The Co-Operative Bank Plc v Hayes Freehold Ltd & Ors

the freehold interest in the Property was transferred to Hayes Freehold;

by a facility agreement (“the Facility Agreement”) the Co-Operative Bank plc (“the Co-Op”) granted a lending facility of over £25m to Hayes Freehold, which was guaranteed by Sentrum Hayes;

Hayes Freehold entered into a debenture with the Co-Op whereby Hayes Freehold charged the freehold interest in the Property to the Co-Op (“the Hayes Freehold Debenture”). Under the Hayes Freehold Debenture, Hayes Freehold granted a charge to the Co-Op over the Headlease (“the Headlease Charge”); and

Sentrum Hayes entered into a debenture with the Co-Op (“the Sentrum Hayes Debenture”) whereby it charged its interest as tenant in the Property created by the Underlease to the Co-Op (“the Underlease Charge”). I shall refer collectively to the Headlease and Underlease Charges as “the Co-Op Charges”.

Allen White

In early 2013 he had learned of the Co-Op’s security over the freehold title and the Co-Op Charges.

He also knew about the Co-Op’s insistence on a £7 million premium from Hayes Freehold to agree to the surrender of the Headlease.

This information was readily accessible from Deutsche Bank’s files for anyone subsequently dealing with the Property to see.

Mr White most probably told Mrs Williams (his successor at Deutsche Bank from JLL) of these matters when he handed over to her in late 2013.

Kelly Williams

Sarah-Jane Perry

Christopher Mitchell

Jennifer Jones

Brian Vesey

Mr Vesey was another JLL secondee who was the lead transaction manager for the UK. He also gave evidence on behalf of Deutsche Bank. His involvement in the matters relating to these proceeding was limited. He was copied in on Mr Mitchell’s email of 14 January 2015 seeking instructions to propose surrendering the Headlease, handled matters in Mr Mitchell’s absence in July 2015, and was involved in events after Deutsche Bank learnt that the Co-Op was challenging the validity of the surrender of the Headlease. During cross-examination, he said that he was not aware of the approach from Mr Sodzawiczny in early 2013, that Ms Perry never mentioned it and that Mr Mitchell was not aware of it. I accept his evidence as to his lack of knowledge.

Deutsche Bank rely on [17] of Mr Vesey’s witness statement, where he said:

“I would confirm that DBA understood and believed throughout that the Other Parties were able to lawfully and effectively proceed with the transaction. They had together made the joint proposal dated 8 December 2014 and, if they could proceed with a total commutation of the rents, then they could also proceed with a surrender. It was clearly a matter for them to secure any necessary consent from the Co-Operative Bank …”

The importance of accuracy in witness statements

In Aquarius Financial Enterprises Inc v Certain Underwriters at Lloyds [2001] 2 Lloyds Rep. 542, Toulson J (as he then was) referred to the requirement in the Commercial Court that a witness statement should be, so far as practicable, in the witness’s own words and stated:

“49.

…Bad practices, like bad money, tend to drive out good. If bad practices in the taking of witness statements come to be seen as normal, so that witness statements become lawyers' artefacts rather than the witnesses' words, their use will have to be reconsidered. Central to the problem is the ignorance of the court and the other party about how any witness statement has in fact been taken. It might therefore be thought salutary that, where a witness statement is prepared by somebody other than the witness, there should be a written declaration by the person who prepared the statement giving information about how, when and where it was prepared and certifying compliance with any appropriate code of practice.”

I would add that it is not fair to the witness if he or she is shown documents which reveal that a witness statement is not accurate, and alterations are not made on the assumption that the opposite party already knows about them. As illustrated by this trial, cross-examination in those circumstances can prove a difficult experience for honest witnesses, which should not be the case.

The involvement of Mr Miscampbell

Mr Miscampbell is the partner at Blake Morgan who was responsible for advising Deutsche Bank about the execution of the Deed. He caused no search of the freehold title to be performed by Blake Morgan prior to the execution of the Deed and was therefore unaware of the Headlease Charge. Nonetheless, he gave definitive advice to Deutsche Bank that the surrender of the Headlease would be effective. On 24 July he stated in an email that “For the record I confirm that the transfers when signed by DB will effect the surrender of the leases at Hayes in accordance with requirements of DB”. He repeated this on 28 and 29 July: “I confirm that the attached achieves the surrender desired by DB”.

Blake Morgan have acknowledged their professional negligence in this regard. During his cross-examination, Mr Miscampbell expressed his regret about his failure to perform a title search, and I have no doubt that he was sincere in doing so:

“Q. Mr Mitchell's evidence was also that he assumed, as the matter proceeded towards completion, that you would confirm that everything was good to complete -- that was a reasonable assumption, wasn't it?

A. Deutsche Bank require me to confirm that the transaction achieves the effect that they intended. That is a requirement that the bank has.

Q. And he also expected you to advise him, or Deutsche Bank in relation to any issues that arose in the course of your work prior to completion?

A. It would be an expectation of the bank that I would deal with any issues that are raised, certainly.

Q. And he expected you to do a title search, didn't he?

A. He certainly suggested at the outset that I obtain the titles and that I failed to do so is a matter of great regret.”

This evidence shows that Mr Miscampbell expected that Deutsche Bank would rely on his advice when deciding whether to execute the Deed. They did rely on his advice, as was explained by Mr Mitchell and Ms Perry. The cross-examination of Ms Perry was very clear about this:

“Q. The truth of the matter really is this, isn't it, when we boil it right down, that the reason that Deutsche Bank was able to proceed with the transaction on 8 August 2015 was that its solicitors had definitively advised Deutsche Bank that when it signed the Deed it would immediately take effect and give rise to an effective surrender of the Headlease?

A. Yes.”

This explains why Ms Perry did not raise the issue of the Headlease Charge and the need to obtain the Co-Op’s consent with Mr Mitchell, or with others within Deutsche Bank. Deutsche Bank was instructing solicitors to ensure that the transaction would be effective to achieve the surrender of the Headlease, and it was their responsibility, and not the responsibility of Ms Perry.

A further issue arises in relation to Mr Miscampbell’s evidence concerning a conversation with Mr Johnson, an associate at White & Case. Mr Johnson and Mr Miscampbell have different recollections about what was said, and it remains an issue that I am required to resolve.

Deutsche Bank’s case is that, on 3September 2015, Mr Miscampbell telephoned Mr Johnson and asked whether the consent of the Co-Op had been obtained. Mr Miscampbell claims that Mr Johnson told him that there had been a meeting before completion at White & Case to discuss this issue. Originally, Mr Miscampbell claimed in his witness statements that Mr Johnson had told him that White & Case / Holdings had decided to carry on regardless. However, this was corrected by a witness statement served just before he gave evidence, from which it appears that this was Mr Miscampbell’s inference, and was not said by Mr Johnson. Deutsche Bank submits that Mr Miscampbell’s evidence is supported by an email which he sent to Charlotte Sleeman on 7 September 2015 saying, “I spoke to the lawyers for the guarantor (Sentrum Holdings Limited) of the undertenant (Sentrum (Hayes) Limited) last week and it is clear that they considered the position on the Co-op charge and decided to proceed anyway”.

