TOC Investments Corporation v Beppler & Jacobson Ltd & Ors

By an application dated 13 November 2014 TOC Investments Corporation (“TOC”) seeks declaratory relief and orders requiring the first Respondent, Beppler & Jacobson Limited (“BJUK”), to reimburse TOC in respect of amounts totalling some £2.685m advanced by TOC on account of fees, expenses, disbursements and any other costs (“the Fees”) incurred by or on behalf of the Provisional Liquidators of BJUK (“the PLs”) appointed by the Court on 3 May 2012.

TOC, a wholly owned subsidiary of TNK-BP International Limited (“TNK-BP”), advanced the Fees on the terms of a Funding Agreement dated 27 July 2012 (“the Funding Agreement”) made between TOC, the Provisional Liquidators and BJUK (acting through the Provisional Liquidators).

BJUK emerged from provisional liquidation after the dismissal on 1 December 2014 of a petition brought for its winding-up or for relief pursuant to section 994 of the Companies Act 2006 by the seventh respondent, Caldero Trading Limited (“Caldero”). Caldero’s petition (“the Petition”), brought on 3 May 2012, was substantially funded by TOC/TNK-BP. BJUK is now (further to their purchase of Caldero’s 25% shareholding) owned or controlled by the second to sixth Respondents.

The application, which is the only remaining matter for adjudication in relation to the Petition, raises issues of contractual interpretation, subrogation, unjust enrichment and the scope and applicability in that latter context of what is habitually referred to as the principle in Ex parte James.

TOC appeared through Leading and Junior Counsel (Mr Robin Hollington QC and Mr Adrian Pay). Its position, in summary, is that the moneys it paid on account of the Fees were advanced by way of loan, and that under the terms of the Funding Agreement, express or implied, it is now entitled to reimbursement out of the assets of BJUK; alternatively, that it is entitled to be subrogated to the PLs’ entitlement pursuant to the Insolvency Rules to be paid by BJUK; or in the further alternative, that it is entitled to be repaid under the terms of the Court Order pursuant to and in fulfilment of which the Funding Agreement was made (“the Newey Order”, dated 16 July 2012, to be discussed below). TOC has also latterly contended that it should be entitled to recover by reference to the principle in Ex parte James.

The second to sixth Respondents (represented in this case by Mishcon de Reya, and thus “the MdR Respondents”) also appeared through Leading and Junior Counsel (Mr David Wolfson QC and Mr Matthew Cook). Again in summary, their position is that TOC has no entitlement to be repaid sums which it advanced pursuant to the Funding Agreement (to which, it is to be noted, the MdR Respondents were not parties) since that agreement did not provide for repayment or reimbursement, and TOC cannot now claim a right of reimbursement. They deny that there is any scope for subrogation, on the basis that in point of fact TOC advanced the moneys to BJUK, which then used its own money to meet its liabilities to the PLs, such that TOC itself did not discharge any liability owed by BJUK to the PLs. Further, they reject the notion of any claim for unjust enrichment (which they submit is the cause of action for which subrogation is a remedy) where there is a contract regulating the rights of the parties. They dismiss the Court Order (the Newey Order) as irrelevant, since all it did was provide for BJUK to pay the fees and costs of the PLs. They have sought to dismiss TOC’s recourse to the principle in Ex parte James as a misplaced afterthought.

The PLs themselves, who are joined as (together) the eighth Respondents, appeared through Counsel (Mr Daniel Bayfield). They did so, as one of them (Mr Mark Shaw) explained in his sixteenth witness statement, in case of objections to certain evidence in it on grounds of inadmissibility, and in light of TOC’s alternative reliance on the principle in Ex parte James. They have sought to maintain a strictly neutral role.

BJUK and its Montenegrin subsidiary, Beppler & Jacobson Montenegro d.o.o. (“BJM”), own two hotels in Montenegro.

When it presented the Petition, Caldero was one of three then shareholders in BJUK: it owned 25% plus one share. The other shareholders were Leibson Corporation (the second Respondent, a body incorporated in the BVI, “Leibson”) which owned 70% minus one share and Belinda Capital Limited (the third Respondent, a body incorporated in Nevis, “Belinda”) which owned 5% of the shares.

The participation of TNK-BP/TOC in the Petition stems from the involvement of a Mr Igor Lazurenko, the fourth Respondent, in BJUK. Belinda is owned by Mr Lazurenko, who is also the owner (or at least the agent for an unidentified principal) of Leibson. Prior to April 2012, Mr Lazurenko was employed by TNK-BP as Director of its Logistic Department; he resigned in April 2012 amidst serious allegations made against him by TNK-BP, proceedings in relation to which were brought to the Chancery Division in August 2012 (although these were subsequently thrown out by this Court on the grounds that Russia was the proper forum for hearing such claims). Although TNK-BP/TOC were not themselves a party to the Petition, they funded Caldero's costs of such in this context.

The respondents to the Petition were BJUK, BJM, the MdR Respondents (including Mr Lazurenko, Leibson and Belinda), and Marcel Telser, the director of BJUK ("the Petition Respondents").

The PLs were appointed on the same date as the Petition was presented on the ground of a strong risk of dissipation, demonstrated by the Petition Respondents suddenly proffering accounts that purported to show that BJUK held all its assets on trust for another body, also incorporated in Nevis, called Lawson Trading Limited, thus purportedly rendering Caldero’s interest worthless.

