company is in a transition form a mining background; and given the opaque nature of the carbon market…

…

They have a diversified set of take-out options:

1.

They have received written interest from Asian Development Bank for 6MM contracted tonnes of Large Hydro (for which we shall ascribe limited collateral value), with pre-payment upfront of the value of these assets (i.e. CER price less ERPA cost), on 3MM tonnes and payment on delivery for the balance;

2.

They have received interest for term financing from the following banks…that could constitute a key building block of a syndication strategy…

3.

…

4.

A signed letter of intent from a top tier utility for 10MM tonnes, with level of CER upfront payment based on DD and with 25% on guaranteed basis and 75% on non-guaranteed basis.

5.

They also displayed letters from 3 other un-named compliance buyers which showed interest in up to 35-40MM tonnes which could also be considered as a source of assets sales of portfolio (and alternative for re-financing loan in situation where cash flow generation delivers less than expected)…”

At a further meeting on 27 October 2008 CFP produced a presentation entitled “Arctic Fox Barclays Transaction Details”. This explained in more detail the envisaged role for Barclays in the transaction, which included (a) an M&A role jointly with SEB, a leading Nordic M&A bank; (b) joint Acquisition Facility arranger; (c) participation in long-term debt facility; and (d) carbon risk management and derivatives, and also identified the names of those from whom CFP had secured written Expressions of Interest (Vattenfall, Shell, E.ON and Electrabel).

The presentation, under the heading “Strong Demand for the Target’s Carbon Portfolio”, included the following statement:

“CF Partners has been able to secure over 33-35 million CERs in interest in portfolio sales from a select group of core clients. Most of the pre-sales will be executed on a fixed basis to further reduce the market risk of the portfolio. This interest was based on an issued CER price of Euros 19/CER. While prices may adjust to recent developments, levels from compliance buyers has [sic] been inelastic.”

Whether it was at the first or second of these meetings is unclear, but, as Mr Zintl acknowledged (it having initially been disputed by Barclays), at least three of the Expressions of Interest were produced for Barclays’ inspection. However, it is common ground that CFP did not provide copies: it was sight only.

Since it retained no copies, I accept that it may well be that Barclays did not thereafter expressly refer to them; but in my assessment their presentation did affect Barclays’ thinking there and then, as part of the overall package that CFP had assembled and presented.

I have already addressed the nature of the Expressions of Interest, and noted their provisional terms and scrappy feel. As indicated previously, Barclays denied that the Expressions of Interest had any impact, lasting or at all: it contended in its written Closing Submissions that, after their presentation, “there is no evidence that anyone thought about them again”.

However, my overall assessment is that the fact that CFP had secured the Expressions of Interest from reputable sources did weigh with Barclays. For all Barclays’ belittling of them, they provided general support for CFP’s general line that there was steady demand for volume CERs and that the Large Hydro CERs in the Tricorona Portfolio, which Barclays had (because of its institutional confusion about their eligibility) almost entirely dismissed, offered more than Barclays had originally supposed. I do not think Barclays treated them as important documents in themselves: they were part of the overall mix. But they were not an inconsiderable part.

Side by side with the Spreadsheets and the Expressions of Interest, CFP and Barclays (and Tricorona) continued, through October and November 2008, to exchange and update information. The Spreadsheets were repeatedly updated and revised to take into account information published on the UNFCCC website (which was continuously evolving as new projects were uploaded and others were terminated).

The Defendants sought to minimise this, depicting it as essentially derivative and mechanical, rather than special and unique. They also sought to emphasise the input of Tricorona, and especially Mr Holmgren, who (I accept) did considerable work on risk adjustment, using Tricorona’s own information.

Although indeed some of what CFP did in this period was presentational, and derived from publicly available material, it also included additional confidential material obtained from Tricorona but processed and presented by CFP. The work done appears to have been intensive on all sides.

For example, and in addition to (a) the continuous process of updating the Spreadsheet with ever-increasing levels of information (especially as to risk adjustment methodology and details as to the status of CDM projects), (b) the meetings in October mentioned above, and (c) negotiations with SEB and CFP’s parallel efforts to bring Volati on-side as an equity participant, Mr Rassmuson continued to work on demonstrating projected levels of forward sales and the prices to be expected.

Thus, as Mr Navon recounted in his witness statement, on 31 October 2008, following a request from Barclays, Mr Rassmuson sent Barclays a table giving details of the guaranteed forward sales and off-take agreements for the years 2008 to 2013, detailing in digestible format the levels of forward sales, the prices at which those forward sales were made and whether that price was fixed or floating.

All this was both confidential and important for Barclays in enabling it to calculate an accurate valuation of the portfolio and to assess with increasing accuracy the financing that could be secured. Further, I accept Mr Navon’s evidence that the process was time-consuming, the presentation of changing information required care and skill, and the product itself, although largely accessed from public sources, was bespoke and unique.

At all events, the combined effect of what CFP made available to Barclays in the course of this period (September to early November 2008), and the discussions between them and the Tricorona Management in developing and assessing the proposals, was that by early November 2008 Barclays had materially changed its perception of Large Hydro CERs.

In particular, from excluding or discounting Large Hydro pCERs altogether from its valuation of Tricorona’s assets for debt capacity purposes, Barclays first moved to attributing value where there were existing hedges in place (which was the smaller step), and then (after CFP had informed Barclays of the potential demand from compliance buyers) to the larger step of recognising potential value if and to the extent that CFP could demonstrate the potential for forward sales to compliance buyers.

By 3 November 2008, Barclays had become prepared to attribute potential values for debt capacity purposes to Large Hydro CER which were not yet hedged but in respect of which CFP considered that forward sales would be achievable. One of the slides from a presentation document of that date, entitled “Project Carbonara Analysis Assumptions” and prepared by Mr Lim, contained the following explanation:

“We have assumed a Large Hydro CER price of EUR13 per CER to-be-hedged which might be fairly aggressive. Company [that is, CFP] to provide guidance on actually achievable prices

CFP had provided the indicative figure of €13/CER. Whilst the deteriorating price was no doubt of concern, the readiness of Barclays to ascribe value where previously it had denied any is striking; and as Mr Navon stated in his witness statement:

“It was striking to me at this time that Barclays sought guidance from CF Partners on achievable forward sale prices for the Large Hydro CERs. This seemed to me to confirm Barclays’ underlying lack of familiarity both with the primary markets and with Large Hydro CERs in particular, and why therefore Barclays was reliant on CF Partners’ expertise in the primary markets and in relation to Large Hydro CERs. From our experience, we understood to a high level of detail the prices that could be achieved.”

Further, another slide from the same presentation appeared to envisage the possibility of a third step forward in Barclays’ approach:

“The Large Hydro projects without Annex 1 LOA are currently not included. To the extent that the smaller projects are able to be hedged (either via swaptions or offtake agreements), it might be possible to lend against these projects. For the big Large Hydro plants without Annex I LoA, it is unlikely that these will be able to be hedged until they receive a LoA from a Host Annex I country and have therefore not been included in the analysis.”

That fifth step, of persuading Barclays to recognise discounted value to Large Hydro CDM projects which had been commissioned and for which, though no LoA had yet been issued, obtaining it was the last step before registration, remained difficult; but it was to this that CFP next turned, seeking to persuade Barclays of Tricorona’s strong track record (which was not disputed) of its CDM projects achieving registration and Annex LoA certification.

Thus, again as an example of the fairly relentless (but painstaking) approach adopted by CFP in seeking (as it saw it) to educate Barclays about Tricorona’s portfolio, on 7 November 2008 Mr Navon also sent a pack of documentation in relation to Tricorona’s procedures for obtaining Annex I LoA for Large Hydro CDM projects, including a checklist which Tricorona had developed to ensure compliance with WCD criteria.

It will be apparent also that in all this there was a steady flow of confidential information from Tricorona to CFP on the terms of the Confidentiality Agreement between them. Less apparent, however, is that in what I have described as the iterative process between them, centred around the development of the Spreadsheet. The evidence before me suggested that Tricorona’s management, though strong on the origination side, had little experience or expertise in forward selling, especially of Large Hydro CERs. Its experience appears to have been limited to dealings with Japanese customers outside the EU ETS.

The Tricorona Management’s experience was in origination; and it is striking that (a) its portfolio remained in large part unhedged; (b) all management’s (mostly unsuccessful) discussions about selling the portfolio were with financial institutions who (as Mr von Zweigbergk conceded) would be likely to offer low prices rather than utilities; and (c) there is practically no evidence of any attempt by the Tricorona Management to forward sell to European compliance buyers in 2008 or 2009.

Tricorona’s customer list as at January 2009 showed that all the large forward sales were to Japanese customers; and although there was one recorded forward sale to a German industrial customer it was not a Large Hydro sale. None of the utilities that CFP introduced as potential buyers was on the list: Vattenfall, E.ON, Electrabel, ADB.

Mr Holmgren’s claim that “we knew that there was demand for primary CERs and where to get it” was undermined by the documentary evidence above; and also by his own acknowledgment, upon being challenged as to what primary prices were available in 2008, that “I’m not sure we investigated any primary sales”. He also accepted that he had no personal experience of the demand for primary credits; and although he suggested at one time that the trading desk would have that experience, he soon acknowledged that their focus was almost exclusively on guaranteed sales in the secondary markets.

Thus, and surprising though I initially found it, I accept CFP’s submission that, as with Barclays, the Tricorona Management’s understanding of demand for Large Hydro CERs was very limited; and I do not feel able to accept such protestation to the contrary as Mr von Zweigbergk and Mr Holmgren tried to advance.

Before returning to the broad chronological sequence (the next event being a meeting in Singapore, orchestrated by CFP, between Barclays and the Tricorona Management), I turn to deal briefly with my impression of the reaction to Project Arctic Fox/Carbonara within Barclays.

In the Defendants’ Closing Submissions (as in their Opening) Barclays sought to depict CFP’s presentation of Project Arctic Fox to Barclays as from the outset “ambitious given the then prevailing economic environment” and the seizing up of credit markets in the wake of Lehman Brothers’ insolvency in September 2008, and soon demonstrated to be unrealistic in the light of a collapse of the carbon credit market at the end of 2008.

Indeed, the Defendants at trial disparaged Project Arctic Fox as in effect something Barclays played around with because it had nothing better to do. As they put it in their Closing Submissions, “the lack of other work for the (much reduced) leveraged finance team meant that CF Partners’ proposal received rather more attention that [sic] it might have done in busier times (and probably more than it deserved)”.

CFP rejected this, and submitted that, on the contrary, “the contemporaneous evidence… demonstrates that notwithstanding the deterioration in market conditions in late 2008, throughout this period Barclays considered that Arctic Fox was a credible, realistic deal, and it was eager to pursue it. Any scepticism on the part of Barclays’ witnesses is at best a product of hindsight”. CFP contended further that “throughout autumn 2008 Barclays viewed Arctic Fox and its prospect of success like any other M&A deal”.

Certainly Barclays was keen to expand its role beyond responding to the debt proposal into actively providing M&A and transaction-structuring advice, partly no doubt to justify its proposed fee of £15 million. Indeed, Barclays made clear at a meeting on 29 October 2008 that access to debt would be conditional on the provision of other revenue for Barclays, through M&A advice and also work with CFP on carbon risk management.

Contemporaneous documentation (provided as part of late disclosure) revealed that Project Arctic Fox was in fact one of Barclays’ M&A department’s first deals, and was regarded as both exciting and potentially lucrative by that department.

However, I would accept that the Deal Team’s work on Project Arctic Fox was always more opportunistic than it was committed, whatever other superficial impression it sought to give CFP at the time.

I formed the clear impression from the evidence of Mr Martens and Mr Zintl that:

In summary, the view I have formed from the evidence was that Barclays (a) was content to work on the buy-out/M&A deal but (b) did not anticipate it progressing at least until markets changed, and (c) was primarily interested in preserving the opportunity of “mining” or monetising the Tricorona Portfolio, again until carbon credit prices and/or the margin between pCER and CERs increased. Barclays had no solid commitment to Project Arctic Fox or to CFP.

I turn to the broad sequence of events between November 2008 (when, with CFP’s encouragement, Ms Patel met Messrs von Zweigbergk and Holmgren at the Carbon Asia Forum in Singapore) and April 2009 (when Barclays and CFP (for itself and IVC) agreed terms for the “Termination of Exclusivity” (referred to at trial, at least by the Defendants, as the Exclusivity Release)).

Although it was CFP who (unknown to Ms Patel in advance) encouraged the Tricorona Management to meet with Barclays at the Carbon Asia Forum in Singapore

On 12 November 2008, Mr Navon emailed Mr von Zweigbergk and Mr Holmgren:

“Please track down Harshika Patel and Jan-Willem Martens from Barcap. They should be in Singapore as well … . The main issue to discuss is Large Hydro. They currently assign no value for Large Hydro without LoA Member State approval. This obviously has a big effect on the risk-adjusted volumes they are assuming to support the debt levels. You need to explain to them that this is way too conservative. In addition, they have concerns about the legal robustness of your ERPAs. So explaining your relationship with the government will be useful. Finally, please walk them through again the due diligence monitoring process you have on board, that the portfolio is updated on a weekly basis and that there have been no rejections by the UN…The key is to get them to increase the risk-adjusted volumes closer to our estimates and to Point Carbon’s.”