Mr Johnson’s evidence concerning the call was that, in response to Mr Miscampbell’s question concerning the Co-Op’s consent, he told Mr Miscampbell that he did not know where the consent was, but suggested that he contact Adelphi Commercial Law (“Adelphi”), on the basis that (as solicitors for Hayes Freehold and Sentrum Hayes) they should have any documents evidencing the Co-Op’s consent. He explained that he had no reason to believe that consent had not been obtained in advance of completion. He also denied that there had been a meeting at White & Case to discuss the issue of the Co-Op’s consent. Mr Johnson explained that only Mr Dodsworth and he were working on the transaction, so there would have been nobody else with whom a meeting could have taken place.

I accept the evidence of Mr Johnson and reject the evidence of Mr Miscampbell about this conversation. Mr Miscampbell had three attempts at recounting the conversation, in three different witnesses statements, and each attempt gives a materially different account. I do not consider that his recollection about this conversation can be relied on. By contrast, I found that Mr Johnson’s evidence was clear and credible.

In addition, the contents of Mr Miscampbell’s email of 7 September 2015 are not consistent with an email that he sent to Adelphi on 3 September 2015, where he gave yet another version of his conversation with Mr Johnson, suggesting that he had been told by Mr Johnson that all consents had been obtained. I was not satisfied by Mr Miscampbell’s explanation for that inconsistency (which is set out below) and I do not consider that the email of 7 September 2015 can be relied upon as an accurate account of his conversation:

The relevant decision maker within Deutsche Bank

I have already dealt with the role of EREC and have concluded that EREC was not, in substance, the decision maker in relation to the execution of the Deed. In my judgment, Ms Perry was the relevant decision maker.

In particular, Mr Mitchell repeatedly sought and obtained Ms Perry’s approval to pursue the surrender proposal, as well as to instruct Blake Morgan and to waive interest on rent when the transaction completed a few days late. During her cross-examination, Ms Perry acknowledged her role as substantive decision maker in respect of the execution of the Deed, subject to governance steps within Deutsche Bank that needed to take place:

“Q. So just to summarise where we are on this part of the story, you personally had authority to make the decision yourself in relation to the surrender and the deed, subject of course to the other pieces of governance that needed to take place; that's right, isn't it?

A. Yes, I couldn't execute without the two other steps.

Q. And the other steps were satisfied before completion occurred and those steps, just to be clear, are passage through EREC on a "for info" basis, ensuring there had been legal sign-off, because you said that was necessary from an audit perspective, and seeing the minutes of the EREC committee formally, so that that point of audit governance had also been complied with. Those are all the steps that were needed to be taken within Deutsche Bank to then execute?

A. (Nods).”

The state of knowledge within Holdings about the Co-Op Charges/allegations of fraudulent misrepresentation

In order to understand Deutsche Bank’s case on this issue, it is necessary to introduce further characters into the narrative. First, Simon McNally, who acted for Sentrum Hayes and Hayes Freehold in relation to the Deed. Mr McNally is or was a partner in the law firm Bridgehouse Partners; and is or was a partner in Adelphi. Mr McNally did not give evidence, and is or was a defendant to a claim in the Commercial Court (“the ORB litigation”) in which it was alleged that Mr McNally and his partner had misappropriated property of a Mr Ruhan, the previous owner of the Glen Moar companies. Secondly, James Dodsworth, who is a partner in White & Case who, together with Mr Johnson, acted for Holdings in relation to the execution of the Deed. Mr Dodsworth also did not give evidence, and I am asked by Deutsche Bank to draw adverse inferences from his absence. Third, Valerie Walsh, Vice President of Portfolio Management for the Digital group, who was the individual at Holdings responsible for the execution of the Deed. Mrs Walsh gave evidence on behalf of Holdings.

It is Deutsche Bank’s case that:

There is no doubt that Mrs Walsh, Mr Dodsworth and Mr Johnson knew of the existence of the Headlease Charge. Further, at least Mr Dodsworth and Mr Johnson knew that the consent of the Co-Op was required for Hayes Freehold to accept the surrender of the Headlease, and that the surrender of the Headlease would be ineffective without the Co-Op’s consent. The disputed issues are propositions (ii) and (iii) and in particular whether Mr Dodsworth, Mr Johnson and Mrs Walsh knew (or shut their eyes to the facts) that Mr McNally had not obtained the consent of the Co-Op and that Deutsche Bank was unaware of this. Deutsche Bank contends as follows on these issues.

First, that although it paid the head-rent promptly, Sentrum Hayes was constantly late in paying the sub-rent. This led to Digital making repeated payments to Deutsche Bank from the escrow account, which was depleting. This led to an increasing concern by Mrs Walsh, from October 2014 onwards, as to Digital/Holdings’ exposure under the guarantee, and increased her desire to find a substitute guarantor. This was exacerbated when Digital learnt, in November 2014, that the ownership of the Glen Moar companies had changed, which could have increased Holdings’ (and by extension, Digital’s) exposure under the guarantee. I accept that this was the case. However, it is not the whole story. Deutsche Bank was also very keen to reach agreement as quickly as possible, in order to save itself from on-going difficulties in recovering the rent.

Secondly, that on 30 October 2014 White & Case searched the title of the freehold of the Property at the Land Registry and, insofar as they and Holdings had forgotten about the Headlease Charge, they would have been reminded of its existence and that it was entered into in 2012 to fund the purchase of the freehold of the Property. I accept this, but I do not consider that it advances Deutsche Bank’s case. It is common ground that White & Case and Holdings knew about the Headlease Charge. Furthermore, it is only part of the story. As discussed above, in December 2013, Freshfields provided Deutsche Bank with an up-to-date Land Registry search of the freehold title, which showed the sale of the freehold in the Property to Hayes Freehold on 10 January 2013 and the Headlease Charge pursuant to the Hayes Freehold Debenture. So Deutsche Bank was provided with the same information.

Thirdly, that when drafting the letter on or by 28 November 2014 proposing the commutation of the rents under the Headlease and Underlease (“the Joint Letter”), White & Case and Holdings knew that the consent of the Co-Op would be required as mortgagee but that no steps were taken by anyone to seek to secure any such consent. I accept this as a part of the story. However, in early March 2015, Mr Dodsworth noted in an email to Mr McNally, which was copied to Mrs Walsh, that: “the next stage will then be for you to agree a surrender of the DB/Sentrum (Hayes) lease following your ongoing discussions with your lender.” This shows that whilst Holdings was aware of the Co-Op’s involvement as lender, it considered that it was for Mr McNally to deal with the Co-Op, rather than Holdings or White & Case. Further, the Joint Letter did not indicate that the Co-Op’s consent had been obtained, but merely that the signatories were in agreement in proposing it.

In any event, I do not accept that Deutsche Bank placed reliance upon the Joint Letter, or its accompanying email. Mr Miscampbell suggested in one of his witness statements that he had relied on the letter as showing the ability of those who had signed it, lawfully to surrender the Headlease. This was incorrect. During his cross-examination he accepted that he had never seen the letter at the time of execution of the Deed, and that it was dealing with a different transaction. No other witness from Deutsche Bank suggested that they had understood or relied on this letter as representing that the Co-Op had agreed to the proposal. Furthermore, by the time the Deed was entered into, the Joint Letter was water under the bridge.