The order appointing the PLs (“the Birss Order”) was made by HHJ Birss QC (as he then was). The Birss Order provided (by paragraph (9)) for the PLs’ remuneration to be payable on application by reference to the time spent by them and their staff. It also recorded the usual undertaking (numbered (7) in the Birss Order) on behalf of Caldero as petitioner to “pay the reasonable costs of anyone other than the Respondents which have been incurred as a result of this order…”. Further, given the serious and invasive nature of such relief, TOC joined Caldero in each giving a cross-undertaking in damages. That regime was extended by order of Floyd J (as he then was) on 17 May 2012.

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

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

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

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

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

In such circumstances, the Court permitted the parties to have a period to negotiate. This resulted in a partial compromise of the Petition, which was reflected in the Newey Order. The Newey Order declared the alleged agreements relied on as establishing trusts null, void and of no effect and provided for Leibson to purchase Caldero’s shares at a price to be determined by an expert, and for the trial of an issue (“the Investment Issue”) relevant to that expert’s determination, that is as to whether approximately €50m had been invested by the Petition Respondents by way of capital (as Caldero contended) or loan (as the Petition Respondents contended), to be held accordingly.

The Newey Order further provided for the release of TOC and TNK-BP from their undertakings, with no inquiry as to damages. As to the fees and costs of the PLs, it was stipulated (by paragraph 21 of Schedule 1) as follows:

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

TOC submits that it was thus agreed that if the Petition should fall to be dismissed (as was envisaged), BJUK would bear the costs and expenses of the PLs. The Newey Order also provided (inter alia) that if the Purchase Price was not paid within a stipulated period, the Petition for winding-up should be allowed and a winding-up order made.

In April 2013, the MdR Respondents applied to the Court for the removal of the PLs on various grounds, including bias. In advance of the hearing of that application, on 24 June 2013 a copy of the Funding Agreement was provided (for the first time) to the MdR Respondents. The application was compromised by an agreement dated 16 July 2013 (“the Settlement Agreement”): the removal application was dismissed, with the PLs remaining in office, but each side was required to bear its own costs (the PLs promising not to seek to recover any of their costs, fees and expenses relating to the application from BJUK or TOC).

Three further points may be noted in relation to the Settlement Agreement:

The Investment Issue was heard by David Richards J (as he then was) in March 2013, and judgment was handed down in July 2013. His judgment ([2013] EWHC 2191 (Ch)) contains a valuable summary of the factual matrix. He decided the Investment Issue in favour of Caldero. He found the evidence of the principal individual Petition Respondent (Mr Lazurenko) to have been “deliberately false” and the case on behalf of the Petition Respondents to have been “shot through with dishonesty”. The Petition Respondents’ appeal was characterised by the Court of Appeal as “hopeless”.

The Purchase Price was thereafter calculated in accordance with the Newey Order; but it was not paid within the period required. The Petition Respondents have on repeated occasions demonstrated lamentable disregard of the Court’s orders.

Ultimately, the stand-off was brought to an end, as was the provisional liquidation with effect from 11 December 2014, by an order made by Rose J on 1 December 2014. That order (“the Rose Order”), to which TOC was also joined as a respondent with the Petition Respondents, relevantly:

Thus, the application now before me is the process by which Rose J envisaged that that issue would be determined.

Before turning to the issue of interpretation and the principles to be applied in that context, I need to address and determine certain procedural matters in contention between TOC and the MdR Respondents.

The first concerns the MdR Respondents’ application issued on 23 March 2015 for the late admission of a fourth witness statement by Mr Masoud Zabeti (“Mr Zabeti”), a partner at Mishcon de Reya, their solicitors. Mr Hollington dismissed the evidence as too late, too long, largely legal argument, and irrelevant. Mr Wolfson accepted that it was late, that there might “be sentences in [it] which go beyond the factual matrix”, and that it descended into argument. He advanced, without much enthusiasm, the reason for its lateness as being in part the consequence of TOC refusing an extension of time, and in part of Mr Zabeti’s son having broken his leg. He nevertheless invited me to allow it into evidence on the basis that it also provided some background to the question as to why TOC might have been prepared to make available funds without recourse.

I accept that much of Mr Zabeti’s fourth witness statement rehearses arguments, or what I presume he intended to be telling observations. Such arguments and observations have no place in such documents, as the Court of Appeal has recently emphasised. I also accept that the excuses provided for lateness were thin. However, the contextual description given was of some benefit. Further, (a) though late, it was served some seven weeks prior to the hearing, (b) TOC had time to and did respond to it, and (c) in the end Mr Hollington did not oppose its admission. In the circumstances I shall let it in: I do not think it appropriate to exclude it. Thus, it may be included as part of the evidence.

The second preliminary matter relates to TOC’s application notice for the substantive hearing (which was filed on 14 November 2014). Mr Wolfson pointed out that, as originally drafted, neither that application notice nor the draft order appended to it asserted any right to repayment based on the terms (express and implicit) of the Funding Agreement. In contrast to Mr Hollington's submissions, the five declarations originally sought did not mention such a basis of claim: the declarations advanced as the source of TOC’s alleged right to repayment only paragraph 21 of Schedule 1 to the Newey Order. Mr Wolfson suggested that this was unfair, but also revealing, since it indicated that what Mr Hollington was now depicting as the “absolutely obvious” had not even occurred to TOC at the time of the application. I think in the end it suffices for me to say that it is clear from Mr Wolfson’s skeleton argument that the MdR Respondents were aware of and prepared to face what became TOC’s primary case; and I have carefully taken into account the second point in reaching my conclusions.