The context for the meeting was thus CFP’s perception that, though it had educated Barclays as to demand from compliance buyers for Large Hydro pCERs, it remained unpersuaded that any value could be attributed where the project had not received LoA status (what I have earlier described as the fifth step in changing Barclays’ approach). Mr Holmgren said as follows:

“Q. ... I just want to ask you to confirm, Mr Holmgren, that as far as you were concerned you had no reason to doubt that Mr Navon was correctly assessing Barclays' view of large hydro which he sets out here?

A. No. I think it is right. Barclays at this case did not assign any value to large hydro without member state LoA. It has not been confirmed, but I trust it is correct and it sounds plausible.

Q. Yes. Large hydro without LoA member state approval did have value, didn't it, at that time? A. Of course.

Q. So if Barclays had not assigned any value that would have been wrongly to undervalue that particular asset, wouldn't it?

A. Yes.”

Ms Patel emailed the Carbonara team after the meeting:

“Hello deal team

Just to let you know that we have been in Singapore at a Carbon conference this week. Carbonara had a stand which we avoided like the plague until we were approached by the CEO (Nielsen) and his number two.

They came and sat with us for about an hour and straight off the bat asked if we were the two that were on the call with them when we discussed their portfolio and approach to DD etc.

We indicated that we were and really spent the rest of the conversation focusing on the market and a bank's approach to CDM. We did not mention any deal at all nor any names. They brought up large hydro but once again we talked about it in a market context.

However as a parting note they did say that if we had any questions going forwards we could call them directly whereby we just politely nodded and did not say anything.

By all accounts they very much want this deal to happen. They were very nice people and we both got a good vibe.

We really should talk about how if we don't get this deal how we can start a dialogue with them (through CF if required) to discuss hedging solutions.

Jan-willem is in tomorrow (as I am still here) so he can give you more colour.”

It was suggested to Ms Patel that this email was “somewhat mannered” and “backcovering”, with the writer “clearly at pains to emphasise how little contact you have had”; but that the penultimate sentence “gave the game away” that Ms Patel had discussed or encouraged future discussions with Tricorona about hedging opportunities, inconsistently with Project Arctic Fox.

Ms Patel firmly denied this, emphasising that she and Mr Martens had been especially careful, knowing CFP’s sensitivity about Barclays discussing Project Arctic Fox with anyone else. This had recently been demonstrated to Ms Patel by concerns expressed by CFP (of sufficient seriousness to warrant an internal report to compliance) after Ms Patel had met with Asia Development Bank (“ADB”) at lunch, when Tricorona was mentioned (albeit, apparently, very briefly).

Mr Martens did not recall the details of the meeting but said he did not doubt Ms Patel’s account. He was adamant that they had not discussed Project Arctic Fox, and had confined themselves to generalities about the market, and some brief discussion of Large Hydro. The evidence of Mr Holmgren and Mr von Zweigbergk was to the like effect.

Especially given (a) the brief that Mr Navon had given Tricorona’s management as to the purpose of meeting up with Barclays in Singapore, (b) the inherent likelihood that discussion over an hour would progress to more focused matters and (c) a later email

Further, I think that whatever its substance, the discussions were a catalyst for Barclays and Tricorona to contemplate dealings or trades between them “through CF if required”, and that this encouraged further dialogue and (I suspect) a growing appreciation of the basic fact that unless CFP could quickly engineer a buy-out with Volati’s agreement, Tricorona had more to gain from dealing with Barclays than with CFP.

I doubt, however, that there was any more specific discussion. Even allowing for the possibility that the email did not convey the whole story, the evidence does not suggest to me (and I do not accept) that either had any intention, at that time, of doing anything immediately contrary to Project Arctic Fox. I accept Mr Holmgren’s evidence that it was not the intention of the Tricorona Management at that stage to “cross the agreement that we had with CF Partners”, even if the effect of the rapport between them at the meeting in Singapore was to galvanise the Tricorona Management and Barclays once more to the possibility of profitable dealings between them.

Accordingly, I do not accept CFP’s claim (by amendment to its Particulars of Claim) that the intention of their discussions in Singapore was “to prejudice Arctic Fox and/or any portfolio discussions CF Partners might otherwise have had with Tricorona and/or to benefit Barclays and Tricorona at the expense or to the detriment of CF Partners”.

But I do accept that the impression successfully conveyed by Ms Patel to Messrs von Zweigbergk and Holmgren was that, at least if Barclays “don’t get this deal”, Barclays would be very interested in exploring all possibilities with the Tricorona Management. As indicated previously, I consider that Barclays had little loyalty to CFP, did not have high expectations for implementation of Project Arctic Fox, but in the course of it had already learned much that was favourable about the potential of Tricorona’s portfolio and working its mine: it would not take much for them to decide to jump ship.

There is no real doubt, and I find, that after the Singapore meeting Ms Patel was keen, and looked for ways how, to build a relationship with Tricorona with a view to risk management and other activities if Project Arctic Fox/Carbonara did not proceed, and that this objective soon displaced whatever enthusiasm there was within Barclays or Tricorona for Project Arctic Fox.

Ms Patel accepted under cross-examination:

“…in November 2008, following my meeting with Christer and Niels, I clearly had suggested to the deal team that if Carbonara was not going to work out I would be very keen to take our risk management dialogue with Tricorona to the next level, hence I have written -- I clearly have spoken to Bruno to get some background on what sort of ideas he hashed over in the past, acknowledging that he had not had much luck with credit to get credit lines to trade with them extensively…”

The exchanges barely mentioned Project Arctic Fox, except as an impediment to closer engagement; and they illustrate increasing focus on, and enthusiasm for, doing business thereafter. Although Mr Holmgren forwarded to Mr Navon one innocuous exchange on 20 November 2008 containing Barclays’ research, Mr Navon was not copied in on any further emails, nor made aware of any of the discussions about opportunities. Barclays’ contention that Ms Patel did not consider that she was doing anything of which CFP might legitimately complain is not assisted by the fact (which was not disputed) that Barclays’ exchanges after the Singapore meeting took place behind CFP’s back.

As to these exchanges:

On the same day as Ms Patel was referring to opportunities with Tricorona in the context of portfolio purchase, Mr Lim was circulating revised analysis on Project Carbonara within the deal team.

There was no suggestion that Barclays by that stage had any “green light” from CFP, or that Carbonara was not progressing. Ms Patel did not deny her objective, only what business she had in mind:

“‘Q. Aren't you really here just striking up a bit of a rapport with Tricorona so that you can start to do some business with them? Isn't that the idea?

A.

Oh, I mean absolutely. As I said earlier, I wanted to leave a good impression in their mind.’

Mr Martens was not copied into the exchanges between Ms Patel and Mr Holmgren in the aftermath of the Singapore meeting, nor was Mr Lim. Mr Martens could not recall whether Ms Patel mentioned any of the exchanges to him at the time, but he did not know anything about the emails. His evidence was as follows:

“Q. ... It would have been wrong, wouldn't it, for Ms Patel to be trying to engineer any sort of subsequent catching up with the target at a time when she was wall-crossed into the deal team? That's right, isn't it, Mr Martens; you accepted that this morning and I think yesterday morning? A. Yes. She should be cautious -- Q. No, Mr Martens, not cautious --

A.

-- but it is not up to me to tell who is wrong or not, right? It is my indication of what I thought was relevant to me.

Q. No, Mr Martens, your evidence was that a Barclays member of the deal team who had been wall-crossed from the carbon desk should not be having any normal business contact with the target. Now, that would apply to Ms Patel as much as you at that time, wouldn't it, Mr Martens?

A. Yes, sure.”

On 27 November 2008, only a few days after her email exchange with Mr Holmgren, and in response to Ms Patel’s request, Mr Garcia emailed Ms Patel his proposals to Tricorona in April 2008 for a route to market ‘structure’. This, as Ms Patel agreed, was not for the purpose of pursuing Project Carbonara:

“Q. Two days later, so six days after your email exchange we have just gone to and two days after this business case that Barclays prepared, it looks as though you have asked Mr Garcia to send you some route to market analysis for Tricorona that he had been working on and given to Tricorona back in April 2008. Can you see that? A. That is correct, yes I can.

Q. And you have just signed off with Mr Holmgren saying, "It is definitely worth exploring business opportunities", you have said that and then only a few days later we see you asking Mr Garcia for some particular types of business ideas for Tricorona, don't we? A. Yes.

Q. And you wouldn't be doing that, Ms Patel, would you, for the purposes of Project Carbonara?

A. No, so as I stated, my Lord, when I came back from the Asia Carbon Forum, to my colleagues, that it is definitely a client that I would like to explore hedging opportunities with, taking into account the existence of Carbonara and the NDA and I just want to get some previous history from Bruno on what sort of ideas he has spoken about with them in the past. So I have clearly spoken about that to him and he has forwarded me that email as one of the ideas he has shown. But it is certainly not something I then take to Tricorona straight away.

Q. That's a different point, Ms Patel. But the point I'm making is you would only be asking for this information if you had in your mind at that point the idea of potentially doing this sort of business with Tricorona, that's right, isn't it?

A. That is correct and I admitted that to my colleagues in the summary of my note of my discussion with Niels and Christer. I was very upfront about that.

Q. I'm suggesting that it would be odd to ask for that information if you had no intention of trying to advance matters in this respect with Tricorona. It would be a very strange thing for you to do, to just get it in the abstract. You are getting it at this time because you have now seen this is an attractive carbon portfolio and you are now thinking about ways in which you can close in on it. That's what I'm suggesting to you.

A. That is not correct, my Lord. It has got nothing to do with the portfolio. I clearly would like to target Tricorona as a potential hedging client. I have just met them in Singapore. I have alluded the same around risk management with my colleagues and all I'm trying to do, prior to getting any green light because I'm wholly aware of the non-disclosure arrangement, I'm just trying to get from Bruno a flavour of the sort of things and ideas he has shown them in the past.”

Barclays’ previous ideas included, indeed focused on, a structure for a portfolio purchase of Tricorona. Ms Patel must have recollected this: as explained previously, she had worked on (and was in charge of) a portfolio purchase strategy or “roadmap” in March and April 2008. Ms Patel confirmed in her oral evidence that she only asked for such information because she had in mind doing such business with Tricorona.

However, as appears from the extract of her cross-examination quoted above, she was insistent that this had got “nothing to do with the portfolio” and in their written Closing Submissions, the Defendants sought to downplay these exchanges, and to present them as intended by Ms Patel simply to foster and maintain a good personal relationship with potential business contacts, it being public knowledge that Tricorona had a large unhedged CER portfolio.

The Defendants submitted that “the exchanges do not evidence any overtures by Barclays or Tricorona to embark on any particular business, and certainly not on any business which might cut across CFP’s plans or which might undermine their relationship with Tricorona management…Ms Patel’s hopes of arranging some hedging or risk management business in the future was not directed at Large Hydro, or indeed at anything in particular”.

In my view (and I so find):

Further, in my assessment:

There is a dispute between the parties as to whether it was agreed (informally) between CFP and the Tricorona Management in December 2008 that Project Arctic Fox would be terminated.

In his oral evidence Mr Holmgren maintained (though this was not in his witness statement) that such termination was expressly agreed between CFP and himself:

“I think it was a conference call on 18 December….that Arctic Fox was terminated”.

Mr Rassmuson disputed this. He told me:

“I think it is important to highlight that on the 20^th – around – December they were trying to terminate Arctic Fox. We did not agree to that. We said we could terminate the MOU but we want to continue to work on this transaction.”

I accept the evidence of Mr Rassmuson on this point, but in reality I think the difference between the parties is less stark than might initially appear. The fact is, as I see it, that Tricorona’s management considered that their support was essential for the success of Project Arctic Fox, and that once they had withdrawn that support, and given that CFP could not deliver Volati either, Project Arctic Fox was “dead”.

In other words, in the minds of the Tricorona Management, termination of any understanding of management co-operation meant the end for Arctic Fox; whereas in the minds of CFP, the deal was made more difficult without the co-operation of the Tricorona Management, but, if and when the markets changed, still achievable (especially if their “dream” of an MBO re-surfaced, management and Volati might well come back on board). For the one, the fox was dead; for the other, it was in hibernation.

The conduct of CFP and the Tricorona Management in late December 2008 and through January and February 2009 is consistent with this. CFP continued to work to secure the participation of (for example) SEB, Vattenfall, E.ON and Climate Change Capital, and to seek to put in place the necessary elements for the transaction so that it could proceed once market conditions improved. In contrast, Tricorona’s management turned increasingly towards Barclays. Barclays (and especially Ms Patel) turned their attention to ways of extracting value from the mine and shoring up its emissions business in the light of a difficult year.

An email from Ms Patel to Dr Swift dated 6 January 2009, before Barclays had been informed by the Tricorona Management that, so far as they were concerned, Arctic Fox had ended, captures Ms Patel’s outlook at the beginning of the new year:

“…In these market conditions we need to be clever about how we can do some business with Carbonara but compensate CF accordingly to appease them”.

Ms Patel agreed under cross-examination that by “we” she meant her carbon team at Barclays, which she accepted was on the other side of the wall from her, that is, the public side. She apparently saw nothing wrong in her, as part of the Project Carbonara deal team, discussing with the head of the deal team (Dr Swift) doing trading with the

She sought to explain her reference to compensating CFP as reflecting her appreciation that there was an exclusivity arrangement in place (though she said she was not an “active member of the deal team and she did not actually know what the terms were”). She told me:

“…I was just flagging to my colleagues that I know it exists and if I want to do business with Tricorona I want to make sure that we are mindful of the provisions of that exclusivity arrangement….”

Ms Patel’s oral evidence was that the only business with Tricorona she had in mind was “risk management…in very volatile conditions for the carbon market”.