Fourthly, Deutsche Bank relies on a series of allegations to suggest that Mrs Walsh knew or ought to have known that Mr McNally was untrustworthy. It points out that by February 2015, Mrs Walsh had learnt from Mr Sodzawiczny about the ORB litigation which alleged misappropriation by Mr McNally and so had reasons to suspect, and did suspect, that Mr McNally was potentially dishonest in his dealings. It relies on the fact that a worldwide freezing injunction was granted against Dr Gail Cochrane, the new owner of Glen Moar and its subsidiaries, in the ORB litigation on 20 March 2015 in respect of assets up to £67,323,000 in value and requiring details of the escrow account to be provided to the Court. It further asserts that by 25 March 2015, Mrs Walsh had received further information from Mr Sodzawiczny about the ORB litigation, and had further reasons to suspect, and did suspect, that Mr McNally was potentially dishonest in his dealings.

I accept that Mrs Walsh had been given various information about allegations made against Mr McNally. I do not accept that this meant that she knew or ought to have known that Mr McNally was dishonest. The allegations were unproven. Mrs Walsh explained that she understood that Mr McNally was genuinely trying to address the position with the Co-Op. Since he was a solicitor, she took him at his word. She did not think that the discussions with the Co-Op were necessarily limited to obtaining its consent, but were part of a broader conversation. She did not believe that the escrow monies were in jeopardy because of anything that had occurred in the ORB litigation. Once Mr McNally had approved the draft Deed she had assumed that, as a lawyer, he was able to do that; it was not a matter for her to question him. I accept her evidence and her position was a reasonable one to adopt.

Fifthly, Deutsche Bank submits that: i) by 11 March 2015, Mr Dodsworth had told Mrs Walsh that Mr McNally’s plan was to use the escrow monies to obtain the consent of the Co-Op; ii) Mrs Walsh, on behalf of Digital, assented to that plan and set about calculating the escrow and earn out monies; and iii) Mrs Walsh knew, when she obtained details of the escrow and earn out monies on or about 13 March 2015, that the reason she was obtaining that information was so it could be used by Mr McNally in his negotiations with the Co-Op to secure its consent to the surrender of the Headlease. I do not accept this. Mrs Walsh explained that she had no recollection of Mr Dodsworth telling her about any such plan, and there is no evidence that he did.

Sixthly, Deutsche Bank advances a series of allegations against Mr Dodsworth and Mr Johnson, which are relied on to suggest that not only did they behave unethically, but also that they were parties to an implied fraudulent misrepresentation. Deutsche Bank submits that by the time of the execution of the Deed, Mr McNally, Mrs Walsh, Mr Dodsworth and Mr Johnson all knew, or shut their eyes to the fact, that Deutsche Bank was proceeding in ignorance of the Headlease Charge, and of the need to obtain the consent of the Co-Op to surrender the Headlease. It claims that:

I do not accept this analysis of the facts, which is not consistent with the detailed findings that I have made. Stepping back, I consider that the central allegation that any of these individuals knew that Deutsche Bank was unaware of the Headlease Charge, or shut their eyes to this fact, and attempted to take advantage of Deutsche Bank’s ignorance, is highly unlikely, for the following reasons:

Mr McNally was acting for Sentrum Hayes and Hayes Freehold in relation to the execution of the Deed, and White & Case were acting for Holdings. Mr Johnson’s evidence, which I accept, was that he made clear to Mr Miscampbell that he did not act for the Sentrum parties. I reject Mr Miscampbell’s evidence that he believed that White & Case were acting not just for Holdings, but also for Sentrum Hayes and Hayes Freehold. Furthermore, it was Mr Miscampbell’s duty to inform himself as to who was acting for whom with respect to the transaction on which he was instructed to provide advice to Deutsche Bank. It was therefore his responsibility to communicate with Mr McNally to ascertain the position of the Sentrum parties, which he failed to do.

Mr Johnson gave evidence that, once Deutsche Bank had indicated that it was prepared to agree to the Deed, and to the unconditional and irrevocable release of the guarantee under clause 6, he expected each party to do its own due diligence. Holdings was not a party to the Headlease and from the perspective of Digital and Holdings, the release of the guarantee was in the nature of a post-completion loose-end that needed to be tidied up. He did not consider that it was his role or responsibility to follow up matters with Mr McNally or to enquire on behalf of Deutsche Bank how any issues with the Co-Op had been resolved. He explained his position during his cross-examination, and I accept his evidence:

“Q. Well, knowing what you did, Mr Johnson, Deutsche Bank were not clearly comfortable, Deutsche Bank were clearly ignorant, weren’t they?

A.

My mind didn’t turn to Deutsche Bank. As I say, they’re a sophisticated organisation, they were professionally advised, it didn’t occur to me to think from their perspective.”

On the date of completion, Mr Miscampbell was away, and he left the matter in the hands of a trainee, Ms Andrea Corr, who gave evidence at trial and was clearly very competent. Deutsche Bank alleges that Mr Johnson deliberately withheld the final version of opinion letters (in respect of Hayes Freehold and Sentrum Hayes) from Adelphi, dealing with capacity to enter into the Deed, and containing the reference to the Co-Op Charges, from Ms Corr until only very shortly before completion, so that she would not have time to notice this reference. This was denied by Mr Johnson, who explained that it was likely that he had sent the opinion letters to Blake Morgan shortly after he had received updated drafts and reviewed them on 6 August 2015.

The opinion letters were provided to Blake Morgan in advance of completion, and this theory depends upon the proposition that Mr Johnson believed that Blake Morgan had failed to perform any basic title search (which I have rejected). Further, Mr Johnson could not have assumed that Blake Morgan would fail to spot the references to the Headlease Charge in the opinion letters. Blake Morgan could readily have delayed completion, if they had wished to do so.

As to the telephone conversation on 3 September 2015, which is also relied on by Deutsche Bank as evidencing misconduct by Mr Johnson and Mr Dodsworth, I accept Mr Johnson’s evidence about this call and reject that of Mr Miscampbell.

In summary, I regard Mr Johnson’s evidence of these issues as cogent and credible, and it is to his credit that he remained measured and calm when such serious allegations were put to him. Furthermore, I do not accept Deutsche Bank’s case that I should draw adverse inferences from the fact that Mr Dodsworth did not give evidence. The only references in Deutsche Bank’s pleading to Mr Dodsworth were introduced by a late amendment. They bear very little relationship to the allegations now put against Mr Dodsworth. Mr Ross served a witness statement in support of the late amendment, in which he explained that it would require no further evidence or disclosure. The claim that Mr Dodsworth should have given evidence is not consistent with that witness statement. Whilst Mr Ross subsequently wrote a letter suggesting that Mr Dodsworth should give evidence, this was after Deutsche Bank had made its application for permission to amend on the basis that no further evidence or disclosure was required. Furthermore, this is not a case where there is an absence of evidence on this subject. I have heard from Mr Johnson and Mrs Walsh, and I have accepted their evidence.

In the circumstances, I reject Deutsche Bank’s case that Mrs Walsh, Mr Dodsworth and Mr Johnson knew that Mr McNally had not obtained the Co-Op’s consent to the surrender of the Headlease, or shut their eyes to that fact. Furthermore, I reject Deutsche Bank’s case that Holdings were prepared to go ahead regardless of whether Deutsche Bank was aware of the Headlease Charge, whether consent from the Co-Op to the surrender had been obtained and whether the surrender of the Headlease would be effective, even though they knew that the lack of the Co-Op’s consent would render the surrender ineffective. Holdings was justified in considering that this was a matter for Deutsche Bank, who had been told about the Headlease Charge and who had instructed solicitors for the purpose of entering into the Deed.

Deutsche Bank’s claims

Deutsche Bank puts its case in five different ways, which it advances in the alternative:

Holdings denies each of those claims and further submits that Deutsche Bank is estopped from pursuing them against it.