The third preliminary matter concerns another application notice, issued in the course of the hearing but pre-notified to the MdR Respondents, on behalf of TOC for the joinder of Caldero. Mr Hollington put this forward as a precaution to cover the fact that although TOC was interested in and involved in the negotiations about the Newey Order, it was not a party to it, and (as he put it) in case “all else fails”. Mr Hollington submitted that such joinder would ensure that the proper parties were before the Court in determining (as directed by Rose J) the substantive issue as to the true interpretation of the Newey Order, and would not result in any prejudice.

Mr Wolfson objected to this application, describing it as an attempt to ambush the MdR Respondents, and as “extraordinary behaviour”. He pointed out that Caldero had known of the substantive application since it was issued in November 2014. He also submitted that the relevant application notice was bad on its face, being in breach of the CPR in (a) failing to set out the reason for the application (contrary to CPR 23.6(b)) and why it was being made late and (b) not having been served on at least three days’ notice (contrary to CPR 23.7(1)(b)) without any reason to justify short notice or abridgment of time. As to that, Mr Hollington replied that, being an application in insolvency proceedings, the governing rule is Insolvency Rule 7.3(1)(b), which relevantly requires the application notice to state only the nature of the remedy or order applied for, rather than the CPR.

I would permit the joinder of Caldero. It is regrettable that the joinder was not sought earlier, but I accept that that has not occasioned prejudice, and the overriding objective is best served by enabling the adjudication of the substantive question between all affected parties.

The last of the preliminary matters I need to address goes to the standing of the MdR Respondents, and more especially to a suggestion on behalf of TOC in paragraph 22 of the fourteenth witness statement of Mr Robert James Dougans (a partner in TOC’s solicitors, “Mr Dougans”) that:

“The PLs and TOC do not disagree as to the meaning and purpose of the Funding Agreement and there is therefore no issue of construction of this agreement. If there was, that argument would not lie in the mouths of the MdR Parties who are not a party to the Funding Agreement.”

I note that this suggestion was not pursued by Mr Hollington. Having sought adjudication of an issue raised in an application notice joining the MdR Respondents, and engaged with them in determining the issue, I do not think it is open to TOC to contend that it need not be adjudicated at all.

I turn to the substantive issues of construction, and start by describing the Funding Agreement in greater detail.

The Funding Agreement was executed some 11 days after the Newey Order, on 27 July 2012. It was, however, in the process of negotiation before the Newey Order.

For present purposes the following of its provisions are of particular relevance:

The MdR Respondents also drew attention to what the Funding Agreement did not contain: and in particular, the absence of any provisions that might naturally be expected if the Funding Agreement was intended to take effect as a loan, such as provisions for the payment of interest.

The questions of construction which arise are (1) whether the Funding Agreement gives to TOC, or is premised upon TOC having and reserves to it, a right of repayment and (2) whether the “entire agreement clause” in the Funding Agreement (clause 12), or the Funding Agreement as a whole on its true construction, excludes any other alternative remedy or recourse available to TOC (or to Caldero on its behalf).

I develop later my view that the Funding Agreement contemplated and envisaged that TOC would be reimbursed under the terms of the Newey Order and/or pursuant to Rule 4.30(3) and (3A) of the Insolvency Rules 1986 (“Rule 4.30(3)”) but did not in terms or by necessary implication provide for it. The determinative question, therefore, is whether the Funding Agreement negated or restricted both the express provision in paragraph 21, Schedule 1 of the Newey Order that the fees and costs of the PLs “shall be borne by” BJUK and the provisions of Rule 4.30(3).

There was no real dispute between the parties as to the applicable principles of contractual construction, although there was disagreement between them as to the admissibility of certain parts of the evidence sought to be adduced.

As to the general approach to issues of contractual construction, I think it suffices to quote the following passages, each culled from decisions of the Supreme Court or the House of Lords.

First, in Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251, Lord Nicholls of Birkenhead said at [26]:

“… The meaning to be given to the words used in a contract is the meaning which ought reasonably to be ascribed to those words having due regard to the purpose of the contract and the circumstances in which the contract was made. ”

Secondly, in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900, Lord Clarke said at [21]:

“… the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. ”

I observe that since the hearing the Supreme Court has once more considered and endorsed the correct approach. In Arnold v Britton [2015] UKSC 36, Lord Neuberger (with whom Lord Sumption and Lord Hughes agreed) emphasised various factors, including these:

“(1)

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

(2)

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

(3)

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

(4)

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

(5)

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

(6)

Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention. An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56, 2012 SCLR 114, where the court concluded that "any … approach" other than that which was adopted "would defeat the parties' clear objectives", but the conclusion was based on what the parties "had in mind when they entered into" the contract (see paras 17 and 22).”

Thirdly, and with particular reference to the implication or interpolation of terms, in Attorney-General of Belize and others v Belize Telecom Ltd and another [2009] UKPC 10, [2009] 1 WLR 1988 Lord Hoffmann clarified that the question whether to imply or interpolate a term is all part of a composite exercise of construction, necessarily so since the Court has no power to alter what the instrument means; and that:

“17

The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

18

In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what is to happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.”