She sought to pass off her reference to the need to be “clever” as anticipating the need for Barclays to persuade the Credit Department to extend credit lines to facilitate this, which she anticipated would be very difficult given that (a) Tricorona was not well capitalised and (b) the collapse of carbon prices reduced security.

She thus presented the email of 6 January 2009 as signifying no more than a wish on her behalf to take advantage of volatile conditions, and what she perceived to be the particular exposure of Tricorona and its susceptibility to an approach, to engage in limited risk management business with Tricorona, offering to compensate CFP for any breach of exclusivity.

I have to say that I found Ms Patel’s evidence in this regard, though given with apparent (and characteristic) composure, almost entirely unconvincing. I think it is further undermined by other documentation and evidence, and by inconsistencies in her witness statements. This was especially so in seeking to explain records of telephone transcripts that had not come to light at the time of her first and main witness statement.

First, it will be apparent that I do not accept that Ms Patel can really have thought it permissible for her personally to instigate and pursue trading with the target, especially given her understanding of the contractual obligation of exclusivity at the time.

Secondly, the impression she sought to create that she and Dr Swift considered that day-to-day hedging was acceptable is anachronistic: it was not what she really thought at the time, and the gloss that the exclusivity obligation permitted it is borrowed from later clarification to that effect (albeit I accept only a few days later). The reality of the matter is that at the time her understanding of the exclusivity obligation (which it was her evidence she had not seen) was that it precluded Barclays from entertaining any business with Tricorona, including hedging business.

As to that, in her first witness statement she recognised that; and she sought to excuse the contemplation of such trading on the basis that Mr Holmgren had repeatedly contacted her to engage in hedging discussions: but in her second witness statement,

Thirdly, and flowing from that, I do not accept Ms Patel’s explanation of what she meant by having to be “clever”. This had nothing much (if anything) to do with difficulties in obtaining credit lines (though there may have been such difficulties). I consider and find that she saw the need to be “clever” because what she was really proposing were transactions which were in breach of both (a) the exclusivity obligations that, as she then understood the position, bound Barclays, and (b) the Chinese Wall, which was there to ensure that the confidential information about Tricorona’s portfolios she had received as a member of the deal team in Carbonara did not influence or affect her conduct on the public side. What she anticipated was Barclays having to compensate CFP to appease it for what she perceived would inevitably be a breach of Barclays’ obligations, if discovered. She had, I sense, convinced herself that the risk was small, because the project was doomed soon to fail.

Fourthly, in her first witness statement, she sought to justify this on the grounds that (a) Tricorona was simply “one of various project developers we wanted to target for hedging business” and (b) “as market condition had declined, [she] had formed the view that CF Partners simply did not have and could not secure the equity to support their proposed transaction”. But Tricorona was not simply another potential client: it was out of bounds for those purposes, and that was so even if she regarded Project Carbonara as doomed anyway: and in my view Ms Patel knew it. Her evidence under cross-examination in this regard was uncharacteristically confused, and unconvincing.

Fifthly, the very fact that she wanted personally to be involved is revealing. In her oral evidence she emphasised that she “was very clear in my mind that Bruno [Garcia] could have hedging conversations with Tricorona”; but she acknowledged that the question whether she could was more difficult and needed “double-checking”. Yet if all that was contemplated was a little day-to-day hedging for risk management purposes in troubled times, as she suggested, there was no need for her personal involvement at all. Her personal involvement was only necessary if she had broader objectives, such as portfolio purchases on a substantial scale.

As it seems to me, these were, by now, Ms Patel’s objectives, even if they could not immediately be implemented: her sights were on a much more substantial relationship than the odd day-to-day hedging transaction. (That may be part of the explanation for the curiosity that, in the event, no such trades were put in place.) I consider, and find, that even by this early stage (the beginning of 2009) Ms Patel had fixed on Tricorona as a potential source of carbon credits in volumes far greater than would be the stuff of, or legitimately described as, ordinary day-to-day trading, not only for fee generation, but as a resource whereby to achieve the objectives set for the Emissions Team which in 2008 it had plainly failed to achieve.

I think it is also relevant to note, following up on the point touched upon in the preceding paragraph, that the Tricorona Management conceived its business model, and the instructions of the Board and shareholders, as being to generate profits from the acquisition of pCERs under ERPAs and the sale of the same in the secondary market of guaranteed CERs. They were not much interested in forward hedging; for example when, in December 2008, CFP offered a forward hedging transaction with Vattenfall as a means of covering increasing volatility and a negative outlook for CER prices, Tricorona’s management dismissed the proposal out of hand. The truth seems to me that Tricorona was not much interested in hedging; and that suggests some other motive on both Barclays’ and Tricorona’s part than small and sporadic business that might or might not eventuate.

By January 2009, as it seems to me, her conduct was dictated by what she perceived to be the interests of Barclays and the survival and development of her department, regardless of the interests of CFP or whether what she wanted to do was inimical to Project Arctic Fox/Carbonara.

She was under pressure to show success. Ms Patel knew that 2009 would be a “make or break” year for Barclays’ efforts to build a presence in the primary carbon market, the “space” that she was tasked to develop (as head of Environmental Markets Origination). 2008 had not gone well for Barclays in the primary emissions space; and Ms Patel, in particular, was under considerable pressure to prove that the business was worth pursuing. Tricorona was a possible salvation.

Albeit that it was circulated after her email of 6 January 2009, an insight into the pressures on her team is provided by a Barclays in-house presentation from EMEA Commodities Sales dated 13 January 2009, which was disclosed by Barclays on the weekend before Ms Patel gave evidence. This set out an agenda for the year ahead for the different teams. The presentation’s outlook for the emissions team in 2009 was as follows:

“Opportunities

...

•

Route to market for compliance players, carbon aggregators, governments and Japanese Corporates in EU ETS + CDM

...

Trends

•

Portfolio purchase opportunities as carbon players see increased need for risk management due to price volatility.

•

Recession based concerns are putting significant pressure on carbon prices and therefore many EUA and CER longs are seeking to come into the market to offload their length.

...

Competition

...

•

Significant competition leading to reduction in primary CER opportunities...”

The imperative for determined and urgent action for the team is expressed in the presentation. Under the heading “What worked well in 2008…” it is stated under the sub-heading “Emissions”: “Production up 180% in secondary markets, but the business needs reinventing (again!)”; and a little further on, under a sub-heading “The business is much more diversified”, it is stated “which is fortunate given the lack of elephant deals”. The presentation then identifies the following as objectives under the heading “…and what will be a challenge in 2009?” and sub-heading “Emissions”: “Fill or Kill Primary Emissions business”.

Mr Redshaw explained to me that it was plain by the end of 2008 that the portfolio procurement strategy through organic growth had not succeeded. Ms Patel (though she did not agree with them) accepted that the view of Barclays’ senior personnel was that it was “make or break” for Emissions Sales activities in the primary market; or as Mr Gold put it, “decision time”.

In his oral evidence, Mr Gold sought to soften the words “Fill or Kill” and to suggest that they should not be read as connoting that if unsuccessful in 2009 the business would be brought to an end; he suggested that in the trading desk context with which he is familiar it simply means that the trader must either fulfil the order or the trade will go elsewhere; but even on that basis the phrase still connoted that unless progress was made the adventure into primary emissions would be stopped. (I note also that the standard meaning given of a “fill or kill order” in the NASDAQ glossary is an order that if not executed in its entirety is to be cancelled.)

The particular prospect Tricorona offered was the prospect of a “mine” of unhedged primary CERs, of which it is accepted by Barclays that it had received a detailed breakdown through Project Arctic Fox/Carbonara. As CFP’s work had shown, portfolio purchase or monetisation of that mine (which incidentally Mr Zintl in his oral evidence equated with “crossing the grey line” between “day-to-day” business and other business since it would or could involve “substantially buying all the portfolio”) offered considerable potential return. As I have previously indicated, my impression of Ms Patel as a highly ambitious and energetic operator, who was determined both to increase Barclays’ presence in “the carbon space” and make it the “go-to bank” in that area of business and to increase the performance of her team (and thus to increase her bonus) fits with CFP’s depiction of her intentions. She had the opportunity to be “clever”; and she took it without qualms as to the false description of what truly she had in mind.

Mr McQuater urged on me in his oral Closing Submissions that neither Dr Swift nor Ms Patel intended anything “surreptitious or cunning”, nor did they plan to go behind CFP’s backs. “Surreptitious” may not be the right word; but Ms Patel, with Dr Swift taking care as usual to warn and urging caution and advice from Mr Zintl but not in any sense taking control of the situation, certainly was not open in her objectives, or straightforward and open with CFP in seeking to implement them.

It is also interesting to note that the Tricorona Management did not understand Ms Patel’s interest to be confined to day-to-day trading, or at all. Mr Holmgren was frank

The first phase in the development of what was termed “the strategic relationship”, covers the period between 7 January 2009 and 27 January 2009. It was during this phase that Barclays obtained clarification that it could undertake “day-to-day hedging” without falling foul of any obligation of exclusivity, and Ms Patel and Mr Holmgren first sounded each other out and then worked together to seek to remove any impediment to the development of their relationship.

Following Ms Patel’s request to Dr Swift, Dr Swift emailed Mr Zintl on 8 January 2009 saying:

“I haven't heard anything from CFP and spoke with Harshika today who would like to be in position to engage bilaterally with Carbonara. I would suggest that we arrange a meeting with them on Monday/Tuesday to find out whether they are serious enough to sign mandate and otherwise, gauge reaction on asking to be released from exclusivity clause.”

Dr Swift also emailed CFP to set up a meeting, explaining to them:

“Given our current exclusivity clause that restricts transacting with this target, we would be keen to clarify the M&A mandate situation as soon as possible.”

In a follow-up email to Mr Glossop of CFP pressing for an early meeting, she said:

“Thank you Simon - any thoughts at your end re: meeting date, as we would be keen to clarify the position earliest in relation to either mandate or release from exclusivity.”

The conference call between Barclays and CFP took place on 14 January 2009. No transcript of the call was available; but there was a contemporaneous note made by Mr Zintl:

“Key points:

-

They stated that the deal is definitely still on

-

They have spent a lot of time negotiating/discussing with Volati. The recent equity market volatility and moves in Carbonara share price and CER price have delayed decision process

-

Recent development is that Volati wants to exit Carbonara altogether, hence they would want CF Partners to place a bid. CF Partners will thus require more equity from another partner

-

Volati's price expectation in a sale of their shares appears to be reasonable, although we do not know details

-

CF Partners have entered discussions with two other potential equity partners

-

Discussions with one partner have been quite fruitful and CF is confident that this party will make up their mind in due course

-

We do not know the identity of the institution, but our best guess would be Vattenfall (could well be wrong)

-

We gave them the message that we would like to get clarity on whether the deal will go ahead or not, preferably within the next 14 days

-

If feedback from partner were positive we would expect to be mandated in due course”

There is a dispute whether in the course of the meeting Mr Zintl told Mr Navon during the call that Ms Patel had had some contacts with Tricorona and that she wished to engage in hedging discussions with Tricorona, and that Mr Navon said he was “generally okay” with that. It became a theme of Mr Zintl’s oral evidence that he had told Mr Navon that it was Ms Patel who would personally be having such discussions.

Mr Zintl’s note suggests no such thing. He had not suggested this in his witness statement. It was not suggested in opening; and it was never put to Mr Navon. I reject the suggestion accordingly. In fact, at this stage, the evidence suggests to me that Barclays remained of the understanding that under the IVC/Barclays Confidentiality Agreement it was prevented from doing any business direct with Tricorona, even routine day-to-day business. It appears, however, from a subsequent follow-up email from Mr Navon to Dr Swift and Mr Zintl that Mr Navon indicated that CFP would not object to day-to-day business of that nature, provided it was not such as to be in conflict with, or conflict Barclays from participating in, Project Arctic Fox. It seems to have been left that CFP would confirm what it wanted to do within 14 days.

Those points were recorded in Mr Zintl’s email to Ms Patel on 15 January:

“… For the next 14 days we should not be in contact with the target. CF Partner [sic] stated that they are generally ok to release us, but do not want us to conflict ourselves in any way.”

Mr Zintl instructed the deal team that they should not be in contact with Tricorona at all during that period while they were waiting for CFP’s response. That was for what Mr Zintl called “deal hygiene”:

“Q. … Why did you say to Ms Patel that there should not be any contact with Tricorona? Why didn't you say to her, "Well, it would be okay for you to do ordinary hedging stuff so long as you don't deal in listed securities"?

A. No, I wanted -- point 1, I wanted to be crystal clear that there is no contact whatsoever for tactical reasons; point 2, we have a standstill agreement although it is not focused on hedging and what not, that we wanted to get clarity on and release from our counterparty.

Q. But if your evidence is really that you thought Ms Patel could be contacting the target to do normal day-to-day activity, and if you have told Mr Navon about this and he is fine about it, why would you tell Ms Patel not to have any contact with the target for 14 days?

A. Just pure sort of deal hygiene I might say. We had told our client, "Give us two weeks or we give you two weeks to decide how you want to proceed. Either we want to be released, or we will go ahead with the hedging".”

On 21 January 2009, Mr Holmgren emailed Ms Patel to query a bid he had seen Barclays make for CERs at €12 (which, given a fall of about €3 since December, would have been very high). In the course of a brief email exchange, Mr Holmgren volunteered the information that “the process with CF Partners [has] been terminated”. As Mr Holmgren accepted in his oral evidence:

“in a way [he] was also letting her know that [he] would like to talk to her about other things.”