Is there an implied condition precedent, to the release of Holdings’ guarantee, that the surrender of the Headlease should be effective?

In Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 the Supreme Court affirmed and explained the settled law that a term would be implied into a detailed commercial contract only if that were necessary to give the contract business efficacy or so obvious that it went without saying; that the implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract but was concerned with what notional reasonable people, in the position of the parties at the time at which they had been contracting, would have agreed; and that it was a necessary but not sufficient condition for implying a term that it appeared fair or that the court considered that the parties would have agreed to it if it had been suggested to them.

At [21] Lord Neuberger set out six comments on the implication of terms, two of which were emphasised during submissions in this case. First, when approaching the issue by reference to the officious bystander it is “vital to formulate the question to be posed by [him] with the utmost care”; and second, the test is not one of “absolute necessity”:

“It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

Lord Neuberger held at [26] that construing the words used in a contract and implying additional words are different processes governed by different rules. He stated at [28] that:

“28 In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term. This appeal is just such a case. Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied. Having said that, I accept Lord Carnwath's point in para 71 to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term, but, even if that is right, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication.”

Lord Neuberger observed that, in any event, the process of implication involves a rather different exercise from that of construction. He cited the explanation of Bingham MR in Philips Electronique Grand Public SA v British Sky Broadcasting [1995] EMLR 472 at [481] – [482] that:

“The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power…

The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which reflect the merits of the situation as they then appear. Tempting, but wrong.”

Deutsche Bank submits that the question of implication of a condition precedent has to be considered against the admissible factual background. It cites Challinor v. Bellis [2013] EWHC 347 (Ch), where Hildyard J stated, in relation to the knowledge of the parties as part of that admissible factual matrix (at [279]):

“… where it is demonstrated that one or more of the parties did not in fact have knowledge of the matter in question such knowledge is not to be imputed; nor is the test what reasonable diligence would or might have revealed: in either case, that would be inappropriately to introduce impermissible concepts of constructive notice or a duty (actionable or otherwise) to make inquiries or investigations…”

These observations were made in the context of the construction of contractual terms, rather than the implication of terms, and, as discussed above, the two exercises are not the same. Nonetheless, I shall bear this in mind when considering the implication of a condition precedent in the present case.

The parties to the Deed are Hayes Freehold (defined as “Superior Landlord”); Deutsche Bank (defined as “Landlord”); Sentrum Hayes (defined as “Tenant”) and Holdings (defined as “Tenant’s Guarantor”).

The recitals to the Deed provide that:

“(A)

This deed is supplemental to the Superior Lease and the Lease.

(B)

The Superior Landlord is entitled to the immediate reversion to the Superior Lease.

(C)

The Landlord is entitled to the immediate reversion to the Lease.

(D)

The residue of the term granted by the Superior Lease is vested in the Landlord.

(E)

The residue of the term granted by the Lease is vested in the Tenant.

(F)

The Tenant’s Guarantor guarantees the tenant covenants and other obligations of the Lease.

(G)

The parties have agreed that the Superior Lease and the Lease are to be surrendered in accordance with the terms of this deed.”

Clause 1 contains certain definitions of terms used in the Deed. The lease between Digiplex/Hayes Freehold and Deutsche Bank, which I have called the Headlease, is defined as the “Superior Lease”. The lease between Deutsche Bank and Sentrum Hayes, which I have called the Underlease, is defined as “the Lease”. “Superior Lease Demise” and “Lease Demise” both mean the Property as described in and demised by those leases.

Clause 2 is headed “Surrender of the Superior Lease” and provides that:

“In consideration of the releases by the Superior Landlord pursuant to clause 5 the Landlord surrenders and yields up to the Superior Landlord, with full title guarantee, all its estate, interest and rights in the Superior Lease and the Superior Lease Demise and the Superior Landlord accepts the surrender. The residue of the term of years granted by the Superior Lease shall merge and be extinguished in the reversion immediately expectant on the termination of the Superior Lease.”

Clause 3 is headed “Surrender of the Lease” and provides that:

“In consideration of the releases by the Landlord pursuant to clause 6 the Tenant surrenders and yields up to the Landlord, with full title guarantee, all its estate, interest and rights in the Lease and the Lease Demise and the Landlord accepts the surrender. The residue of the term of years granted by the Lease shall merge and be extinguished in the reversion immediately expectant on the termination of the Lease.”

Clause 4 is headed “Release of the Superior Landlord” and provides that:

“The Landlord hereby unconditionally and irrevocably releases the Superior Landlord and its predecessors in title (if any) from all the landlord covenants of the Superior Lease and from all liability for any subsisting breach of any of them.”

Clause 5 is headed “Release of the Landlord” and provides that:

“The Superior Landlord and the Tenant hereby unconditionally and irrevocably release the Landlord and its predecessors in title (if any) from all the landlord covenants of the Superior Lease and the Lease (respectively) and from all liability for any subsisting breach of any of them.”

Clause 6 is headed “Release of the Tenant and the Tenant’s Guarantor” and provides that:

“The Landlord hereby unconditionally and irrevocably releases the Tenant and the Tenant’s Guarantor and their respective predecessors in title (if any) from all the tenant covenants, indemnities and other obligations of the Lease and from all liability for any subsisting breach of any of them.”

Clauses 7 and 8 are not relevant for present purposes. The final sentence of the Deed states that:

“This document has been executed as a deed and is delivered and takes effect on the date stated at the beginning of it.”

There is no doubt about the correct interpretation of clause 6, which is unambiguous. The clause plainly means that Holdings was released unconditionally and irrevocably from its obligations under the guarantee. The effect of the final sentence is that this release took effect immediately on all parties’ execution of the Deed. I did not understand Deutsche Bank to contend that clause 6, as an express term, was capable of bearing any other meaning, which is why it puts its case on the basis of implied condition precedent.

Deutsche Bank contends that:

Attractive as these submissions appear at first sight, I do not accept them. I remind myself that it is tempting, but wrong, for the court to fashion a term to reflect the merits of situations with the benefit of hindsight. I begin by applying the principles set out in the M&S case that until it has been decided what the parties have expressly agreed, it is not possible to decide whether a term should be implied and if so what term.

In the present case, the parties have agreed that Holdings should be unconditionally released from the guarantee. The language is unambiguous, and it seems to me that I must apply it. Having decided on the correct interpretation of clause 6, in my judgment, the implication of an implied condition precedent would contradict an express term of the contract. Given that the parties have agreed that the operation of clause 6 is unconditional, the implication of a condition precedent would require the clause to be rewritten so that the release of the guarantee became conditional on the effective surrender of the Headlease. That is not consistent with the express term agreed by the parties.

In this respect, it is instructive to consider how the condition precedent would read, if it was an express term. Paragraph 21 of Deutsche Bank’s defence states that:

“It was an implied condition precedent to the Deed that Hayes had the power to accept a surrender of the Superior Lease (as well as that Sentrum had the power to surrender the Sub-Lease).”

Mr Gaunt QC submitted that this would take effect as a proviso to clause 6. In my judgment, that illustrates the difficulty of implying such a condition in the present case. It would amount to a re-draft of clause 6, which would become subject to a condition before it could take effect. In my judgment it would be wrong in law to circumscribe clause 6 by an implied qualification, given its express language; see Irish Bank Resolution Corporation v Camden Market Holdings [2017] EWCA Civ 7 per Beatson LJ at [41] – [42].