More recently, and again since the hearing in this matter, the Supreme Court has revisited the principles by reference to which a term is to be implied into a contract in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72 (“the Marks and Spencer case”). Suffice it to say that the Supreme Court has confirmed that even if (as to which Lord Neuberger expressed some doubt) the process of implying a term may be regarded as part of a composite exercise of determining the scope and meaning of a contract, that process (which is so inherently more ambitious and potentially more intrusive) is governed by different rules and is subject to strict constraints, and in particular the constraint of strict necessity.

In the present case, there are no express terms beyond clause 3.4 which specifically deal with the obligation, if any, to repay the Existing Funds and Additional Funds advanced by TOC pursuant to the Funding Agreement.

An obligation to repay may, however, be inherent or implicit (in the word “advance” in clause 3.2 and having regard to the purpose for and the context in which the money was furnished) or to be implied (in construing the Funding Agreement as a whole, in its admissible context). If so, and in the absence of any provision as to the time and mode of repayment, the ordinary rule would be that a loan is repayable on demand.

It is common ground that the word “advance” is ambiguous and may mean or connote different legal relationships according to the particular context. It normally means the furnishing of money for some specific purpose; but money may be “advanced” without being “lent” or, for example, on terms that it will be repayable if and to the extent that the event for the purpose of and in advance of which it was furnished does not occur.

Bronester Ltd. v Priddle [1961] 1 WLR 1294 (in the Court of Appeal), which was relied on by both parties, is an example of the latter case. An employer advanced money to a newly-promoted employee by way of accelerated pre-payment of commission which under his contract of employment the employee was to be entitled to earn in his new position on deliveries of goods in the area for which he was responsible whilst employed in that capacity. Neither the contract of employment nor the terms of the advance expressly specified that advances would be repayable on the employee leaving employment having not earned any commission. In the event, the employment was terminated when the employee set up business on his own, having earned no commission. The majority of the Court of Appeal held that the amounts advanced were obviously not to be gifts if the commission was never earned, and that a term was to be implied that such amounts would be repaid if it turned out that the commission was never earned. Pearson LJ dissented on the ground that any ambiguity in the contract of employment should be resolved in favour of the employee, and that, taking that into account, no such term should be implied. The case is thus a rather different one from the present.

No other cases as to the meaning of “advance” were put forward; and dictionary definitions confirmed that the meaning would depend on the nature of the agreement and the context.

In this regard, there was a difference in approach between the parties (other than the PLs). Although accepting that the word “advance” is ambiguous, Mr Wolfson on behalf of the MdR Respondents preferred to focus exclusively on the Funding Agreement itself; and indeed much of the thrust of his case was directed to seeking to demonstrate that none of the other matters, such as (most importantly) the Newey Order, was, if not excluded from consideration by the entire agreement clause 12, of any substantial relevance. Mr Wolfson submitted that there was no need to look to the factual matrix because the reference to “advance” in the Funding Agreement is “explicable and obvious from the context of the agreement itself”.

Mr Hollington on behalf of TOC, by contrast, prayed in aid the Newey Order and the overall factual context as demonstrating that it would be absurd to regard the “advance” as being a gift made without recourse.

As previously indicated, some of the evidence which Mr Hollington sought to rely on seemed to me to stray beyond the bounds of admissibility. That included observations by the PLs as to the “plain vanilla” expectation and “normal market practice” that funders will be repaid out of the (insolvency) statutory scheme at the end of the day (which seemed to me to amount to opinion evidence for which permission had not been given). It also included evidence as to pre-contractual statements as to the intent of the Funding Agreement, which were sought to be relied on by Mr Hollington for purposes other than establishing objective facts (such as the parties’ knowledge), to my mind impermissibly: and see Scottish Widows Fund and Life Assurance Society v BGC International (formerly Cantor Fitzgerald International) [2012] EWCA 607.

However, Mr Hollington emphasised the following features of the background, which are uncontroversial and in any event, subject to the entire agreement clause, plainly both admissible and relevant:

I turn to describe the parties’ competing arguments as to the proper interpretation of the Funding Agreement in greater detail.

As previously foreshadowed, Mr Hollington’s primary submission on the first question of contractual construction was that an available and indeed common meaning of the word “advance” is that the moneys furnished pending an event should be repaid when the event occurred. Mr Hollington relied on the factual matrix and circumstances previously described, but also especially upon Recital E of the Funding Agreement (see paragraph [37] above), which records the intentions of the parties in making the Funding Agreement (which is a proper function of a recital) in terms which confirm that the parties were using the word “advance” to denote the furnishing of moneys on account on the basis that they will in due course be defrayed by BJUK, as the person required ultimately to bear the fees and expenses of the PLs.

Relying also on the obvious rationale and commercial sense behind that, he then advanced three different analyses, as follows.

Mr Hollington’s favoured analysis was that read in context, and in the circumstances, the provisions of clauses 2 and 3 of the Funding Agreement for TOC to “advance” cleared funds to the “Provisional Liquidators’ Bank Account” were plainly intended to mean, and amounted to an express provision requiring, that funds so advanced were being furnished on account to pay the PLs’ fees and expenses and enable them to discharge their functions, but on the basis that the moneys so advanced would be repaid to TOC out of the assets of BJUK in due course (that is, upon the dismissal of the Petition or, if the Purchase Price was not paid, on the winding up of BJUK).