Ms Patel emailed Dr Swift to discuss the opportunity that she immediately appreciated was on offer. The email in relevant part read as follows:

“I just had an email from Christer (CFO of Carbonara) to say that the process with CFP has been terminated. Therefore can we get out of the confi please? I get the feeling that the client is emailing me as they want to talk to us about CDM stuff.”

The following extract conveys the substance of the ensuing telephone conversation between them on 21 January 2009:

“AS: Yeah. I mean, are they not going to start getting into - instead of having a carbon asset portfolio, they're going to have a carbon liability portfolio?

HP: Yeah, that's what I mean. That's why the opportunity's there and I just get the feeling, you know, since he emailed me before Christmas, after Christmas and then - he didn't have to offer this information up to me and so I just get the feeling -

AS: But are they not potentially bankrupt in this space, environment?

HP: Well, no because our other clients aren't because their portfolio purchase price is much less but this is why the opportunity is there now, like right now.

AS: Yeah. Okay, because these are on the borderline of sitting on a liability on their ERPAs.

HP: Well, I don't think they're (overspeaking) sitting on liabilities but that's why --

AS: Because the prices were around about nine, were they not?

The transcript illustrates well both Ms Patel’s energy and eye to a chance and Dr Swift’s mixture of hesitation and concern, yielding to Ms Patel’s enthusiasm with a resort to talking to Mr Zintl as a means of not being obstructive.

On 22 January 2009, Ms Patel emailed Dr Swift:

“Any chance of following up with CFP please today following your chat yesterday - we are seeing some good opportunities from others like them so don't want to miss the boat?”

Ms Patel did not wait for a reply. She immediately contacted Mr Holmgren; she gave this explanation in her first witness statement: “I am a salesperson, and in sales you never want to ignore a client”. This was contrary to Mr Zintl’s express instructions

The Defendants submitted that the discussion was innocuous, and that neither Ms Patel nor Mr Holmgren evinced any intention to engage in anything underhand or behind CFP’s back. However, the transcript of the conversation which followed between Ms Patel and Mr Holmgren (which was replayed in court) left me in no doubt that Ms Patel encouraged Mr Holmgren to do whatever he could to clear the way for further discussion by obtaining from CFP some confirmation of what Mr Holmgren had stated was their indication that “the process” had terminated.

During the course of the call, Mr Holmgren suggested that Tricorona should get “something in writing” to certify that Tricorona had terminated discussions; Ms Patel agreed that this would be “ideal”. She envisaged that once available she could thereafter “send it to them, then you know it formally gives us the green light”, to which Mr Holmgren later in the call responded saying that once he has got it in writing “you can easily take that and let them know”. It is interesting that as it happened only Mr Holmgren dealt with CFP in seeking termination; Ms Patel kept well out of it: she was, after all, required and understood by CFP still to be working to promote and protect Project Arctic Fox/Carbonara.

As to what was envisaged by the two of them (Ms Patel and Mr Holmgren) once the “green light”, as they saw it, had been obtained, Ms Patel said that she wished to “talk a bit more strategically… about risk management and financing ideas”; but she did not give any further details. I agree with the Defendants’ submission that vague terms like that could of course mean all sorts of things, and that (as Mr Holmgren said in his oral evidence) “strategic is something that’s used by a lot of sales people”.

But I do not agree with their conclusion that neither Ms Patel nor Mr Holmgren had in mind any kind of portfolio purchase or anything similar to, or inconsistent with, Project Arctic Fox. I do not accept, either, Mr Holmgren’s evidence that he did not have anything really in mind at that early stage other than the possibility of putting in place an ISDA. My strong impression from the transcript and the evidence is that, though neither defined what they had in mind, equally they understood from each other that nothing would be excluded either. Mr Holmgren accepted under crossexamination that “risk management” could extend to “the bank buying a chunk of the developer’s portfolio”, including a “substantial part” (though perhaps not the whole of it); and when pressed to say whether “strategic partnership” might include, as a real possibility, Barclays acquiring Tricorona or its portfolio, Mr Martens told me:

“A. Well, I wasn't thinking in those terms in those days, but I wouldn't have consciously excluded it, just that I think it was only after the financial markets crash. I think the -- March 2009 was when I think a number of the markets bottomed, that certain carbon developers looked cheap and (inaudible) played an interest in purchasing EcoSecurities. That triggered more the buying. Prior to that I don't think that was among our discussions. We wouldn't exclude it, it wasn't something we would not [do] ....”

Seven minutes after her call with Mr Holmgren, Ms Patel spoke to Dr Swift. Dr Swift warned her against speaking on a “taped line” and said that she should not “put anything in writing” to Mr Holmgren. Dr Swift, whom she had not asked, was extremely concerned about the contact. The transcript of her conversation with Ms Patel after the latter’s first call to Mr Holmgren reverberated (when played in court) with her agitation. The following extract is illustrative:

“HP: … Anyway, just to let you know, I quickly – I phoned Carbonara and basically they said what they’re going to do is just get it in writing from CF that things have been terminated. So it’s official – AS: Okay.

HP: -- in writing and then it’s -- everything from their side.

AS: Yes. But it’s not because you forget it is at their discretion to release us.

HP: No, that’s fine. That’s fine.

…

AS: But I would be very clear we’re not advising the target, we’re advising – we have – we have a confidential relationship with the advisor, with the acquirer. Not with the target. So should we be having any correspondence on this matter? I don’t know, that’s why I suggest before doing anything like that you consult with Nicolas.

HP: Okay, well –

AS: Are we in breach; I don’t know, we could be.

HP: Okay, well you might want to speak about it with Brian then.

AS: All I’m saying is if we don’t know – I just wouldn’t – you know, if you think that this deal is going to be done in a day, that why I wanted to say – HP: No, no, not at all.

AS: Then let’s not bruise things up, it’s a legal agreement.

HP: Well, shall I just send Christer an email then?

AS: No.

HP: No, fine, leave it.

AS: Leave it.

HP: Okay, that’s fine.

AS: I wouldn’t put anything in writing.

HP: No, no, no, and that’s – by the way – that’s why I spoke to him and I did not email him.

AS: I know, I know but that’s fine but it’s still on a taped line. So I would just be – to be honest, I would be very careful, I would be very careful.

…

AS: Okay, well I’ll speak to Brian. Brian, as I say – we have to -- let’s just play by the rules otherwise we can get into trouble.

HP: That’s fine. But I didn’t actually mention on the tape line even the transaction, what it was or anything like that.

AS: Yes, but you shouldn’t be speaking to them.

HP: But having said that, they came and spoke to us in Singapore and they’re writing to me.

AS: No, no, no, I know. But you know, and you’ve behaved in an appropriate way and that discussion I think, I think I’m just careful because you can get sued – so let’s just understand what our situation – Nicolas is the best person to provide guidance on that and also let’s not – let’s not piss off people that we are going to be asking for exclusivity from. If they are difficult, you know, if we ask for it then you know we can work on it but not before.

…

AS: Can you do me a favour; could you just drop a couple of lines to Nicolas to tell him what you’ve done so he’s aware of it?

HP: Okay, yeah. I’m going to wait for Brian to come back though because I’ve done what he’s told me to do.

AS: No, I don’t – just I would let Nicolas know what you’ve done.

HP: Okay.

AS: Okay?

HP: Well, I’ll probably – I’ll just give Nicolas a call.

AS: And just put it in writing probably.

HP: Well, I’d rather call him, Angela.

AS: Fine, call him. But you know, again, caution, caution, caution is my message.

HP: Okay.

AS: Okay, and then when we hear from them hopefully, about this, let me know. I’m very keen to do business with the target -- I’m just trying –

HP: I know but I’m quite pissed off actually because I wasn’t actually going to do anything – AS: No, I know.

HP: (several inaudible words) AS: I know.

HP: But now I feel like an idiot, you’re making me feel quite bad now.

AS: The thing is, I don’t actually know what the situation is for our -- I actually don’t know if we’re in breach of our contract and that’s why I’m just -- I would always err on the side of caution when we’re under contract.

HP: Yes, which is why I’ve tried to sort it out today.

AS: I know, I know, and as I say I don’t know why Brian is telling you for the matter of a couple of days, it’s fine. You just never speak to the target.”

Dr Swift was clear: Ms Patel “shouldn’t be speaking to [Tricorona]”. Dr Swift was obviously very concerned about Ms Patel’s contact with the target. Mr Zintl agreed with Dr Swift that it was for CFP to determine whether to release Barclays from the exclusivity arrangements.

Just over an hour after Mr Holmgren’s conversation with Ms Patel, (Footnote: ²⁶) Mr Holmgren emailed Mr Navon requesting confirmation from CFP of the “termination of the

Further contact in the day followed between Ms Patel and Mr Holmgren. At Ms Patel’s request and encouragement (as Mr Holmgren agreed), Mr Holmgren sought formally to end Arctic Fox, and by email dated 22 January 2009 to Mr Navon he stated that:

“Further to our conversation at the end of last year, we would like CF Partners to confirm the termination of the Arctic Fox project – an email should be fine…”

Mr Navon’s reply accepted the termination of the understanding for equity shares they had recorded in the Memorandum of Understanding (which was not legally binding). It does seem to me clear that by 22 January 2009 at least CFP’s negotiations with Tricorona’s management had come to an end. The following extracts from their oral evidence demonstrate that both Mr Navon and Mr Rassmuson accepted that the exchange marked the end of negotiations with management premised on their participation in the transaction:

Even so, CFP was not prepared to call the end of Project Arctic Fox. Mr Navon made it clear by email dated 22 January 2009 that Project Arctic Fox transaction discussions would continue:

“We can confirm that the Memorandum of Understanding dated July 2008 has been terminated. We would like to continue discussions with you on this type of transaction or on individual project sales or hedges.

As discussed on our call with you, we have in place noncircumvent agreements with all the counterparties that we have introduced to the potential transaction (e.g. SEB, Barclays, Daiwa & Vattenfall, etc). This was to protect all our interests in the deal. These non-circumvent agreements are still in effect and will preclude these counterparties from participating in a transaction away from us.”

That was misleading, as Mr Navon conceded in his oral evidence: there were no noncircumvent agreements at all with some of those counterparties, nor with Tricorona. Further, under the IVC/Barclays Confidentiality Agreement, IVC was obliged to notify Barclays as soon as possible:

“if … we decide not to pursue the Possible Transaction or negotiations between us and [Tricorona] or its shareholders with respect to the Possible Transaction come to an end”

Ms Patel, despite knowing that, though Tricorona’s management had confirmed the termination of their discussions with CFP, nevertheless CFP was still working on Project Arctic Fox, chose not to inform Mr Holmgren of that. Mr Holmgren said this:

“Q. … I'm asking you to agree that the status of Arctic Fox as far as Barclays and CF Partners were concerned was relevant, wasn't it, to what she could discuss with you at this time?

A. Yes. If Barclays believed and they were still working on Arctic Fox, if CF Partners had told Barclays that they were working on Arctic Fox, that project would still be ongoing in the minds of Barclays.

Q. Yes and I suggest you are probably a bit surprised to see that Arctic Fox continued as far as Barclays were concerned at this time, aren't you?

A. Yes, I am surprised because I thought it was terminated.

Q. I understand, Mr Holmgren. That's very fair. I suggest that you were led to believe by Ms Patel at this time that Project Arctic Fox was over as far as Barclays was concerned.

A. That could be an interpretation, if she knew that it was continuing.

Q. And you would have expected Ms Patel to tell you at this time, wouldn't you, if Barclays was still engaged upon Arctic Fox?

A. Yes, the same way that I had told Ms Patel.

Q. She ought to have told you how things stood at Barclays' e[nd], shouldn't she?

A. Yes, I would have expected that.”

After Mr Navon’s email of 22 January 2009, but still at a time before she had received any confirmation of any relaxation or clarification of the exclusivity obligations as she at that time perceived them, and notwithstanding (or in one sense perhaps because of) Dr Swift’s warnings, on 23 January Ms Patel telephoned Mr Holmgren from her office (where there was of course a taped landline) on her Blackberry (which was not a taped line). In her first witness statement she had denied such contact; she only apparently remembered the call after being shown her mobile account records, as she explained in her third witness statement served just before she was called to the witness box. Such a lapse of memory is understandable. However, I did not find her reasons for using a mobile or her account of the call convincing: and her demeanour when cross-examined reinforced my doubts.

The relevant call lasted just under eight minutes. Ms Patel was unable to recall what they had discussed but was definite that their conversation was general (“what traders in the market were doing”) and did not relate to specifics, still less to portfolio purchase or monetisation. She reasoned that (a) she knew she could not properly discuss specifics and would have told him so and (b) it as it were stood to reason, because “anyone who had even contemplated a portfolio monetisation structure in 2008 when the market was significantly higher had put all those conversations on hold at the beginning of 2009”.

It is not possible to know quite what was discussed; but I infer from (a) her choice of an untaped line (a form of communication she had implicitly indicated to Dr Swift she would use to avoid difficulties, to which Dr Swift raised no objection), (b) the length of the call, (c) her uncharacteristic reluctance to say what had been discussed contrasted with the emphatic insistence on what she had not discussed, (d) her tendency to disregard restrictions when it suited her and there was no record of her conduct and (e) the inherent probabilities given the timing of the call and what had preceded it, that their conversation did extend to discussion of what sort of business relationship might be possible now that the fox was, in Mr Holmgren’s perception, formally pronounced dead.