I do not consider that it is an answer to this problem to say that clause 6 never took effect because the proposed implied term is a condition precedent to its operation. This is merely an attempt to justify the transformation of an unconditional release into a conditional release. In addition, since clause 6 took effect on execution of the Deed on an unconditional basis, I do not consider that it is compatible with the structure of the Deed to imply a condition precedent to its coming into effect.

I do not consider that implication of this condition precedent is necessary to give the Deed business efficacy or commercial coherence, nor that its implication is so obvious that it would go without saying that the parties did not intend the Deed to take effect if Hayes Freehold did not have the power to accept the surrender of the Headlease. I approach the question from the perspective of the notional reasonable person in the position of the parties at the time that they contracted and with the knowledge of the parties. I have not accepted Deutsche Bank’s factual case and I have referred to the collective knowledge of Deutsche Bank, including the knowledge of Ms Perry, as to the existence and effect of the Headlease Charge. I have not accepted Deutsche Bank’s contention that Holdings knew that Deutsche Bank was unaware of the absence of consent by the Co-Op. The problem in the present case was not an absence of knowledge, but rather the fact that relevant individuals within Deutsche Bank were relying upon the advice of their solicitor that there was no legal impediment to the surrender of the Headlease, which advice was negligent.

In those circumstances, where the parties knew that Deutsche Bank, as a sophisticated organisation, was represented by commercial solicitors, the implication of the condition sought by Deutsche Bank is neither so obvious that it would have gone without saying, nor required to give the transaction commercial coherence. A reasonable person might well conclude that it was for Deutsche Bank, as the party seeking to obtain the benefit of the surrender of the Headlease to ensure that it was open to Hayes Freehold to accept such surrender. That is why it had instructed solicitors.

As to the surrender of the Underlease, Mr Valentin QC submits that there is a material difference, so far as the impact of the Co-Op Charges is concerned, between the position of the Headlease and that of the Underlease. Hayes Freehold did not have the power to accept a surrender of the Headlease as it had given up the right to do so when it charged its interest in the Headlease to the Co-Op. However, there was no similar impediment to Deutsche Bank accepting a surrender of the Underlease from Sentrum Hayes, because Deutsche Bank’s interest was not charged to anyone. Mr Valentin QC contends that the position is analogous with cases concerned with covenants not to assign, where the courts have held that an assignment in breach of covenant is nonetheless treated as valid as between the assignor and the assignee; Old Rosebery Manor Farm Ltd v Seymour Plant Sales and Hire Ltd [1979] 1 WLR 1397. Accordingly, the Co-Op would be left with its other remedies against Sentrum Hayes for breach of the covenants contained in the Sentrum Hayes Debenture, but that has no impact on the validity of the surrender of the Underlease to Deutsche Bank.

Mr Gaunt QC did not dispute this analysis. In my judgment it follows that the surrender of the Headlease and Underlease are not dependent on each other, since the latter can take effect in circumstances where the former cannot.

Turning to Deutsche Bank’s remaining submissions, I have considered the decision of Steyn J in the Associated Japanese Bank case. In my view, the agreement the subject of that judgment, and its factual background, are clearly distinguishable from the present case. The Associated Japanese Bank case concerned a guarantee agreement which purported to lease four textile compression packaging machines, which, in fact, did not exist. The learned judge decided that as a matter of construction, it was an express condition precedent of the agreement that the lease related to existing machines. The guarantee was expressed as being given “in consideration of your leasing four textile compression packaging machines.” No such consideration is referred to in the release in clause 6 of the Deed in the present case (c.f. clauses 2 and 3).

Furthermore, in Associated Japanese Bank,clause 6 of the guarantee provided that rights under the guarantee would not be affected or prejudiced by variation of the terms of the leasing contract by the substitution of any other goods comprised in such contract, subject to the guarantor’s consent.

Steyn J concluded in those circumstances that the guarantee was subject to an express condition precedent that there was a lease in respect of the four existing machines. I am not concerned with a contract containing equivalent terms, and it is not alleged that there is an express condition precedent in the present case.

The judge then held that if his conclusion about the construction of the guarantee was wrong, then there was an implied condition precedent that the lease related to four existing machines. He did so on the basis that he was satisfied that reasonable men, faced with the suggested term which was ex hypothesi not expressed in the agreement, would without hesitation say: yes, of course, that is so obvious that it goes without saying. He reached his conclusion against the contextual background that both parties were informed that the machines existed, and of the express terms of the guarantee. That contextual background is very different to the case with which I am faced. I note that the guarantee was expressed to be unconditional, but Steyn J did not feel it necessary to consider this when reaching his conclusion as to the implied condition precedent because of the contextual background to which he had referred.

Finally, I have considered HHJ Hodge’s judgment which rejected Holdings’ application for summary judgment. In my view, Judge Hodge was quite right to do so. As this trial has shown, the factual background in this case is hotly disputed, and, for the purposes of the summary judgment application, the judge rightly assumed that Deutsche Bank’s pleaded case as to knowledge (or lack of it) was correct. I have not accepted this case. The judge concluded that Deutsche Bank’s case was arguable, and I agree with him. He was right to allow the case to proceed to trial, but that does not mean that Deutsche Bank’s arguments are correct.

For these reasons, I reject Deutsche Bank’s contention that the Court should imply a condition precedent into the Deed.

Implied fraudulent misrepresentation

Deutsche Bank puts its case in respect of this cause of action in the following ways.

It contends that Hayes Freehold and Sentrum Hayes knew that the Co-Op’s consent was required for the surrender of the Headlease and knew that it had not been obtained. It submits that (i) by putting forward a draft Deed under cover of an email dated 8 April 2015 offering to accept a surrender of the Headlease in return for surrender of the Underlease, thereby releasing the guarantee; (ii) by continuing with the transaction up to completion on 6 August 2015 without mentioning the need to obtain the Co-Op’s consent in circumstances where it was clear (from an email to Mrs Walsh from Mr Mitchell dated 6 May 2015) that Deutsche Bank was only prepared to agree to the proposed surrenders if it was left with no residual liabilities; and (iii) by their willingness to execute the Deed; Hayes Freehold and Sentrum Hayes impliedly represented that Hayes Freehold had the necessary power. Since Hayes Freehold and Sentrum Hayes knew that this was not the case, the representation was false and fraudulent.

Deutsche Bank submits that since the representation was fraudulent, it is entitled to rescind the release of Holdings irrespective of the state of mind of Holdings, since the release of Holdings was parasitic on the surrender of the Headlease, and it was therefore a benefit obtained by the fraud of another; see, for example Andrews and Millett on the Law of Guarantees at [9-013].

If that is not accepted, Deutsche Bank contends that its right to set aside the Deed is an equity which binds and is enforceable against Holdings if Holdings had actual or constructive knowledge of the misrepresentation; Barclays Bank v O’Brien [1994] 1 AC 180, at 191, per Lord Browne-Wilkinson.

Alternatively, Deutsche Bank claims that Holdings was party to the fraudulent misrepresentation of Hayes Freehold and Sentrum Hayes since it knew that the Co-Op’s consent was necessary for the surrender of the Headlease, and it knew that it had not been obtained. It either had actual knowledge, or was to be treated as having known of this, on the basis that it wilfully shut its eyes to the obvious or wilfully and recklessly failed to make the enquiry of Mr McNally as an honest and reasonable person would have done; Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France [1983] BCLC 325 at 407 per Peter Gibson J.