Alternatively, he submitted that if those provisions did not amount to an express provision imposing an obligation to reimburse upon the dismissal of the Petition or, if the Purchase Price was not paid, on the winding up of BJUK, then at the least they warranted and made necessary the implication of a term to the same effect.

Mr Hollington submitted that even if there was room for debate as to the wording of the Funding Agreement, the commercial context, business sense and industry practice weighed heavily against the possibility that the funding was intended to be without recourse. Indeed, he submitted that such a construction would flout business and commercial sense to the extent of being, given the hostility between the parties, “manifestly absurd”. Further, it would carry within it an intention to give away the benefits of paragraph 21 of Schedule 1 to the Newey Order and to negate the effect of Rule 4.30(3), which was likewise absurd, such as to “fly in the face of business common sense”.

In that last context, Mr Hollington dismissed as disingenuous and “thoroughly bizarre” the suggestion by Mr Zabeti in his fourth witness statement on behalf of the MdR Respondents to the effect that the Funding Agreement had been “intended to put in place a regime which was different from that agreed…under the Newey Order” and that TOC and the PLs had negotiated an agreement that effectively waived or overrode the liability of BJUK to pay the PLs’ costs and expenses.

Mr Hollington accepted that clause 3.4 of the Funding Agreement, in expressly providing for the return of “surplus” might raise the question why the parties had not also dealt with repayment of the moneys furnished, if truly that was what the parties intended. However, he submitted that clause 3.4 was of narrow application, and necessary only because the return by the PLs of such surplus would be a matter of account for the PLs separate from the liability of BJUK and properly expressly addressed in the Funding Agreement.

Lastly, in relation to contractual interpretation, I should mention for completeness that Mr Hollington also submitted that the MdR Respondents had previously repeatedly acknowledged BJUK’s liability to pay the costs of the provisional liquidation and conducted themselves in a way consistent only with an appreciation that the moneys furnished to the PLs would ultimately have to be repaid out of the assets of BJUK. He drew my attention to (a) correspondence from Mishcon de Reya apparently accepting BJUK’s repayment liability and therefore seeking to restrain costs (albeit written before the MdR Respondents had seen the Funding Agreement); (b) transcripts of previous hearings at which Leading Counsel for the MdR Respondents likewise accepted such liability; (c) an application by the MdR Respondents to remove the PLs, the upshot to which was a compromise leaving them in place but reducing their fees and expenses, which would have offered them nothing unless they anticipated (now having seen the Funding Agreement) that such fees and expenses would fall to BJUK in the end; and (d) the skeleton argument of the MdR Respondents for that removal application in which their Leading Counsel, Mr Kitchener QC, unequivocally described the Funding Agreement as being one “under which [TNK-BP] lends money to BJUK to pay the PLs’ fees and expenses from time to time (with the level of the PLs’ remuneration ultimately to be determined by the Court)”. These matters might be relevant to equitable relief, including subrogation: but (as I think Mr Hollington eventually felt constrained to accept) not to issues of contractual interpretation. I have accordingly taken no account of them in that context, although they could be of relevance to Mr Hollington’s “last resort” submissions by reference to the principle in Ex parte James.

Alternatively to these primary arguments, Mr Hollington submitted that, even if the Funding Agreement could not properly be interpreted as making provisions for the terms and mode of repayment, the provisions and the Funding Agreement read as a whole at the least reflected and were premised upon the mode and time of (as well as the right to) reimbursement elsewhere provided for (whether by the express provisions of paragraph 21, Schedule 1 to the Newey Order (quoted in paragraph [18] above) or by Rule 4.30(3), or both).

As regards that alternative argument, Mr Hollington submitted that paragraph 21 of Schedule 1 to the Newey Order unequivocally provides for the fees and costs of the PLs to be borne by BJUK, and that this both excludes any argument that the fees and costs should ultimately be borne by any other person and constitutes a binding order of the Court mandating (in the events that have happened) that reimbursement should be made out of the assets of BJUK upon dismissal of the Petition.

In any event, Mr Hollington relied also or alternatively on Rule 4.30(3), which provides as follows:

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

(a)

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

(b)

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

In further support of this conclusion (and as part of his reply), Mr Hollington submitted that the Funding Agreement and paragraph 21 of Schedule 1 to the Newey Order were intended to be and should be read as complementary but as dealing with different aspects of the matter. The Newey Order provided for ultimate liability; the Funding Agreement for intermediate funding; read together they represented a typical arrangement to cater for the commercial requirements of professional PLs and the principle reflected in Rule 4.30(3) that, unless otherwise directed, the ultimate cost should be borne out of the assets of the Company.

As to enforcement of the obligation to repay/reimburse, if Mr Hollington succeeded in establishing that the Funding Agreement either itself provided for the mode and time of reimbursement, or in effect provided for reimbursement in accordance with the Newey Order or Rule 4.30(3), plainly there was no difficulty: TOC as a party could enforce the right. If however, it was necessary to invoke the Newey Order and/or Rule 4.30(3), Mr Hollington submitted that any or all of four routes would suffice to enable TOC to do so: (i) the status of the Newey Order as an order of the Court meant that it was enforceable as such by a person interested and entitled to benefit such as TOC; (ii) if there was any problem in that regard, Caldero could enforce the Newey Order for the benefit of TOC; (iii) alternatively, Rule 4.30(3) should be regarded as regulating the position for the benefit of all those interested in BJUK’s assets, including TOC/Caldero; (iv) failing that, TOC should be regarded as subrogated to the PLs’ rights under both the Newey Order and Rule 4.30(3).