On 27 January 2009, Mr Navon emailed Dr Swift and Mr Zintl to follow up on the conversation between them on 14 January 2009 (see paragraph [638] above) when Barclays had asked CFP either for a signed mandate or a release from any obligation of exclusivity in order to enable it to discuss day-to-day business with Tricorona (which, as indicated above, it had perceived it could not under the terms of the IVC/Barclays Confidentiality Agreement). Mr Navon made clear that CFP wanted to continue to pursue Project Arctic Fox. Though he did not commit to signing a mandate, he did confirm some flexibility as regards the ambit of the exclusivity restriction. His email (which he sent to Dr Swift and Mr Zintl (and not Ms Patel, though Mr Zintl forwarded it to her)) read (in material part) as follows:

“We are making good progress on project Carbonara. We have important meeting this week and next week regarding equity commitments from leading market participants. We will provide you with feedback post these meetings and remain confident that a deal is there to be done.

We understand that Tricorona has approached Barclays in order to initiate discussions on hedging the company’s carbon exposure. As discussed on our call, we have no objection for you to have direct contact with Tricorona on their hedging requirements. The intention of the NDA is not to conflict you on conducting day-to-day business with the Company.

The only consideration is that we continue to work on project Carbonara and want to avoid the situation that you, as a result of the hedging discussions, become conflicted.

We will continue to provide you with complete transparency on where we stand so that you can make an informed decision on the level of contact with Tricorona.

We have spoken to Vipin at IV Capital who agrees with the above position.”

On the same day, Mr Rassmuson reassured Mr von Zweigbergk that nothing prevented Tricorona from day-to-day hedging with these counterparties:

“… we can confirm that there is nothing in the NDAs that would prohibit the counterparties in entering into discussions with Tricorona on transactions that are not subject of the NDA, for instance day-to-day hedging requirements. In any event that is something for the counterparty to determine.”

Mr Zintl responded by email on 29 January 2009 (which I note he did circulate to Ms Patel as well also as Mr Smith) thanking Mr Navon for the clarification and confirming that Barclays “will not conflict themselves in any way from working with you…”.

Neither Mr Navon nor Mr Rassmuson explained at the time exactly what he meant by “day-to-day hedging requirements” or at what point such discussions might lead to Barclays becoming “conflicted” from working on Project Carbonara. However, there was general agreement in the evidence of Mr Zintl and Mr Navon that the gist of the restriction was that hedging or forward sales which were in line with previous day-today trading to safeguard rather than monetise the portfolio were acceptable in principle, but that CFP did not want the Tricorona Portfolio to be hedged or bought to such an extent as to strip out value from the portfolio or undermine the arbitrage opportunity that Project Arctic Fox was designed to exploit.

Also on about 27 January 2009, an event of considerable longer-term significance occurred: Ms Patel took over from Mr Garcia the responsibility within Barclays for its relationship with Tricorona. Mr Garcia had been left with that responsibility after Ms Patel had been wall-crossed. Ms Patel remained wall-crossed, and under Barclays’ procedure would remain so unless and until formally re-crossed. That Ms Patel should thus contrive to, and in fact did, operate on both sides of the wall was quite extraordinary, unless of course permitted.

As to that, and as foreshadowed earlier, Barclays’ case in this regard came to rely almost entirely on Mr Zintl’s oral evidence, during the course of his crossexamination (he had made no mention of it previously), that Mr Navon was aware that Ms Patel would be involved in “day-to-day” hedging discussions, and gave his consent. His evidence was:

“Q. Is it your position that it was up to Harshika Patel to decide whether something was or wasn't conflicting with CF Partners' interest in the deal? A. Yes, that was my view.

Q. And you didn't think that Barclays should have consulted with CF Partners as to whether they thought there was a conflict of interest in that respect?

A. We did consult with CF Partners in that period of time where we -- I don't know who was pushing for this, where we called them and said, "We have had contact with the target, they really want to hedge with us. Harshika has received an email from God knows whom, or has been called and she really wants to hedge."

Mr Zintl had not suggested any of this in his witness statement. Its potential importance is obvious. It was urged by the Defendants that there is no reason not to accept this evidence. Mr Zintl left Barclays in February 2009, more than four years ago and before Project Pomodoro. They reason that he had no reason to give false evidence and no reason to wish to assist Barclays, and there is no reason to doubt his recollection. Mr Zintl knew that Ms Patel had been in touch with Mr Holmgren and knew that it was Ms Patel who was pressing for the release so that she could contact Tricorona. He did not himself see anything objectionable in her involvement. The Defendants submitted that it is inherently likely therefore that Ms Patel’s name would have been mentioned in one or both of the conversations between Mr Zintl and Mr Navon on 14 and 27 January 2009. The latter call was noted at the time as a long one.

CFP rejected that. It was submitted on its behalf that it is quite plain from his evidence as a whole that Mr Zintl did not say to Mr Navon that Ms Patel wanted personally to be the individual having the hedging discussions with Tricorona. CFP pointed out that the allegation had not appeared in either of Mr Zintl’s two witness statements, the second of which was specifically concerned with the scope of the Exclusivity Release. Ms Patel did not suggest any such permission in any of her witness statements: in her first witness statement she states that “CF Partners had no objection to Barclays having direct contact with Tricorona on their hedging requirements” [my emphasis]: had the permission been personal she would surely have said so. Further, it was never put to Mr Navon in cross-examination that Mr

I was not persuaded by Mr Zintl’s evidence in this respect. Whatever he may have come to believe, I do not think it credible that he told Mr Navon that Carbonara deal members, in particular Ms Patel, would be carrying out “day-to-day” hedging with the target on the other side of the information barrier or Chinese Wall.

I think that the key lies in Mr Zintl’s answer that what was said depended on the way Mr Navon interpreted it, as to which he said “I don’t know”. I think that the truth is that, though Mr Zintl may have told Mr Navon that Tricorona’s point of contact was Ms Patel, and that she was keen for Tricorona and Barclays to do some day-to-day hedging, he never spelt out to Mr Navon that it was envisaged that she (or some other individual in the deal team) would personally be involved in those dealings. I so find.

I accept CFP’s contention that, as explained above, it had not even agreed to individuals within the Carbonara deal team pursuing “day-to-day” hedging activities with the target, let alone the strategic partnership upon which Ms Patel embarked.

Furthermore, and as indicated above, I find that in any event, and though the immediate urgency might have been to explore hedging, Ms Patel and Mr Holmgren had no intention by this stage of limiting their discussions and objectives to day-today hedging requirements such as Mr Garcia might have been left to undertake. That Ms Patel chose this time to replace Mr Garcia is not a coincidence: in my view, it is consistent with, and reinforces, my conclusion that Barclays and the Tricorona Management were by now looking to explore much more extensive transactions than Mr Garcia as a day-to-day trader would have been charged with. I shall return to this later also.

I should note also that it was common ground that in sanctioning day-to-day dealings of a limited nature, CFP was not thereby releasing Barclays from, or diluting, its confidentiality obligations.

One other aspect of this phase that I should record is the position as between CFP and Volati. By early January 2009, Mr Navon and Mr Rassmuson had concluded that they should assume that Volati was “out” as a potential equity participant: email exchanges between them on 7 January 2009 make that clear. However, both of them were adamant that this did not mean that their negotiations were over: only that from then on CFP was looking for equity from others, and to buy Volati out.

Barclays made the point that this would have increased by some £25 million the equity required and would have altered the shape of the deal considerably. Barclays also pointed out that there is no sign of CFP seeking to negotiate an exit price with Volati after that date. I would accept that CFP’s negotiations with Volati hung by a thread; but not that they were over so completely as to trigger the obligation to notify imposed by clause 6; and I note that even after Mr Perlhagen had made clear (as he did in December 2008) that Volati would not want to participate in the equity, he did not exclude further negotiation and expressly stated in an email to Mr Rassmuson that he hoped “you still will be able to move on with your plans”. Volati wanted out: but Project Arctic Fox still held some prospect of the exit premium it now sought.

I would summarise the state between the parties as at 29 January 2009 as follows:

The next phase of the relationship between Barclays and Tricorona focuses on the hedging discussions between Barclays and Tricorona from the beginning of February 2009 until March 2009. There is a sharp contrast between CFP’s depiction and the Defendants’ depiction of the relevant events.

CFP contended that Ms Patel almost immediately sought to engage Tricorona in a broader strategic partnership under the guise of “day-to-day hedging”; the Defendants contend that she had no such plans and entered into no such broader discussions.

As to this phase: Ms Patel was personally and directly involved from the outset; engaging and energetic, she quickly forged a good relationship with the Tricorona Management as their “favourite person from Barclays”.

Having obtained clearance from Mr Zintl, she immediately contacted Mr Holmgren to arrange a meeting in Stockholm to discuss “risk management opportunities”: she suggested bringing “our head of carbon research…so he can maybe give you, and a couple of the other team members, if you’d like, an update on what we see is going on in the commodities and the carbon spectrum more broadly…then we can sit down and discuss more risk management opportunities”.

On 4 February 2009 Ms Patel emailed Mr Holmgren with some specific “trade ideas”:

On 11 February 2009 Tricorona entered into a spot sale to Barclays of a total of 190,000 issued CERs in three batches. There is no suggestion that that was anything other than a day-to-day trade and no other complaint about it. As it turned out, that was the sole executed transaction between Tricorona and Barclays between 29 January and 7 April 2009, reinforcing my sense that the true agenda was to develop a relationship rather than establish (relatively) small transactions.

On 10 February 2009, Ms Patel, Mr Martens and Mr Sikorski (a Director in Barclays’ Carbon Market Research) went to Stockholm to visit Tricorona. Barclays did not inform CFP of the visit, either before or after it, for which no excuse was suggested, nor seems available.

According to Ms Patel, they discussed ‘entering into an ISDA Master Agreement so that we could engage in foreign exchange hedging and forward selling’, but this does not assist the Defendants: as Mr Redshaw said, the fact that an ISDA and credit support annex are put in place says nothing about the regularity of the trading. An ISDA facilitates transactions; it says nothing about the scale of the transactions.

Ms Patel’s evidence was that “all Tricorona acknowledged in that meeting is: we are underhedged, we need to do a lot more. We have got board permission to do a lot more”.

On 11 February 2009, the day after the Stockholm meeting, Mr Holmgren appears to have revealed the scope of the possibilities discussed in an email Ms Patel:

“Under normal circumstances we would have up to 30-40% of our expected volume hedged (up to 50% of any individual year). Currently only 7 million CERs are hedged.”

The Defendants submitted that Mr Holmgren was not saying that he wanted to forward sell 30% to 40% of Tricorona’s portfolio in one transaction or even immediately (which would plainly not have been day-to-day business) but wanted sales over a few years at Tricorona’s normal annual forward selling rate of about 1.5 million CERs. I accept that: but the taster or teaser element is clear.

Mr Holmgren suggested to Ms Patel that Tricorona would potentially be interested in selling 20-25 million CERs, equivalent to the entire risk adjusted portfolio. (Footnote: ²⁷) CFP contend that even if he was only indicating to Ms Patel the maximum figures, the fact he did so shows the scale of Ms Patel’s (and his own) ambitions; although the Defendants dismiss this on the basis that all he was doing was to indicate a target to be achieved over a number of years and dependent on market conditions, again I accept that the figures were put forward to whet Ms Patel’s appetite as they had whetted Mr Holmgren’s own.

On 12 February, Mr Oo sent an email to Mr Long (who was working with Ms Patel and Mr Martens), copied to Ms Patel, that appears to confirm that the discussions in Stockholm did extend to broader possibilities than day-to-day trading. He noted that:

“As we are trying to explore more long term and strategic business with Barclays, we are happy to allow you the time to evaluate our projects and go through the necessary internal procedures you may have.

What would be useful for me would be to have your initial thoughts on the projects presented and your timeline for a decision.”

Ms Patel sought to depict this under cross-examination as simply referring to “setting out all the options for them on risk management for their CERs…”, and the reference to more extensive strategic business as indicating only that “should we do a very good job….Tricorona will view us as a go-to bank for these services”; this struck me as resourceful, but not compelling; my impression was reinforced by Mr Martens’ apparent embarrassment, and not dispelled by Mr Holmgren either; and I accept CFP’s characterisation of Mr Oo’s email record, as indeed did Mr Redshaw.

Mr Holmgren also attached to his email a research report by a well-known Swedish investment bank called Carnegie Securities (“the Carnegie report”), suggesting that the market had considerably undervalued Tricorona. CFP suggested that the obvious reason he sent it was to suggest that there was an arbitrage opportunity in relation to Tricorona, there being no reason to send an equity analyst’s report if all that was contemplated was day-to-day hedging. Mr Holmgren, when cross-examined about this, explained that he sent it to provide a useful summary of information about Tricorona, largely for the benefit of Barclays’ Credit Department and in order to “kick-start the ISDA”. More likely, to my mind, is that it was supplied as being of general background relevance however the relationship between Tricorona and Barclays developed.

On 13 February 2009, Ms Patel informed Mr Holmgren of the discussion with GFRM and said that “[a]t this stage” she had mentioned foreign exchange and CER hedging. She set out the strategy agreed with GFRM. The email sets out a strategy that goes beyond day-to-day activity. To take one example, Ms Patel was interested in how much primary CER price exposure Tricorona would hedge through the secondary markets. Mr Holmgren replied: the discussion focused on hedging tens of millions of tonnes of CERs.

On 16 February 2009, Ms Patel and Mr Holmgren discussed further Tricorona raising money by Barclays lending against the CER portfolio.