Deutsche Bank contends that it does not matter that it relied on the advice of Mr Miscampbell that the Deed would be effective to surrender the Headlease. It contends that the test for misrepresentation is not reliance but inducement. Nor does the representation have to be the sole inducement, but rather “an inducing cause”, which led the representee to act as it did; BP Exploration Operating Co Ltd v Chevron Shipping Co [2003] 1 AC 197; [2001] UKHL 50 at [105], per Lord Millett. In the case of fraud, it is enough to show that the representee was materially influenced by the representation.

Finally, Deutsche Bank also contends that, had it not been led to believe that Hayes Freehold had the power to accept the surrender of the Headlease, it would not have instructed Mr Miscampbell. If, instead of pressing to execute the Deed, Holdings and White & Case had disclosed the impediment to Hayes Freehold’s ability to accept the surrender, Deutsche Bank would not have executed the Deed.

The conditions for a claim of implied fraudulent misrepresentation were set out by Christopher Clarke J (as he then was) in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2011] 1 Lloyd’s Rep 123 at [81] – [87]:

The first alleged misrepresentation is at [3.14] – [3.15] of the Re-Amended Particulars of Claim. This is said to have been made in an email from Mrs Walsh to Mr Mitchell dated 8 April 2015 and in the draft Deed that was supplied in the attachment to that email. Deutsche Bank relies on the fact that Mrs Walsh said:

“We have now received approval that the Hayes Freehold [sic] agree to the surrender option which is good news. In order to move this along quickly we have drafted a deed of surrender which has been approved by Simon McNally. I now attach for your review and approval and following that we can get all parties to execute.”

Deutsche Bank contends that the approval by Hayes Freehold and Sentrum Hayes to the proposed transaction contained in the draft Deed constituted a representation to Deutsche Bank that Hayes Freehold had the power to accept the surrender of the Headlease (and Sentrum Hayes had the power to accept or enter into the surrender of the Underlease) for which the draft Deed provided, or alternatively that Hayes Freehold and Sentrum Hayes knew of no reason why the consent of the Co-Op to the surrender of the Headlease and the Underlease would not be forthcoming. It is said that this representation was false.

In my judgment neither the email of 8 April, nor the accompanying draft Deed, constituted a statement of fact upon which Deutsche Bank was intended and entitled to rely. In her email of 8 April Mrs Walsh also said: “Please advise if you would like us to issue this to your legal counsel as we would be happy to have legal talk directly if this works for you.” That sentence made it clear that the draft Deed was put forward on the basis that it would be reviewed and checked by Deutsche Bank’s lawyers prior to approval. The email does not represent, or imply, that the Co-Op’s consent had been obtained. Rather, it enclosed a draft Deed for Deutsche Bank and its lawyers to consider, which they did.

By an email in reply dated 9 April 2015, having obtained Ms Perry’s approval to instruct a lawyer, Mr Mitchell informed Mrs Walsh that he would “get an external lawyer appointed to deal with it [the draft Deed] and revert to you once that is established”. A reasonable person reading this email chain would have concluded that Deutsche Bank was undertaking the necessary checks to satisfy itself that the transaction would give effect to its requirements.

Turning to the draft Deed and having regard to the factual background, this does not make any express or implied representation that Hayes Freehold or Sentrum Hayes had the power to accept the surrender of the Headlease, nor that the consent of the Co-Op had been obtained. It was silent on these issues and they were matters for Deutsche Bank and its lawyers to check.

As to inducement and reliance, I do not accept that relevant individuals within Deutsche Bank understood the email or the draft Deed to be making the implied representation which is now alleged, nor do I accept that they were induced by, or relied upon, any such implied representation when entering into the Deed in August 2015. The evidence, which I have considered above, establishes that Deutsche Bank’s decision to execute the Deed was based upon the reliance that they placed on Blake Morgan’s advice. Ms Perry, whom I have identified as the relevant decision-maker within Deutsche Bank, did not recall ever having seen or read the draft Deed. Deutsche Bank decided to execute the Deed because of its own concerns as to non-payment of rent due under the Underlease and it relied on its own lawyer’s advice that the Deed would be effective to achieve its aims.

The second alleged misrepresentation is pleaded at [3.16] of the Re-Amended Particulars of Claim. It is alleged that by 6 August 2015 Mr McNally, Hayes Freehold and Sentrum Hayes all knew that Hayes Freehold and Sentrum Hayes had not obtained the Co-Op’s consent to the transaction contained in the Deed, and knew that this consent was necessary in order for Hayes Freehold to accept the surrender which the Deed purported to effect. It is further alleged that “the participation by Mr McNally on the conference call constituted a further representation by Hayes and Sentrum to DBA that Hayes had the power to accept the surrender of the Superior lease for which the deed provided. The representation was false and fraudulent.”

In fact, Mr McNally did not participate in the conference call on 6 August 2015. He confirmed in an email of that date that there was no need for him to do so as Hazel Dawson, of Adelphi, had full authority to complete the documents. It appears from that email that the participants in the conference call were Mr Dodsworth and Mr Johnson (from White & Case), Hazel Dawson (from Adelphi), Andrea Corr (from Blake Morgan) and Carl Jackson (as joint liquidator of Glen Moar).

White & Case participated in the conference call and supplied the draft of the Deed which was being discussed. Participation in the conference call could only therefore constitute an implied misrepresentation if White & Case were parties to the alleged fraud. In other words, if there had been an agreement or understanding between White & Case and their clients, Hayes Freehold and Sentrum Hayes, deliberately and fraudulently, to deceive Deutsche Bank. I have rejected this contention. The conference call of 6 August 2015, and the events leading up to it, establish that Deutsche Bank was keen to complete the deal, and relied entirely upon Blake Morgan’s advice that the Deed would be effective to do this.

I should add that Deutsche Bank relied at trial upon an email dated 6 May 2015 from Mr Mitchell to Mrs Walsh, although this was not referred to in the pleadings. In that email, Mr Mitchell confirmed that he had local level instructions to proceed with a surrender of the Headlease and Underlease subject to, amongst other things, “the Bank being left with no residual liabilities.” In the same email he stated that, “In the meantime and in anticipation of agreement to proceed from all parties, Andrew Miscampbell of Blake Morgan… has been appointed to act on behalf the Bank and he will revert to White & Case on the draft surrender document(s).”

In my judgment, that email does not advance Deutsche Bank’s case. By an email dated 21 May 2015 Mr Johnson reported to Mr McNally and Mrs Walsh that there was an agreed formal surrender with Deutsche Bank relating to the Property. In the draft of the Deed which he attached, Deutsche Bank had made no amendment to clause 6. This would suggest to the reasonable person that Deutsche Bank had made its own investigations, with the benefit of Mr McNally’s advice, and had established that all outstanding preconditions to execution of the Deed were satisfied.

In the light of my findings, which I have set out above, I do not accept this case. I do not accept that there was an implied fraudulent misrepresentation by Hayes Freehold or Sentrum Hayes, nor that Deutsche Bank was induced by, or relied upon, any such misrepresentation. Furthermore, this aspect of Deutsche Bank’s case involves allegations of fraud and dishonesty on behalf of Mrs Walsh of Holdings and Mr Dodsworth and Mr Johnson of White & Case, all of which I have rejected. I have accepted the evidence of Mrs Walsh and Mr Johnson, who denied all allegations made against them, and I have concluded that no adverse inference should be drawn from the fact that Mr Dodsworth did not give evidence. Therefore, I reject the case that Holdings had actual or constructive knowledge of deceit on the part of Mr McNally or that Holdings was a party to alleged fraudulent misrepresentation.