As to (iv) above, Mr Hollington submitted that, quite apart from the Newey Order, TOC should be treated as a secondary obligor which, having paid the debt of the primary obligor (BJUK) to the PLs, should be subrogated in law and equity to the rights of the PLs including under the Newey Order and Rule 4.30(3) in any event.

Mr Wolfson attacked these submissions at their root; he submitted that there was simply no basis for reading into the Funding Agreement a right of repayment that could easily have been, but which manifestly had not been, expressed; and that clause 12 “makes it impossible for TOC to argue that there was any understanding or agreement, not recorded in the Funding Agreement, to the effect that funds would be repayable”. He rejected any suggestion of an implied term: he submitted that any such term remained undefined, would be inconsistent with clause 3.4 of the Funding Agreement, could not be said to be necessary, and involved such complexity and double conditionality that it could not conceivably be the “only possible” term.

As previously indicated, Mr Wolfson sought to confine the context to the terms of the Funding Agreement itself, and he avoided any broader argument as to the background, or general commerciality, except in arguing that there was good reason why TOC was content to fund the PLs without recourse, which was that its claim was that all the assets of BJUK were held on trust for it anyway, and funding without recourse was in any event a small price to pay.

He urged particularly strongly against any far-reaching inquiry into the broader factual nexus, and in particular he submitted that correspondence between the parties which had not been available to the MdR Respondents nor at the time to anyone else should not be used in the process of interpreting the Funding Agreement; nor, for that matter, should the evidence of the PLs through Mr Shaw as to what was standard in the business (there being no order for expert evidence).

As to the architecture of the Funding Agreement and the intention of the parties to be understood from it, Mr Wolfson especially emphasised the following in support of his overarching case that the absence of any express right of reimbursement was determinative and that the intention of the parties was to furnish BJUK with moneys, without recourse, whereby to enable BJUK to discharge its liability to pay the PLs.

First, in addition to the absence of any express provision (leaving aside whatever may be implicit in the use of the word “advance”) giving TOC a relevant right of reimbursement by BJUK, Mr Wolfson pointed out that there were also none of the other kinds of provisions that would be expected if a loan was intended, including provision for the payment of interest at a stipulated rate.

Secondly, as indicated above, Mr Wolfson placed reliance on clause 3.4 of the Funding Agreement as showing that “the parties were alive to the issue of repayment by the Company to TOC at the time and deliberately chose to limit TOC’s right of repayment to surplus funds only” (the “Company” being BJUK).

Thirdly, Mr Wolfson submitted that although on its face the Funding Agreement is expressed to be between TOC, the PLs and BJUK, clause 7 states that the PLs have entered into it “as agent for the Company”: from this he invited the conclusion that it took effect as an agreement between TOC and BJUK alone.

Fourthly, Mr Wolfson relied on the structure of the Funding Agreement, and in particular clauses 3.1 to 3.3, which provide for the PLs to issue a “Funding Notice” in relation to funds required and for TOC then to pay the requested sum into the “Provisional Liquidators’ Bank Account”, which is defined to mean “the bank account in the name of the Company acting by the Provisional Liquidators, details of which are: account name Beppler & Jacobson Limited…”. He contended that it was clear from this that TOC was advancing funds to the Company (BJUK), which the Company could then use to meet and thereby discharge its liabilities. He further contended that on this basis there could be no available recourse for TOC under paragraph 21 of the Newey Order, since any liability of BJUK to bear the costs and expenses had already been discharged by BJUK itself.

Fifthly, Mr Wolfson pointed out that the provision in clause 5.1 of the Funding Agreement whereby TOC agreed to indemnify the PLs and certain other associated parties both in relation to acts done in connection with the performance of their role as provisional liquidators but also those “otherwise done at the request or directions of the Funders”. He submitted that this revealed that TOC’s objective in providing funding was to direct the PLs to do things outside the scope of their role as such. He further submitted that the fact that TOC was prepared to commit to an indemnity for up to $50m with no chance of recourse showed that it was far from absurd or unrealistic to suppose that it had agreed to fund the PLs in respect of their costs and expenses likewise without recourse.

Sixthly, and as previously noted, Mr Wolfson placed considerable reliance on the “Whole Agreement” clause, clause 12.

Seventhly, Mr Wolfson asked the Court to note that the Funding Agreement was a carefully drafted agreement between legally represented parties drawn up by the PLs’ own advisers. He relied on this to support his submission that the Court should construe the Funding Agreement in accordance with its express terms and not countenance any temptation to “mend” a bargain that TOC may now regret.

He also deployed it against any argument on the part of TOC that a term enabling recourse should be implied, which he also countered on the footing that no “gap” or need for an implied term to give the Funding Agreement business efficacy had been demonstrated, and in any event TOC had not formulated what the term would be with the precision required, and any such term was too uncertain.

Turning to Mr Wolfson’s submissions in relation to the Newey Order and the Rose Order, Mr Wolfson submitted that any emphasis on the word “borne” in paragraph 21, Schedule 1 of the Newey Order is not only misplaced but fails to take into account the subsequent Rose Order. The word does not appear in the latter, which Mr Wolfson submitted confirms that it was never intended to signify more than that the Company (BJUK) would pay the PLs’ fees and costs without being directed in any way at all to the issue of funding or repayment of any such funding.