On 17 February 2009, Barclays and Tricorona had a conference call. The agenda was:

“Background to conference call (Harshika)

Overview of transaction opportunities between Barclays + Tricorona (Harshika)

Tricorona business + financial update and feedback on credit questions (Christer)

Transaction idea brainstorm – FX and Emissions (All)

Next steps...”

The questions asked by GFRM of Tricorona went far beyond enquiries about day-today activities. In his evidence, Mr Martens did not recall what “transaction opportunities” meant. The reality is that nothing was off limits for discussions with Tricorona as far as Barclays was concerned. (Footnote: ²⁸) The range of longer strategic ideas proposed by Ms Patel, including guaranteed volume hedges, was set out in an email she sent in advance of the call. Mr Holmgren agreed that as far as Tricorona was concerned “anything was permissible” for discussion, including emissions structuring and matters well beyond day-to-day trading.

Following the call, Ms Patel sent a summary of next steps, including:

“... Novation of guaranteed volume hedges

Christer to send Harshika an overview of the trades and counterparty credit ratings so we can explore the novation of the hedges to Barclays. Thus trade would crystallise the P&L for Tricorona.”

She would come up with the structure and pricing. These financing transactions were prohibited by clause 6 of the IVC/Barclays Confidentiality Agreement. Some idea of the scale of the trades envisaged by Ms Patel at this time may be gleaned from review of her discussions with Credit. For example, on 25 February 2009, Ms Patel discussed the topic of “Tricorona credit” with GFRM. The trades concerned significant volumes of CERs (amounting to millions of tonnes), and had potential future credit exposure (or PFE) for Barclays of tens of millions of US dollars.

Also at about the same time, Barclays (again by email from Ms Patel) put forward a proposal to novate Tricorona’s three forward hedge contracts with certain Japanese counterparties (each of which was back-to-back with an ERPA under which Tricorona had purchased the relevant pCERs). The fall in the carbon price meant that these sale contracts were significantly in-the-money to Tricorona. The idea was to crystallise their value and thereby raise cash “for purchases, margin for hedging as required etc”. As Mr Martens explained in an email to Mr Holmgren, the effect would be to leave the ERPA unhedged, and thus increase the size of Tricorona’s unhedged portfolio (which came to be referred to as “the raisins in the cake”). Since it did not result in taking raisins from the Tricorona cake, the Defendants portrayed this as entirely consistent with the objectives of Project Arctic Fox. CFP, on the other hand, characterised the proposed sales as involving the monetisation of the Tricorona Portfolio, and thus as “off bounds” (as Ms Patel agreed they would be if that was their proper characterisation). Ms Patel drew a distinction, however, between monetisation of Tricorona’s CDM portfolio and the realisation of value in Tricorona’s hedged contracts. I think there is a distinction; but not a relevant one in the context: for I accept CFP’s submission that the proposal was not, or at least went beyond any reasonable interpretation of, “day-to-day hedging”: it involved buying and selling, or monetising, a substantial part of Tricorona’s portfolio.

Further, on 27 February 2009, Ms Patel spoke again to Mr Holmgren, to explain further the sorts of monetisation ideas she had in mind:

“... there are two ways that we do business with people like you, right. Number one, we cash collateralise...Number two, we give you a credit line based on a portfolio of CDM transactions that you’ve done ... . It’s the idea that we talked about when we came to see you, which you’ve already contemplated, which is novating ....”

CFP contended that Ms Patel’s conversation was not limited to the novation of the Japanese contracts, but encompassed far wider monetisation plans, which involved Tricorona’s portfolio and depicted this as a further indication of an ever-increasing proposed programme going well beyond day-to-day hedging. The Defendants rejected this and emphasised that the proposal was confined to the three Japanese forward hedge contracts. No other similar contracts were suggested; and although I think the proposal seemed more open-ended I do not think that of itself it represents any further expansion of Barclays’ objectives. Further, at this time the Tricorona Management was also engaged in a project for a management buy-out of Tricorona known within Tricorona as Project Icebreaker (as to which see further below, including in paragraphs 1026 and 1027).

In summary, as at the end of February 2009:

In CFP’s Closing Submissions it is stated as follows:

“Cross-examination has exposed the deliberate and cynical attempt by Barclays and Tricorona in spring 2009 to work together to cut out CF Partners so that Barclays could pursue its strategic partnership with Tricorona.

This partnership was a conscious attempt by Barclays to extract value from Tricorona’s CER portfolio based on confidential information provided by CFP in Arctic Fox. The labels used by the Defendants to explain away these activities, such as ‘potential carbon markets hedging business’ or ‘potential hedging transactions’ do not fairly reflect the extent of the relationship that Ms Patel had developed with Tricorona to take advantage of the opportunity that was there ‘right now’.”

The Defendants reject this. They deny that they engaged in any transactions or discussions prior to April 2009 and the Exclusivity Release which did not fall within the permitted “day-to-day hedging transactions” and that Barclays eventually obtained termination of any exclusive commitment to CFP for the simple reason that Arctic Fox was by then no longer capable of being implemented. As Mr Holmgren put it in his oral evidence:

“Q. Isn't the reality, Mr Holmgren, that CF Partners did not appreciate the strategic dialogue which you and Ms Patel had by this stage struck up? Isn't that the explanation, that CF Partners continued to work on Project Arctic Fox because they didn't realise that you and Ms Patel by this stage had plans to cut them out? That's right, isn't it?

A. There was no such plan of cutting them out of anything. They had been cut out by Tricorona management when they confirmed that the Arctic Fox project was terminated.” 705. As to this third phase:

Before turning to the history of the negotiations with respect to the Exclusivity Release and the legal questions to which they have given rise, it may be helpful (both for the purpose of putting the Exclusivity Release in context and for the purpose of understanding the activities of Barclays and Tricorona in the period from April to September 2009 which eventually culminated in Project Pomodoro) to pause to summarise what were the prospects for Project Arctic Fox at the time of the Exclusivity Release.

The summary is also of relevance in considering whether the business opportunity that Project Arctic Fox comprised (in essence to take Tricorona private and over time monetise its portfolio, whilst at the same time retaining a long term investment to build a full carbon markets business) retained any commercial value.

Mr Rassmuson observed in his first witness statement that Project Arctic Fox “had many moving parts because of its complexity” but “the deal’s basic components remained the same throughout”. Perhaps the clearest way of assessing its prospects by April 2009 is by reference to the components he identified.

As to those components:

Mr Navon replied:

“Sounds great on paper. Hard to implement. We don’t have updated portfolio…the npv doesn’t work and even if we could organise I think Karl and Niels would block.

This trade only works if friendly…Ideally we need either Karl or Niels to want our involvement. You could call Karl but think it won’t go anywhere.”

I turn to the negotiations preceding the Exclusivity Release, the history of which can I think be summarised as follows.

On 24 March 2009, Barclays (Ms Patel, Mr Lim and Dr Swift) and CFP (Mr Navon, Mr Rassmuson and Mr Glossop) had a conference call, described by Barclays as a “wrap-up” call.

The witness evidence in relation to the call can be summarised as follows:

That note, however, together with the confirmation subsequently sought by Mr Navon and provided in exactly the terms requested by Barclays, are, in my view, the firmest guide to what was agreed.

Mr Lim’s note records:

“We proposed terminating our exclusivity agreement with CFP.

Client was reluctant to terminate and suggested they have found additional partners, although acknowledged that there wasn’t going to be any transactions in the near term given market conditions.

Client was concerned with us working for another party; we confirmed this was not the case.

We stressed that we would be happy to re-engage should there appear to be a possible transaction.

Client proposed a two weeks notice period; we compromised with a one week notice period.

Discussion ended amicably; CFP would be interested to reengage when markets improve.”

In cross-examination, Mr Navon initially agreed that each of the bullet points in Mr Lim’s note were accurate, including the statements that Barclays had proposed terminating exclusivity and that CFP had agreed a one-week notice period. He then sought to qualify this:

“Q. So let's go to the penultimate bullet: "Client proposed ..." By client I think he means CFP: " ... proposed a two weeks notice period; we compromised with a one week notice period." So CFP proposed a two week notice period to terminate exclusivity and a compromise was reached on a one week notice period and that's what happened on the call, isn't it? A. That is correct.

Q. So Barclays would give one week's notice to terminate exclusivity?

A. That's correct. (Pause). Sorry, the one week notice was actually in relation to the mandate letter, sorry. We are talking about the mandate letter. So Barclays says to us, "We would like now to have a clear indication on whether or not you are going to sign the mandate letter or not", and we wanted a little bit more time because we felt that we could still do the deal. Barclays suggested one week, so we agreed to the one week.”

I do not accept this explanation. The subject matter of the conversation, as Mr Navon accepted, was the termination of exclusivity. The mandate letter was still in draft and there was nothing to terminate. I agree with the Defendants’ submission that the oneweek notice period only makes sense if understood as giving CFP a week either to mandate Barclays or to release them. If in that period CFP did not mandate Barclays then Barclays’ involvement would be at an end and exclusivity could be released.

This is also consistent with the fact that on 24 March 2009, barely three hours after the conference call with CFP, Ms Patel spoke to Mr Holmgren to convey the good news that unless the “clients” (i.e. CFP) said otherwise, “we are basically off the hook”. She went on:

“Like I said, I was actually on the call, I didn’t say anything, number 1, and number 2 and I haven’t spoken about any of our discussions, so obviously keeping everything confidential on both sides.”

On the same day she emailed Mr Whitehead with an updated WIP list, noting that Mr Martens was assisting her to target opportunities. The email said:

“I have gone through all the target areas in the bank we want to cover off with Jan-Willem to ensure we maximise opportunity here. I have asked Jan-Willem to send a list on email of the targets.”

Her list said: (Footnote: ²⁹)

“Strategic Pipeline (Non flow deals & pitches which have been sent to Emissions Structuring clients)”

...

Tricorona - Strategic Partnership e.g. novations, hedging strategy - FX, CER, EUA etc”

About a week after the call, Mr Lim emailed Mr Sareen and Mr Navon a letter headed “Termination of exclusivity”, signed by Mr Hargreaves. Mr Navon looked at the letter quickly and nine minutes later forwarded it to Mr Sareen. Mr Navon informed Mr Sareen of his views and proposed approach, with which Mr Sareen agreed.

On 2 April 2009, Mr Navon sent a signed copy of the Exclusivity Release to Barclays. His email said:

“For clarification and as discussed on our call, we are signing the Exclusivity Termination on the understanding that Barclays is not actively working on acquiring the CC Owner on its behalf or on the behalf of any third party as of the date of this Termination of Exclusivity agreement.”

Mr Navon did not, however, refer to any understanding that the release would be limited to day-to-day business or that Barclays would not conflict itself from acting for CFP.

When Mr Navon’s clarification was forwarded to Ms Patel, she immediately asked Mr Lim in an email of 2 April 2009:

“What happens if carbonara do want to talk about another transaction?”

Mr Lim replied to Ms Patel by return, copying Dr Swift, and in terms that seem to me also indicate that Mr Lim well understood, without her spelling it out, that Ms Patel had in mind by this stage discussions about some form of MBO or LBO of Tricorona:

“The exclusivity agreement precludes us advising specifically on the acquisition of CC Owner and financing of the portfolio. While the release technically removes such a prohibition, suspect it wouldn't go down too well with compliance or legal if we tried to advise on a transaction to buy CC owner (either on behalf of current mgmt or third party). Besides we did state to CFP that we were not.” 724. Dr Swift added:

“For the record, we are not currently discussing any situation with the Target at this date, so please relay to Jonathan in response that we are not currently working on any such activity on this Termination date. When Target reveals what they would like to discuss, we can assess with legal/compliance, as agreed.”

On the basis discussed with Dr Swift, Barclays gave the confirmation precisely in the terms sought by Mr Navon in an email dated 6 April 2009:

“We also confirm that Barclays Capital is not actively working on acquiring the CC Owner on its behalf or on the behalf of any third party as of the date of this Termination of Exclusivity agreement.”

Ms Patel was then away out of the country on business in China and subsequently on holiday for a while, returning after Easter on 14 April 2009. She emailed Mr Holmgren:

“Just to let you know that we have now received formal notification from CF Partners about the status of the transaction and therefore release of the exclusivity. However, per the terms of the release they have granted us we are not allowed to work with you [sic] another similar transaction without prior consent from them (but that consent cannot be unreasonably withheld) Therefore I have spoken to our Compliance department and if there is anything you would like to talk to us about in a similar regard - please let me know and we can discuss. The steps I have agreed with Compliance would be to get the background from you and then brief our Compliance department to assess how it fits with our release letter so that we can then secure the relevant extra release if it is relevant.

Does that work for you? CF were unwilling in their release to agree a blanket release so we have to live with the above strategy unfortunately.”

Ms Patel said that, looking back at this email and what went before it, she must have been mistaken in her recollection at the time of what had been agreed.

“Q. And in this email that was sent to Mr Holmgren only some two or three weeks later you appear to be confirming that CF Partners were unwilling to agree a blanket release; that's right, isn't it?

A. My Lord, that's exactly what the email would imply. However, having gone through my email audit trail between 24 March when the call happened and this I'm actually very clear on what we have agreed after the call, ie that it was a full release subject to us not working at that point in time on us being an acquirer or working on behalf of somebody else, but in-between that time I have gone to China on a big client trip, I have then gone on holiday and I have come back and in a rush, not -- forgotten what we had agreed and got my facts

incorrect.”