Is Deutsche Bank entitled to rescind the Deed for unilateral mistake under the rule in Pitt v Holt?

Deutsche Bank submits that it is entitled to rescind the Deed under this rule because:

The rule in Pitt v Holt applies to transactions where the defendant has not given consideration for what it has received from the claimant. The law does not bestow the same sanctity on voluntary transactions as it does on contracts and therefore it is possible to rescind a gift on the basis of unilateral mistake in circumstances where it would not be possible to rescind a contract; per Lord Walker in Pitt v Holt at [114].

The principles applicable to rescission of a non-contractual voluntary disposition for mistake, as explained in detail by Lord Walker in Pitt v Holt, were summarised by Sir Terence Etherton C (as he then was) in Kennedy v Kennedy [2014] EWHC 4129 at [36]:

“(1)

There must be a distinct mistake as distinguished from mere ignorance or inadvertence or what unjust enrichment scholars call a “misprediction” relating to some possible future event. On the other hand, forgetfulness, inadvertence or ignorance can lead to a false belief or assumption which the court will recognise as a legally relevant mistake. Accordingly, although mere ignorance, even if causative, is insufficient to found the cause of action, the court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference.

(2)

A mistake may still be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition, unless the circumstances are such as to show that he or she deliberately ran the risk, or must be taken to have run the risk, of being wrong.

(3)

The causative mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property. That test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction or as to some matter of fact or law which is basic to the transaction. The gravity of the mistake must be assessed by a close examination of the facts, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition.

(4)

The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively but with an intense focus on the facts of the particular case. The court must consider in the round the existence of a distinct mistake, its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected.”

The third and fourth principles set out in Kennedy merit further consideration. It is necessary, but not sufficient, to show that a mistake is causative: the mistake must be a causative mistake of sufficient gravity to make it unfair or unconscionable to leave it uncorrected. Since the Court is required to consider fairness, all relevant facts must be taken into account. These considerations are explained in Goff & Jones The Law of Unjust Enrichment (9^th Edition) at [9.142] where the authors considered “the incorporation of an additional criterion of “injustice” or “unconscionability” into the test to determine whether the claimant’s “mistake” requires correction”:

“The court, Lord Walker said, was required to undertake an “objective evaluation” of whether it would be “unjust” or “unfair” or “unconscionable” to leave the mistaken transaction uncorrected, “with an intense focus…on the facts of the particular case”. What was “unconscionable” “could not be decided by an elaborate set of rules”. Instead, the court:

“… must consider in the round the existence of a distinct mistake (as compared with total ignorance or disappointed expectations), its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected. The court may and must form a judgment about the justice of the case.”

On its face, this implies a substantially more flexible approach to the identification of circumstances justifying relief – and a stronger, necessary element of court discretion/judgment – than is true of the process of establishing a cause of action in unjust enrichment. Such flexibility is comprehensible only if – as Lord Walker must have assumed – the equitable jurisdiction to set aside voluntary transactions involves a truly or strongly “court-ordered” model of rescission.”

The first question is whether it is correct to characterise the Deed as a voluntary disposition. It is true that its effect was that Deutsche Bank released Holdings from the guarantee and agreed to surrender the Underlease in circumstances where it was not released from the Headlease. However, I do not accept that it follows that the Deed was a voluntary disposition by Deutsche Bank. As discussed above, the surrender of the Underlease was effective. Deutsche Bank accepted surrender of the Underlease, and in return, obtained release from its covenants as landlord under the Underlease. I do not consider that this amounts to a gift, or a voluntary disposition.

I am conscious, however, that I raised this point during closing speeches and that Holdings adopted it. It was open to Holdings to do so, as it had not admitted that the Deed was a voluntary disposition, but until then, no positive case along those lines had been put forward. I shall therefore go on to consider other conditions of the application of the rule, in case I am wrong, and the Deed is a voluntary disposition.

In considering whether it is unjust or unconscionable to leave the mistake uncorrected, I need to have regard to all relevant facts. I accept Deutsche Bank’s submission that a mistake may still be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition, unless the circumstances show that such person deliberately ran the risk, or must be taken to have run the risk, of being wrong.

In the present case, I have concluded that the decision to execute the Deed was taken by Ms Perry, who was the authorised decision-maker. She knew the relevant facts, but did not communicate them to Mr Mitchell or to EREC. She did not consider that it was her job to do so, since Deutsche Bank had instructed Blake Morgan to ensure that the Deed was effective to achieve its aims. So she did not turn her mind to the question. Furthermore, Deutsche Bank had repeatedly been told about the Headlease Charge, and documents showing the Headlease Charge were readily accessible from its own files.

I have not concluded that the conduct of Deutsche Bank, or any individual within it, was careless. Although conduct, when minutely analysed in Court, may appear unreasonable, in the present case the evidence shows that all of the individuals were solely concerned with getting on with their own jobs. Reliance on a solicitor specifically instructed to ensure that the Deed would be effective to achieve the aims of Deutsche Bank was reasonable. However, it seems to me that in the circumstances, Deutsche Bank must be taken to have run the risk of the surrender of the Headlease being ineffective, including as a result of a charge having been registered against the freehold. Mr Gaunt submits that, as far as Deutsche Bank was concerned, the transaction was risk free, and there was no question of accepting any risk. I disagree. The reason for instructing Mr Miscampbell was to guard against the risk that the surrender of the Deed might be ineffective to achieve the aims of Deutsche Bank. This risk materialised and its remedy should be against the party with responsibility to address this risk, namely Blake Morgan. That, in my judgment, is the just result, having regard to my factual findings.

Furthermore, the mistake must be a causative mistake of sufficient gravity to make it unfair or unconscionable to leave it uncorrected. The cause of Deutsche Bank’s decision was not the mistake identified in these proceedings, but rather the reliance that it placed on the advice received from Blake Morgan. Therefore, in my judgment, it cannot show that the mistake that it made was causative of its decision to execute the Deed.

I accept Deutsche Bank’s submission that the consequences of its mistake are serious. However, Deutsche Bank did not dispute that it will have a remedy against Blake Morgan in circumstances where, as I have concluded, the cause of Deutsche Bank’s loss was its reliance on the negligent advice of Mr Miscampbell. Therefore, the seriousness of the consequences of the mistake to Deutsche Bank is mitigated by the availability of an alternative remedy.

I also need to consider the consequences for Holdings if the Deed were to be rescinded. Holdings would have no realistic prospect of securing the escrow monies which were released upon execution of the Deed, and therefore its position would have been prejudiced by Deutsche Bank’s mistake.

Having regard to all relevant circumstances, I have concluded that I should not exercise my discretion to rescind the Deed for unilateral mistake, as I do not consider that it would be just to do so.

Mutual mistake

Deutsche Bank contends, in light of the following passage of cross-examination of Mrs Walsh in relation to the conduct of Mr McNally, that i) Deutsche Bank and Holdings mutually shared the mistaken belief that Hayes Freehold had the power to accept the surrender provided for in the Deed, ii) the subject-matter of the mistake was absolutely central to the transaction formalised by the Deed, and iii) there was no allocation to Deutsche Bank of the risk that Hayes Freehold lacked the necessary power to surrender the Headlease.