This argument was elaborated by Mr Wolfson in a Supplemental Note dated 8 May 2015 (and thus some time after the conclusion of the hearing) as follows:

More particularly as to the Rose Order, Mr Wolfson submitted that its terms restricted the rights of TOC to recover against BJUK outstanding fees and expenses of the PLs, and thereby confirmed that there would be no such right to reimbursement of moneys paid to satisfy fees and expenses under the Funding Agreement.

These competing arguments were advanced with resourcefulness and tenacity on both sides, as their layers and variety demonstrate. The drafting of the Funding Agreement has furnished the parties with ammunition, which they have deployed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As previously mentioned, TOC also invoked principles of subrogation both for the purpose of seeking to support the logic of its primary argument on the interpretation of the Funding Agreement and also in case it failed in that primary case (as it has done).

Coincidentally, just after I had substantially completed this judgment in draft, the Supreme Court published its decision in Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66 (“the Menelaou case”). I considered it right to draw the parties’ attention to the decision and it was for this reason that I invited their further submissions on it in writing. This part of this judgment has been revised in consequence.

Put shortly, TOC submitted that if it had no right of recourse under the terms (express, implicit or implied) of the Funding Agreement, it should be entitled to be subrogated to the PLs’ right to payment out of the assets of BJUK.

To this, the MdR Respondents offered two answers:

As to the first of these arguments, I accept (as did Mr Hollington for TOC) that usually a right of subrogation arises where a secondarily liable party (here, TOC) pays the creditor (the PLs), thereby discharging the primary obligor (BJUK) from liability. However, I also accept Mr Hollington’s depiction of this as being a highly unusual case, in that the creditor (the PLs) was at the material times in control of the primary obligor (BJUK), acted as the primary obligor’s agent in the transaction, and procured the “secondary liability party” (TOC) to pay the moneys into a designated account opened for this purpose by the creditor in the name of the debtor so that, upon receiving Court approval, the creditor could utilise the funds in that account so as to discharge the primary obligor’s liability to the creditor.

The question comes down, as I think both sides eventually concurred, to whether the proper analysis is that the liability to the PLs was satisfied out of moneys by that time belonging to BJUK, or whether alternatively that liability was satisfied out of TOC’s moneys, at the request of BJUK and pursuant to an obligation assumed by TOC to effect such payment.

Mr Hollington contended that the provision for payment to the Provisional Liquidators’ Bank Account (as defined in the Funding Agreement) was mere machinery for the payment by TOC to the PLs of their fees (subject to Court approval of those fees). He submitted that it made no difference that the payment went via an account, even though the account was in the name of BJUK. He relied on the House of Lords decision in Orakpo v Manson Investments Ltd. [1978] AC 95, and in particular the following passage from the speech of Lord Diplock at 104F-G:

“One of the sets of circumstances in which a right of subrogation arises is when a liability of a borrower B to an existing creditor C secured on the property of B is discharged out of moneys provided by the lender L and paid to C either by L himself at B’s request and on B’s behalf or directly by B pursuant to his agreement with L. In these circumstances L is prima facie entitled to be treated as if he were the transferee of the benefit of C’s security on the property to the extent that the moneys lent by L to B were applied to the discharge of B’s Liability to C.”

Mr Hollington submitted that, substituting the obligation of BJUK under the Newey Order and under Rule 4.30(3) in place of the security, this formulation covered the position as a matter of substance in this case. Alternatively, he adopted, albeit I think with little enthusiasm, my tentative suggestion that the payment by TOC was at all times impressed with a fiduciary obligation by the payee (if BJUK) to remit to the PLs, in the nature of a Quistclose trust (and see per Lord Millett in Twinsectra Ltd v Yardley [2002] 2 AC 164, especially at para. 78).

Mr Wolfson, on behalf of the MdR Respondents, rejected the depiction of the flows of moneys as mere machinery, reiterating that the payment by TOC to BJUK discharged no liability of BJUK to the PLs and the payment out of the Provisional Liquidators’ Bank Account, as defined, was a payment by BJUK. He rejected any suggestion that the moneys paid by TOC did not become the assets of BJUK, emphasising especially that there was no stipulation in the Funding Agreement for the moneys furnished by TOC to be kept separate from BJUK’s own or other moneys (which he submitted disposed of any argument of a Quistclose trust). Further, in relation to Orakpo, and in support of his second argument, he drew attention to how the passage of Lord Diplock’s speech on which Mr Hollington had relied then continued (at 104G-H):

“This subrogation of L to the security upon the property of B is based upon the presumed mutual intentions of L and B; in other words where a contract of loan provides that moneys lent by L to B are to be applied in discharging a liability of B to C secured on property, it is an implied term of that contract that L is to be subrogated to C’s security.”

I consider that there is force in Mr Hollington’s contention that TOC was discharging BJUK’s debt to the PLs at the request of BJUK so as to give TOC a right to such remedies as the PLs had against BJUK, and that the mechanics of payment, even though they involved paying into an account in BJUK’s name, should not upset this analysis. I would reject the MdR Respondents’ first submission on this basis.