It was suggested in the Defendants’ Closing Submissions that Ms Patel was simply, but understandably, mistaken, and over the course of her break away from work had probably “elevated [Mr Lim’s] warning in her mind into a prohibition against engaging in such a project without CF Partners’ consent”. I accept that explanation, but with the reservation that I suspect that Ms Patel felt instinctively that it would not be commercially prudent or risk-free, either in terms of compliance or the law to prefer the words (which she may have forgotten) to the warning (which still resonated).

The Exclusivity Release was dated 30 March 2009 and signed on behalf of CFP on 2 April 2009. Barclays originally contended otherwise: but it is now common ground that the agreement did not release Barclays from any duty of confidence that as at that

That depends upon the terms of the release. I turn to consider the issue that arises as to the interpretation of the Exclusivity Release, and according to the resolution of that, CFP’s alternative claims for its rectification, failing which, rescission.

Barclays contend that the terms of the letter dated 2 April 2009, which was headed “Termination of Exclusivity”, was sent to CFP and signed by Mr Navon on its behalf (as well as on behalf of IVC), and which comprises the Exclusivity Release, admits of no equivocation. In particular, after referring to the IVC/Barclays Confidentiality Agreement and defining it as “the Agreement”, its second to fifth paragraphs read as follows:

“Paragraph 6 of the Agreement provides that Barcap will not, directly or indirectly, for a period of 18 months from the date of the Agreement, approach directly or indirectly the CC owner with a view to executing any transaction with the CC Owner the purpose of which is the financing of the CC Portfolio or the purchase of the CC Owner, unless IVC has consented in writing in advance to Barcap doing so (which consent shall not be unreasonably withheld or delayed). Paragraph 6 further sets out that should IVC decide not to pursue the Possible Transactions or negotiations between IVC and the CC Owner or its shareholders with respect to the Possible Transaction come to an end, then Barcap shall no longer be bound by the terms…of paragraph 6 of the Agreement.

By signing below a copy of this letter agreement IVC and [CF Partners] hereby acknowledge and agree that i) IVC has consented in writing in accordance with the terms of paragraph 6 of the Agreement to releasing Barcap from the exclusivity terms therein and ii) Barcap shall no longer be bound by the obligations set out in paragraph 6 of the Agreement.

IVC and [CF Partners] further acknowledge and agree, for the avoidance of doubt, that Barcap is no longer engaged by or providing any advice or assistance to IVC or [CF Partners] in connection with the Possible Transaction and, without prejudice to Barcap's obligations of confidentiality under and subject to the terms of the Agreement, that there are no duties (whether contractual, equitable or fiduciary) owed by Barcap to IVC or [CF Partners] that would prevent or restrict any part of Barcap or the wider Barclays group from carrying on any activity, including providing advisory, financing or any other investment banking services to any person (including [Tricorona]), or for its own account, in connection with the Possible Transaction or any other transaction involving [Tricorona], [its portfolio] or any other party.

Without prejudice to the above, should IVC or CFP decide to renew their interest in the Possible Transaction or contemplate any other transaction, we would welcome the opportunity to discuss with you the possibility of our assisting you in such transaction, subject of course to Barcap’s customary internal approvals at the relevant time.”

As to the confirmation provided to Mr Navon (at his request) by Barclays on 6 April 2009 (see paragraph [725] above), Barclays insists that it is to be given no wider meaning than its words, strictly construed, convey: it is a statement of a position at that time, neither conveying nor implying any commitment for the future.

Barclays contends that that clarification (which was in exactly the form requested by Mr Navon) was “accurate, literally and in substance. Barclays was not working on acquiring Tricorona’s portfolio, or any part of it, either by a share acquisition or directly. The discussions between Tricorona and Barclays at that stage were confined to FX hedging and EUA/CER swaps, with the possibility of unwinding and novating the Japanese forward sales in the future. There were no discussions about portfolio purchases.”

More generally, Barclays contends that the agreement contended for by CFP and on which they rely as precluding Barclays from undertaking anything more than day-today hedging transactions of a size and nature such as not to impinge on Project Arctic Fox is “quite implausible”. As it was put in paragraph 829 of the Defendants’ Closing Submissions:

“Barclays already had CF Partners’ and IVC’s written confirmation (by email) for day-to-day hedging discussions with Tricorona (which in any event was not prohibited by the IVC/Barclays Confidentiality Agreement). Barclays had been engaged in those discussions since the end of January 2009 and no one had suggested that there was any need for the confirmation to be formalised (which there was not). The objective of the 24 March 2009 call was to obtain a complete release from exclusivity from IVC so that Barclays could pursue an as yet unidentified project with Tricorona. If Mr Navon is right, then not only did Barclays fail to achieve that objective, but instead it took on a more onerous exclusivity obligation to a new party, CF Partners (in addition to IVC), of indefinite duration, that Barclays would never do any business with Tricorona that was not day-to-day business. Putting it another way, Barclays agreed to rule itself out from working on the Tricorona project when its wish to do so was the whole purpose of the call. That is absurd.”

These points are all inter-linked; but in determining these disputed issues it is necessary to sort them into legal categories; I deal with them as follows:

Substance and effect of collateral exchanges

The essential questions as regards the collateral exchanges, as it seems to me, are:

CFP made quite clear the importance they attached to the exchanges. Mr Navon emphasised that he would “not have agreed to sign any release had I thought CF Partners or IVC would thereby be releasing Barclays to participate in an acquisition of Tricorona without involving CF Partners…”.

However, whatever may be Mr Navon’s perception now of what he understood then to have been the upshot of the discussions, I do not consider that either the discussions or the formal confirmation he requested of and was given by Barclays amounted to the clear engagement or undertaking that CFP now alleges.

I do not think there can safely be spelt out from either any engagement or commitment on the part of Barclays to restrict its relationship with Tricorona to dayto-day trading in the hope that Arctic Fox might be resuscitated. Furthermore, I consider it unlikely that Barclays would have agreed to the same restrictions as it had perceived itself to be subject to previously.

In short, I consider and find that even if the background discussions informed the Exclusivity Release they do not materially affect its interpretation, especially given the absence (as I see it) of ambiguity in the wording of the release.

Interpretation of Exclusivity Release (as presently formed)

In my judgment, and in agreement with the position as put forward on behalf of the Defendants, the Exclusivity Release as presently formed is clear and unambiguous.

It (a) expressly released Barclays from the exclusivity terms imposed by the IVC/Barclays Confidentiality Agreement; (b) confirmed (for the avoidance of doubt) that BarCap was no longer being engaged by CFP (or IVC) in connection with Project Arctic Fox and owed CFP no duties (whether contractual, equitable or fiduciary) such as to restrict it in carrying on any activity, including providing its advisory, financing or other investment banking services to any person (including Tricorona); and (c) made clear that its release extended to activities “for its own account”.

That last express release, enabling Barclays to carry on any activity with Tricorona for its own account, is, to my mind at least, in some ways a surprising one; and I have considered carefully whether there is anything in the words of the Exclusivity Release to restrict it (for example, to preclude Barclays doing the very transaction contemplated by Project Arctic Fox).

However, not only are the words of the operative paragraphs (3 and 4) clear; but also the express recital of the previous restriction in terms of precluding (without consent) Barclays seeking to purchase the CC Owner confirms (to my mind) that it was indeed the effect of the Exclusivity Release as drafted to permit such a purchase, even by Barclays on its own account.

I raised a question in the course of oral closing submissions, which I have further considered, whether the words acknowledging and agreeing, “for the avoidance of doubt”, that Barclays is not to be prevented or restricted from “carrying on any activity, including providing advisory, financing or any other investment banking services to any person (including the CC Owner), or for its own account, in connection with the Possible Transaction or any other transaction involving the CC Owner, the CC Portfolio or any other party” extend to an activity involving nothing like an advisory, financing or other banking service. In other words, as Mr McQuater put it: whether any ejusdem generis argument might be tenable. I have concluded that no such argument is available: in my judgment, the words “for its own account” and the context preclude any such argument.

I have considered also whether the explicit recognition in the fifth paragraph of the Exclusivity Release of the possibility of CFP renewing its interest in pursuing the project or any other transaction, and of Barclays assisting it in that regard, signifies or constitutes an implied or implicit term that Barclays would not do anything of its own motion to negate that possibility (for example, by itself completing the project on its own account).

The classic formulation of such an implied term is that of Cockburn CJ in Stirling v Maitland (1864) 5 B & S 841:

“I look on the law to be that if a party enters into an arrangement which can only take effect by reason of the continuance of a certain state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone that arrangement can be operative.”

Though of antiquity, the formulation remains live; but it of course must yield to particular contexts and circumstances (see Schindler v Northern Raincoat Co Ltd [1960] 1 WLR 1038). I do not consider that in the present context and circumstances it has any application: the statement in the fifth paragraph of the Exclusivity Release cannot fairly be read as importing such an open-ended commitment or engagement. I read it as an expression of goodwill and the hope of future friendship, rather than a promise of marriage such as to prevent engagement to another.

Further, I have considered carefully whether, looking beyond the words (though they seem clear to me), the discussions which preceded the Exclusivity Release (which constitute part of the factual matrix in which the Release was concluded and are thus, in my view, admissible and relevant factors in its interpretation) support or compel any different interpretation.

In my view, they do not: if such exchanges are to alter the effect of what the parties agreed it can only, in my judgment, be by way of collateral contract, rectification or estoppel: and not by a process of interpretation.

Was the Exclusivity Agreement the product of common or unilateral mistake?

The essence of CFP’s argument in favour of rectification is that the Exclusivity Agreement was agreed on the mistaken assumption that it gave full effect to the January and March 2009 discussions and agreements. The premise of that argument, therefore, is that the effect of those discussions and agreements was to prohibit or preclude Barclays from working on acquiring Tricorona, whether for its own benefit or that of a third party.

For the reasons I have already identified, I do not accept that premise. In my judgment, CFP’s alternative claim for rectification must fail accordingly.

Is Barclays estopped from relying on the Exclusivity Release as permitting its acquisition of Tricorona on its own account?

Again, it seems to me that the premise of CFP’s estoppel case is of an unequivocal promise made by Barclays to the effect that it would not without CFP’s consent discuss or engage in business, other than day-to-day business, or do anything that might compromise or prevent Barclays’ potential involvement in the transaction proposed in Project Arctic Fox. CFP contends that it relied on Barclays’ promise in entering into the Exclusivity Release and would not have entered into it otherwise.

Again, I do not accept the premise, and though I do consider that Barclays was much less than frank and open, I must reject CFP’s alternative case based on estoppel accordingly.

Is the Exclusivity Release liable to be rescinded?

For the same basic reasons – that the Exclusivity Release is not liable to be rectified – I do not consider that it may be rescinded on grounds of mistake.

That, as I read the statements of case, is the only pleaded ground of rescission. In the course of opening and cross-examination, Mr Lord floated the suggestion that Barclays should have disclosed (whether to CFP or IVC is unclear) that it had had earlier dealings with Tricorona which were in breach of its exclusivity obligation, or that it had planned or was planning to purchase Tricorona’s portfolio. However, no allegation to that effect is pleaded in any of the iterations of CFP’s case.

I have considered whether it can reasonably be taken to be part of CFP’s case that, if Barclays was actually planning the acquisition of Tricorona when it gave the confirmation sought by Mr Navon that it was not actively working on acquiring Tricorona (or by implication its portfolio), that would provide a ground of misrepresentation such as to make the Exclusivity Agreement liable to be rescinded. I note in that regard that Barclays expressly accepted (obviously correctly) in their written Closing Submissions that this “would have been wrong”; and that both Mr Lim and Ms Patel (likewise correctly) agreed the same in the course of their crossexamination.

On the pleadings as they presently stand I do not think the point is open to CFP; and although the Defendants addressed the substance of the point in their Closing Submissions, they did so with the caveat that “there is no allegation in the particulars of claim, even after its most recent re-amendment, that the Exclusivity Agreement can be or has been rescinded for non-disclosure…”.

As to its merits, not for the first or last time in my assessment of the conduct of Barclays in relation to Project Arctic Fox and its aftermath, I have consistently had to remind myself of the difference between commercial morality and legal requirement.

As to commercial morality, I have been unable to escape the feeling that (a) Barclays should from the outset have disclosed its previous interest in Tricorona, (b) Ms Patel (and thus Barclays) was by April 2009 up for anything Mr Holmgren and the Tricorona Management had to offer in the carbon space, and indeed at the very time of the Exclusivity Release was preparing for some proposal from Mr Holmgren (as it turned out, Project Clearwater, as to which see further below), (c) the careful repetition of the exact words suggested by Mr Navon, as it happened, were strictly accurate but did not provide a complete picture, and (d) a more complete and candid disclosure might have resulted in a different outcome.

However, I accept that Barclays did not in law owe CFP a duty of disclosure in the context of the Exclusivity Release. Further, although I think Ms Patel would have had it in mind to pursue any opportunity that developed, and would have wished to be free

I do not therefore think that this claim could succeed, even if treated as open to CFP, and treated as part of its case.

It follows from all the above that, in my judgment, CFP never became a party to a contractual arrangement entitling it to exclusivity; and insofar as CFP might have been able to assert some claim deriving from the IVC/Barclays Confidentiality Agreement or any subsequent discussions in January 2009, the Exclusivity Release was true to its title: in other words, it did what it said on the tin.