“A: It was important that he was able to do the surrender and I took his word that he did.

Q: That he? That he did what?

A: Well, when he approved the surrender and then signed it, I took it that he was able to do that…

Q: So you thought at that stage, did you, that he had got the Co-Op’s consent?

A: Yes

Q: Did he ever tell you that?

A: No”

The relevant principles may be summarised as follows:

The first question is whether the parties each had a positive belief that Hayes Freehold had the power to accept the surrender of the Headlease. In my judgment, the evidence does not establish this. For Deutsche Bank, Ms Perry as the key decision maker did not turn her mind to the question, as she had instructed Blake Morgan to deal with the matter, and did not therefore hold such a positive belief. For Holdings, I have considered Mrs Walsh’s evidence, cited above, that she thought that Mr McNally had obtained the Co-Op’s consent to the surrender of the Headlease. However, the totality of her evidence, which I accept, suggests that she did not think about the issue at all and did not have such a positive belief either.

Secondly, in my judgment, the correct construction of the Deed is that it allocated the risk that the surrender of the Headlease might be ineffective to Deutsche Bank. This is because it provided for an unconditional and irrevocable release of the guarantee which would take effect on execution of the Deed and did not provide (either expressly or impliedly) that it was a condition precedent to such release of the guarantee that the Headlease should be surrendered.

Thirdly, I do not accept that contractual performance was rendered impossible by any mistake made in respect of the surrender of the Headlease. On the contrary, I have concluded that the surrender of the Underlease and the release of the guarantee were not dependent on the surrender of the Headlease. Looking at the matter from the perspective of Holdings, there is no reason to believe, and no evidence, that it regarded any mistake with respect to the capacity of Hayes Freehold to accept a surrender of the Headlease as fundamental to the release of the guarantee or the Underlease. Therefore, I do not accept that all parties would have considered the mistake as fundamental, and the defence of common mistake cannot apply.

Is Deutsche Bank entitled to rescind the Deed (or to other equivalent relief) on the ground that Holdings has been unjustly enriched?

Deutsche Bank characterises its unjust enrichment claim, with justification, as “a close cousin of the claim underPitt v Holt”: Deutsche Bank’s closing submissions at [153]. Relying upon the judgment of Lord Steyn in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 at 227A-B, it submits that all the elements of unjust enrichment are satisfied, since Holdings has been enriched; the enrichment was at Deutsche Bank’s expense; the enrichment was unjust; and there are no special defences.

Focusing on the question of whether the enrichment was unjust, Deutsche Bank submits that this enquiry does not involve analysis of the relative degree of fault on behalf of the claimant and the defendant; Dextra v Jamaica [2001] UKPC 50 at [45]. It submits that, on the premise that no consideration was given by Holdings for the release to Deutsche Bank, Holdings would have obtained a windfall, since it would have escaped from the guarantee without having to procure the Co-Op’s consent to the surrender of the Headlease, and without having to pay the Co-Op a substantial sum of money to achieve this. Furthermore, it contends that Deutsche Bank had a unilateral defeated expectation that Hayes Freehold had capacity to surrender the Headlease which, in the absence of consideration, means that it is entitled to a remedy in unjust enrichment.

In my judgment, it is not unjust to release the guarantee in circumstances where the parties have expressly agreed to do this. When considering the construction of the Deed, I have held that clause 6 expressly provides for the unconditional release of the guarantee upon execution of the Deed, and that the release of the guarantee was not expressed to be in consideration of the surrender of the Headlease. I have rejected Deutsche Bank’s case of implied condition precedent. I have also rejected Deutsche Bank’s characterisation of the Deed as a voluntary transaction. The doctrine of unjust enrichment cannot be used to relieve a party of the consequences of the bargain that it made. Lord Sumption said in Swynson Ltd v Lowick Rose LLP [2017] 2 WLR 1161 at [34] that:

“Unless the claimant has been defeated in his expectation of some feature of the transaction for which he may be said to have bargained, he does not suffer an injustice recognised by law simply because in law he has no right. Failure to recognise these limitations would transform the law of equitable subrogation into a general escape route from any principle of law which the claimant overlooked or misunderstood when he arranged his affairs as he did.”

Furthermore, for the same reasons that I concluded that it was not unjust or unconscionable to leave the mistake uncorrected and rejected Deutsche Bank’s case under the rule in Pitt v Holt, I do not consider that this is a case of unjust enrichment.

As to special defences, Holdings submits that it changed its position in good faith as a result of the release of the guarantee when it caused or permitted the escrow agent to release the remaining escrow monies to Glen Moar. Whilst there is force in this point, I accept Deutsche Bank’s submission that this defence could only operate partially, because the release of the guarantee was worth more than the funds in the escrow account. Therefore, had I considered that unjust enrichment was established, I would have rescinded the release of the guarantee on terms that Deutsche Bank should give Holdings credit for the amount of the escrow monies.

The claim against Sentrum Hayes

After this judgment was released in draft, Mr Mark Sefton, junior counsel for Deutsche Bank, pointed out that I had not expressly determined the claim against Sentrum Hayes for rescission of the Deed on the basis of implied fraudulent misrepresentation by Sentrum Hayes and Hayes Freehold. As Sentrum Hayes did not attend the trial, this received little attention in argument and I am grateful to Mr Sefton for drawing this to my attention. I believe that the findings that I have reached in this judgment provide an answer to this question. At [67] I have rejected the central allegation on which the claim for implied fraudulent misrepresentation was based in respect of all individuals against whom it was made. At [128] I have rejected the contention that there was an implied fraudulent misrepresentation by Hayes Freehold or Sentrum Hayes, and also the contention that Deutsche Bank was induced by, or relied upon, any such misrepresentation to execute the Deed. Further, I have concluded at [133] that the surrender of the Underlease was effective. Therefore, this claim must fail.

Estoppel

Had I found in favour of Deutsche Bank on any of its alternative claims, Holdings contends, as a defence, that Deutsche Bank would have been estopped, by representation, from claiming in these proceedings that clause 6 of the Deed had not taken effect. Its case is that by first proposing a surrender of the Headlease, and then agreeing to the unconditional and irrevocable release in clause 6, Deutsche Bank was impliedly representing to Holdings that it agreed that the release of the guarantee should be unconditional and irrevocable from the moment of execution of the Deed. Had that not been the position, Holdings contends that it would have taken steps to verify and address the issue and would not have permitted the escrow monies to be released. Holdings submits that it was entitled to rely on the fact that Deutsche Bank had agreed to the proposed wording of clause 6.

I do not accept that the necessary elements of estoppel would have been established. If I had concluded that Deutsche Bank was correct that, on its true construction, the Deed contained the alleged implied condition precedent, then the estoppel defence could not have arisen. In those circumstances there could have been no representation to the contrary by Deutsche Bank upon which Holdings would have been entitled to rely. Indeed, I cannot see how Deutsche Bank could have been estopped from asserting any of the claims which it advanced in these proceedings. If, for example, I had found that Holdings was party to an implied fraudulent misrepresentation, it would plainly not have had a defence of estoppel.

Finally, I do not consider that the necessary condition of reliance would have been established by Holdings, since Mrs Walsh accepted during cross-examination that she did not rely upon Deutsche Bank to tell her whether Mr McNally had secured the Co-Op’s consent.

Conclusion

I have reached the conclusion that:

For these reasons, I shall dismiss Deutsche Bank’s claims against Holdings and Sentrum Hayes.