I would add that my approach seems to me to be supported by the Supreme Court’s emphasis in the Menelaou case that for the purposes of such a remedy the Court should look at the substance of the transaction rather than “pure formalism”.

However, the second part of the extract from Lord Diplock’s speech in Orakpo, and the passages in Goff & Jones on Restitution to which I was referred, may support the MdR Respondents’ second argument that no claim for unjust enrichment (which in modern terminology is the cause of action for which subrogation may be a suitable equitable remedy) will generally lie during the subsistence of a contract relating to the benefit transferred. As Mr Wolfson neatly put it, there is either an entitlement to repayment, in which case unjust enrichment/subrogation is not necessary; or alternatively, under the agreement the only entitlement to repayment is in relation to any surplus (pursuant to clause 3.4), in which case this is the agreed allocation of risk and there is no scope for a claim in unjust enrichment/subrogation.

The proper characterisation of subrogation as a remedy for unjust enrichment, and the interplay between unjust enrichment and contractual allocation of risk, were matters also considered in the Menelaou case. The judgments confirm that (a) although in Orakpo v Manson Investments Ltd [1978] AC 95, Lord Diplock expressed the view that there was no general doctrine of unjust enrichment recognised in English law, that is no longer so; (b) non-contractual subrogation is best characterised as being a remedy in the armoury of equity in reversing or attenuating unjust enrichment; and (c) in determining whether a defendant had been enriched unjustly, and thus whether the remedy of subrogation might be available, a relevant consideration was always “the need to avoid any conflict with contracts between the parties”.

Further as to (c) above, Lord Clarke (with whose analysis Lords Neuberger, Kerr and Wilson substantially agreed in this regard) approved the approach of Patten LJ on appeal in Investment Trust Companies v Revenue and Customs Comrs [2015] EWCA Civ 82, adopting and endorsing Henderson J’s distillation of principle at first instance [2012] EWHC 458 (Ch), to the effect that

“…it is important not to take a narrow view of what…would conflict with contracts between the parties or with a relevant third party in a way which would undermine the contract.”

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

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

Lastly, Counsel for TOC relied “if all else fails” on the principle in Ex parte James as operating to require the PLs to abide by their assurances in correspondence, in their Report to the Court dated 14 August 2012 and in Mr Shaw’s sixteenth witness statement of 18 December 2014, to the effect that TOC/TNK-BP would be repaid the sums they had advanced “either from the assets or from any other party to the proceedings charged with paying them”.

The MdR Respondents rejected any suggestion that the principle in Ex parte James had any application, and dismissed it as “an afterthought”: the evidence did not disclose a settled understanding, there was no evidence of reliance, and in any case any such understanding fell away because of the Entire Agreement clause in the Funding Agreement.

Mr Daniel Bayfield, Counsel for the PLs, helpfully directed me to one of the cases in the Lehman saga, namely Lomas & Ors v Burlington Loan Management & Ors [2015] EWHC 2270 (Ch), where David Richards J (as he then was) analysed the principle in Ex parte James and the relevant authorities in relation to its development. I accept that the principle has a much broader application than once it did; it is not confined to cases of money paid under a mistake of law. As David Richards J explains:

“174.

The principle in Ex parte James has been described as anomalous but it is a well-established principle providing a means by which the court can control the conduct of its officers. Administrators, liquidators in a compulsory winding-up and trustees in bankruptcy are all officers of the court and subject to this jurisdiction. The case to which the principle owes its name, like a number of cases immediately following it, concerned the retention by a liquidator or trustee in bankruptcy of money paid under a mistake of law. At that time, money paid under a mistake of law was not recoverable, but the court directed that its officer should not stand on his strict legal rights but should return the funds, notwithstanding that the effect was to deprive the creditors of funds which would otherwise be available for distribution among them. The rationale for the principle was that, although irrecoverable at law, the officer of the court could not in all conscience retain the money, given the circumstances in which it had been paid. It would amount to an unjust enrichment of the estate. Although the principle was first developed and exercised in these circumstances, subsequent cases applied it in other circumstances and it cannot now be said to be confined to particular categories of case.”

I do not, however, propose to consider further the application of the principle in this case. It was put forward “if all else fails”; on my view of the case, all else has not failed; but if I am wrong in my conclusion that TOC is entitled to reimbursement under paragraph 21 of Schedule 1 to the Newey Order, Rule 4.30(3) or alternatively by way of subrogation, I very much doubt that the principle in Ex parte James would be applied to save TOC.

In summary, therefore, in my judgment:

It follows, on the basis of my primary conclusions, that TOC is entitled to a declaration to bring home its entitlement to reimbursement. The exact form of the declaration and any further orders will require consideration.

I would invite Counsel to seek to agree a draft Order accordingly. That and any other matters arising can be discussed after this judgment is handed down in final form.

Finally, and by way of postscript or in parenthesis, I should express my thanks for the further submissions provided to me by Counsel (at my own request and whilst this Judgment was in draft form) following the decisions of the Supreme Court in the Marks and Spencer case and in Menelaou.

I should also mention that in those submissions Mr Hollington referred me to and relied on another new case, this time in the Court of Appeal, namely LBG Capital v BNY Mellon [2015] EWCA Civ 1257: but that case seems to me only to be relevant in a context where some defect in the language mandates, as a matter of commercial sense and necessity, investing the words used with a meaning that otherwise they would not bear: and I do not think this is such a case.