To return to the chronological narrative, the long saga, which had commenced in 2007, of Barclays’ efforts to agree the terms and put in place an ISDA Master Agreement with Tricorona eventually resulted, after considerable further work on it over April and May 2009, in the execution of the ISDA Master Agreement on 25 May 2009 (though it was dated 6 June 2008).

However, although this formalised the arrangements between Barclays and Tricorona for purchases of pCERs, it was not followed by transactions. Tricorona was by this time immersed in Project Clearwater, in the context of which it had (as previously indicated) sought Barclays’ assistance and participation.

Project Clearwater is, to my mind, of some importance in these proceedings, principally for the light that it casts on Ms Patel’s apparent indifference to the fact that her personal involvement in Project Clearwater was inevitably influenced by the confidential information she was privy to as a member of the Project Carbonara deal team, and more generally on the attitude within Barclays to the observance of proper procedures designed for the protection of its clients in circumstances where its own interests were or might be at variance.

As indicated above, Project Clearwater encouraged (at the beginning of March 2009) the Tricorona Management to sound out Barclays on the question of its release from any prior ties to CFP. In the event, after the release had been agreed, Mr Holmgren did not get back to Ms Patel for nearly a month with details of the new project, and she did not chase him.

On 19 May 2009, Mr Holmgren called Ms Patel and raised with her the possibility that Tricorona might want to purchase a portfolio and asked whether Barclays might be able to provide finance. Mr Holmgren’s target was EcoSecurities, although he did not reveal the name at that time, and did not do so until 28 May 2009.

Ms Patel suggested that Mr Holmgren should talk to Dr Rhian-Mari Thomas (“Dr Thomas”, then a director in Barclays’ leveraged finance department) because “she had worked with me on similar deals that you outlined”; these deals included Project Arctic Fox/Carbonara. Ms Patel in that context appreciated, and advised Mr Holmgren by email dated 19 May 2009, that a Chinese Wall should be set up “so that whoever works on any advice to you is bound by confidentiality”.

From the outset, Ms Patel took a close interest in Project Clearwater, and angled for her team’s participation in it. Although she was supposedly on the public side as regards Project Clearwater, she said to Dr Thomas “if there is a transaction here, I can move myself onto the private side”. Ms Patel was already thinking of what she described as the “hedging opportunities” (a broad category, in her lexicon) for Barclays if the deal was pulled off.

Although it did not ultimately proceed, Project Clearwater occupied Ms Patel and Mr Martens, in conjunction with Dr Thomas, over the course of the end of May to the end of July 2009 (although only sporadically).

Two arresting points arise about the involvement of Ms Patel and Mr Marten. First, given the genesis of Tricorona’s plans for the leveraged acquisition of EcoSecurities secured by monetisation of EcoSecurities’ portfolio, and the similarities (in broad terms) of those two companies’ businesses, it was entirely inappropriate and indeed, in my judgment, improper, for any member of the Carbonara deal team to work on Project Clearwater without the express and informed consent of CFP as well as Tricorona.

Second, from its own point of view, EcoSecurities had made quite plain to Barclays, and to Ms Patel personally, that it did not think it appropriate for either Ms Patel or Mr Martens to be involved: EcoSecurities was a client of Barclays and Ms Patel had responsibility for Barclays’ relationship with it. Its concern was that Ms Patel and Mr Martens, who had also acted for it, both had too much information about EcoSecurities for them to advise Tricorona on the deal. As Ms Patel put it to Mr Martens in a telephone conversation on 19 June 2009:

“They just feel that they’ve shared way too much information with me in the past which means that I would be compromised…”

The Barclays’ Compliance log for 18 June 2009 records:

“Eco responded and said they categorically do not want any carbon desk employees who deal with them to be on the team.”

Ms Patel accepted that it was categorically the case that neither she nor Mr Martens could be on the deal in any capacity at all. So did Dr Thomas, who was well aware that EcoSecurities objected to Ms Patel’s involvement. Even so:

The Defendants contend that the events and circumstances of Project Clearwater “provide no evidential basis for any finding of breach of confidence by Barclays or Tricorona”. They say that:

CFP contends that, on the contrary, Barclays, through Ms Patel and Mr Martens, not only kept up and strengthened their association with the Tricorona Management, but also frequently accessed the Project Carbonara material containing CFP’s confidential information to assist in their analysis for Project Clearwater. They rely on the following examples:

I return later to the question as to the extent and consequences of the misuse of confidential information by Barclays in the context of Project Clearwater. (I also consider whether Tricorona misused confidential information in the same context.)

Project Silverback (which was originally code-named Project Bison) was an unsuccessful attempt by Barclays itself to acquire EcoSecurities in September 2009. The transaction did not involve CFP; and it involved Tricorona only very briefly at the end, when Barclays considered joining with Tricorona to make a joint bid for EcoSecurities.

The transaction received little attention at trial. The following points may be noticed:

CFP portrayed Project Silverback as inspired and informed by the same confidential information supplied by CFP as Barclays had misused in Project Clearwater, and as being part of a continuum of events leading eventually to Project Pomodoro.

Barclays, on the other hand, relies on the fact that, at the impetus of senior employees with no involvement in Project Carbonara, it sought to acquire another project developer before turning its attention to Tricorona, as strongly supporting Barclays’ defence that its acquisition of Tricorona was driven principally by strategic considerations relating to the carbon market generally and entirely unrelated to any information received during Project Arctic Fox/Carbonara.

Barclays goes further and suggests it is “impossible to reconcile” CFP’s case that Barclays was educated about the true value of Tricorona’s portfolio during Arctic Fox/Carbonara and then sought to profit from that knowledge by acquiring Tricorona with the fact that, prior to engaging with Tricorona in relation to what would become the acquisition transaction (Project Pomodoro), Barclays seriously pursued EcoSecurities and only ceased doing so when, as will be seen below, it formed the view that the need to keep up with a more advanced rival bid meant that it had insufficient time to carry out (what it then considered to be) the necessary due diligence on the target.

In my view, the position is not as binary as either suggests. Barclays was influenced by what CFP had provided; and that influence was considerable even if not such as immediately to impel it to seek to acquire Tricorona. It is not inconsistent with this that Barclays also pursued other avenues and opportunities, and learned along the way matters that also influenced its view of Tricorona. That is so even if it is accepted (as I do accept) that it is at the least unlikely that Barclays would have pursued Tricorona further had it succeeded in Project Silverback.

However, I accept the point made by Barclays that insofar as CFP’s case is based on the premise that the value and confidentiality of the information it provided to Barclays is demonstrated by Barclays’ re-evaluation of Tricorona, that premise is too simplistic. Not only was the market view of Large Hydro pCERs changing; but also, for example, there was a changing perception of the potential value of post-2012 CERs, of which EcoSecurities had substantial volumes, but which had not been the focus of CFP’s detailed assessment, nor (for example) of the excel dump.

Barclays’ related point is also well made: that during Arctic Fox/Carbonara, all the valuations discussed were of the pre-2012 portfolio only. Although Tricorona’s “Business Overview” in early May 2008 revealed that Tricorona’s portfolio had post2012 and post-2020 volumes of 83.8 million and 49.6 million CERs respectively, and Mr Navon suggested that this was one of the four features of the Tricorona Portfolio that were of particular interest to Barclays, this was not a feature that appears to have been brought out in the spreadsheets; and of course the Expressions of Interest were confined to pre-2012 CERs.

There is, so far as I am aware, no evidence that CFP provided these figures to Barclays as part of the information said to be confidential in the context of Project Arctic Fox; and the “Business Overview” was a public document. I do not think Mr McQuater was correct in submitting that “Tricorona never provided figures during Project Carbonara for a post-2012 portfolio and it was never valued on that basis”. For example, Barclays’ “Project Carbonara Overview” expressly mentioned that Tricorona had “approximately 90m post-2012 contracted volumes…for which no value is being assigned in this transaction for collateral purposes…[but which] could assume significant value”. But I did not understand anyone to contend that this information was confidential.

As to Project Silverback, it was EcoSecurities’ post-2012 portfolio which principally interested, for example, Mr Gold; and as Ms Patel said in her evidence:

“Through senior management looking at Silverback, EcoSecurities whetted the appetite of senior management to think about a post Kyoto environment and what opportunities that would bring for the bank because a post Kyoto framework, post 2012 carbon market could have potentially been very big.”

Similarly, the growing appreciation of the value of post-2012 CERs was also a driver for Project Pomodoro which owed little, if anything, to the material and insight that CFP provided to the Defendants.

There is a dispute between the parties as to when Barclays first became interested in acquiring Tricorona (in the sense of purchasing its entire share capital).

Barclays contends that until late March 2010 it was seeking to devise a debt-based structure which would allow it to invest at the asset level and acquire an interest in the future performance of Tricorona, and that it was only when the structure devised by Barclays was rejected by Volati in March 2010 that the bank switched to an acquisition strategy.

CFP contends against this that in fact, although Barclays explored other structures initially, these were simply different ways of structuring and financing what was in truth its objective from October 2009 onwards, which was to acquire Tricorona, its business and/or the “mine” by whatever means possible and efficient.

Though in the Defendants’ written Closing Submissions it was contended that little, if anything, turns on the point, Barclays expended considerable resource in its elaboration. I suspect this was, at least in part (no doubt), to distinguish the two pastabased code-named projects from each other; whereas CFP put some emphasis on it as demonstrating a continuum in Barclays’ true objectives, inspired by the revelation of the true worth of the “mine” which it is CFP’s case its confidential information and insights had revealed.

It is undoubtedly true that Barclays spent a considerable time investigating and modelling other ways of acquiring economic ownership of Tricorona: for example, in December 2009 Mr Gold brought in an expert in developing capital and business structures, Mr George Iantchev Manahilov (“Mr Manahilov”), who was at that time Managing Director in the Commodities group of BarCap in New York, to advise how (to quote from Mr Manahilov’s witness statement):

“we could achieve the Commodities team’s strategic goals but, in light of the EcoSecurities experience, without having to acquire Tricorona outright through launching a public take over.”

The “EcoSecurities” experience had not only resulted in Barclays losing out to JP Morgan: it had thrown up risk and compliance issues (mostly originating from the target’s operations in emerging markets under the CDM regime), and the potentiality in that context for unknown and unquantifiable historical liabilities (including antibribery and anti-money laundering sanctions), as well as structural problems (especially in that the target would after acquisition be forced to adopt procedures made necessary by the heavy regulation of financial institutions, particularly after the Lehman crash).

However, I consider and find that these efforts were designed to achieve the same objective by another route; the objective being the acquisition of the economic value of Tricorona’s portfolio and business. I do not think that, on analysis, Mr Manahilov disputed that; Mr Stuart Ord (a director in the BarCap EMEA M&A Advisory team, who was giving advice from an M&A advisory perspective) stressed that there were many options considered, but he too conceded that these were different means to the

I am in no real doubt that, following its failure to acquire EcoSecurities, and conversely the success of JP Morgan in acquiring the largest carbon developer, Barclays was determined to acquire Tricorona or its business by whatever way was most appropriate. By then Tricorona was the only major independent carbon developer left.

As Mr Holmgren told me in his oral evidence:

“Q. What you would have understood Barclays to be interested in, I suggest, was in effect finding a commercial way of Barclays acquiring Tricorona just as JP Morgan had acquired EcoSecurities?

A. In one or other way, it would have acquired Tricorona or set up a separate vehicle to perform carbon business in some sort.

Q. I understand that. There would be different ways of commercially structuring it, but the commercial objective would be the same, namely to add Tricorona to Barclays basically.

A. Somehow in some way Barclays at this point wanted to get into the carbon business, especially the primary side of things.”

It is clear that at least from that time onwards Barclays pursued that objective not only without regard to any interest that CFP had in pursuing its own acquisition of Tricorona (which would not of itself found a valid complaint, given my conclusions as to the Exclusivity Release), but also without apparent regard to whether it owed duties of confidentiality.

It is also clear that the Tricorona Management welcomed Barclays, and were determined to avoid any engagements that might diminish Barclays’ interest or the value it might perceive in Tricorona’s portfolio.

Their rejection of a proposal by CFP in early October 2009 of a forward sale of 15 million CERs to a compliance buyer (Vattenfall), despite its Board’s standing instruction to forward sell when possible, illustrates the Tricorona Management’s determination. As Mr Holmgren explained to Mr von Zweigbergk in an email dated 20 October 2009:

“…all else being equal, the portfolio is more attractive to Barclays unhedged. They believe that everything a utility can do, they can also offer in terms of portfolio sales. The more raisins in the cake, the better…”

Mr Holmgren explained in his oral evidence:

“Q. "The more raisins in the cake, the better ..." You were therefore referring to the fact that Ms Patel had led you to believe that Barclays wanted an unhedged portfolio so that they could make money out of the hedging or forward selling of it. That's what you are talking about, isn't it?

A. Yes, an unhedged portfolio would create the flows that enable the bank to make money on it. That's what I interpreted from keeping it unhedged.”

The roles were thus reversed: CFP had made the same point as to Barclays’ proposed “hedging” in 2008 and early 2009, during the active stage of Project Arctic Fox: hedging the portfolio would reduce the risk, but it would also reduce both its maximum potential value and its potential for transaction fee generation. This anxiety to preserve the “raisins” is a further demonstration, as it seems to me, that Ms Patel’s more liberal interpretation of “day-to-day hedging” was inimical to the full realisation of the objectives of Project Carbonara, as Barclays in effect recognised eating the raisins to be the full realisation of the objectives of Project Pomodoro.

The narrative of the events culminating in the success of Project Pomodoro is not, of itself, instructive. All that I think it is necessary to note is as follows: