Maple Leaf Macro Volatility Master Fund & Anor v Rouvroy & Anor

In July 2007 there were exchanges between the claimants and the defendants in which the claimants contend and the defendants deny a contract was concluded between them. The first claimant (“Maple Leaf”) also alleges that the defendants fraudulently misrepresented their intentions and claims damages in deceit. (The second claimant (“Astin”) abandoned its claim in deceit in the course of the trial.) The defendants bring a counterclaim against Astin for any sum for which they are liable under the contract if (contrary to their case) they are party to one. In this judgment I shall refer to the contract that the claimants allege as the “Funding Agreement”.

Maple Leaf is a Cayman incorporated hedge fund, managed in London by Maple Leaf Capital LLP, a Financial Services Authority (“FSA”) registered investment manager. The portfolio manager is Mr. George Castrounis. Astin is an investment manager that specialises in arranging capital market transactions. It is authorised by the FSA and also, under the “passport” system, by the French regulatory authority, the Authorité des Marché Financier. Its chief executive officer is Mr. Charles Bray and its managing director is Mr. David Ummels.

The defendants, Mr. Jacques Rouvroy and Mr. Krzysztof Trylinski, are the chief executive and deputy chief executive of Belvédère SA (“Belvédère”), a French company of which they are also the majority shareholders. Belvédère is the head of a group of companies whose main activity is the production and distribution of vodka and other drinks. It operates internationally and has a turnover in excess of €500 million per year. Mr. Rouvroy is largely concerned with the financial management of Belvédère and Mr. Trylinski, an engineer, concentrates upon operational matters. Both are French residents, although Mr. Trylinski originally came from Poland.

The claimants contend that by the Funding Agreement made in July 2007 Maple Leaf agreed to provide funding of some €30 million to the defendants to assist them to complete the funding of a private placement of the securities in Belvédère held by the group of CL Financial Limited (“CLF”), CLF being the head of a group, including Angostura Holdings Limited, that carries on an investment business based in Trinidad and Tobago. CLF was then the majority shareholder of Belvédère. Astin was to be paid a fee for arranging the funding. The claimants say that, subject to some consensual variations, the terms of the Funding Agreement are set out in a “termsheet” that was signed by the claimants and the defendants late in the evening on 25 July 2007. I shall have to examine in some detail the provisions of the termsheet (to which, for reasons that will become apparent, I shall refer as “Version 9”) and the circumstances in which it was signed. In broad terms the scheme was that the funding provided by Maple Leaf was to be used to finance the purchase from CLF of warrants in Belvédère; and the warrants were to be transferred to a company variously referred to as a special purpose vehicle (“SPV”) or a share acquisition vehicle (“SAV”) to be established by the defendants, and were to stand as security for repayment of the funding. In return, the defendants agreed (amongst other things) that they would place other securities in the SPV by way of further collateral for the funding; that on 1 August 2008 or, if earlier, one year from the funding date Maple Leaf would be repaid the amount of the funding, together with an uplift of 25%; that the SPV or the defendants would grant to Maple Leaf and Astin a call option over the warrants; and that “the Lenders” should have the right to “borrow” the securities held by the SPV during the term of the “transaction”. The scheme also contemplated that further funding was to be provided by a London based private equity investor called Lion Capital LLP (“Lion Capital”), who was to subscribe some €20 million for 120,000 shares, and Lion Capital too was to transfer the shares to the SPV and to have rights similar to those of Maple Leaf.

On 26 July 2007 Maple Leaf subscribed for warrants in Belvédère worth €29,999,946. The private placement was successful in that the defendants regained control of Belvédère, but they took no steps to establish a SPV. Maple Leaf has paid for the securities but has not been reimbursed for what it paid, or had the other benefits to which it says that it is entitled. It received and still holds the warrants but they have plummeted in value. The claimants say that therefore the defendants are in breach of the Funding Agreement and claim money due under it and damages. (They abandoned a claim for specific performance during the trial.)

Version 9 was headed with Astin’s name and address, and was introduced by a “Summary” that read as follows:

“Summary: The founding shareholders of Belvédère S.A. (specifically Jacques Rouvray (“JR”) and Krzysztof Trylinski (“KT”) together referred to as the “Management”) and the SAV principals are presently in a share holding dispute with the majority shareholder, CL Financial. The founders have negotiated the option to purchase the entire share warrant and bondholding of CL Financial for 345.0m euros. The founding shareholders wish to borrow funds to allow for a vehicle to purchase those securities not taken up or placed as part of the share placement.

The Lenders will participate in the offering arranged by H & Associés and contribute the purchased securities to a special purpose vehicle “SAV” in exchange for the loan as agreed and detailed below. SAV shall be established by the Belvédère’s management who personally undertake to use their best endeavours to complete any further documentation which is necessary to carry into effect the terms agreed below.”

After the Summary there was a heading in bold type that said, “Share Acquisition Vehicle with option to purchase Warrants. Outline Heads of Terms”. Under the heading Version 9 read as follows:

Underlying Security: Belvédère S.A.; ISIN FR0000060873; Bloomberg symbol: BVD FP.

Borrower: SAV (representing JR & KT, the Management).

JR & KT undertake to take all steps to establish SAV.

Until such time as the Borrower is established the Management agree that they shall act on behalf of the Borrower and that they undertake all of its obligations personally.

JR & KT shall be jointly and severally liable for any and all obligations of the Borrower in the event that the Borrower is unable to perform such obligation, including for the avoidance of doubt paying any sums of money due from the Borrower.

Seller(s): Angostura Holdings (“Angostura”), CL Financial and the related and affiliated companies of the CL Financial Group (“CL”).

Purchase Price: €50.070 million.

Purchased Securities &

Contributions: +330,000 warrants (ISIN: FR0010134247) expiring in November 2011 with an €85.0 exercise price @ €91.00 per warrant as purchased by Maple Leaf Macro Volatility Master Fund.

+120,000 ordinary shares of BVD as purchased @167.00 per share by Lion Capital’s Fund(s).

+ 4.0% of the Purchase Price for Astin Capital Management Ltd’s participation for the arrangement of the funds.

Loan Amount: €52.073 million – through the contribution of shares and warrants assets by the Lenders and acquired from the placing executed by Hottinguer including the contribution of Astin equal to 4.0% of the Purchase Price for arranging the transaction.

Lender(s): - Maple Leaf Macro Volatility Master Fund.

- Funds to be named managed by Lion Capital,

- Astin Capital Management Ltd.

Loan Maturity Date: 1 August 2008 or one year from the funding date whichever is earlier.

Loan Redemption Amount: €65.091 million.

Redemption Price: 125% of the Loan Amount.

Collateral: + 325,000 ordinary shares (unencumbered and non-pledged) in BVD provided by SAV principals JR & KT.

+ 380,000 warrants (unencumbered and non-pledged) in BVD (ISIN: FR0010304733) provided by SAV principals JR & KT.

+ all of the purchased Securities plus any rights, cash, distributions, and/or proceeds resulting from any corporate actions.

In the event of default the Lenders shall have equal security interests over the assets of the SAV with any proceeds realised.

Collateral Value: €58.44 million of ordinary shares (based on placing price valuation).

€19.0 million of warrants (bases on a value of €50.0 per warrant).

Plus, €50.07 million of the Purchased Securities.

LTV: ~40.87% initially.

Warrant Purchase Options: Maple Leaf Macro Volatility Master Fund and Astin Capital Management Ltd. shall have the option at any time over the term of the loan to purchase the 330.000 warrants (ISIN: FR0010134247 expiring in November 2011) held by the SAV vehicles [sic] for a consideration equal to €91.00 per warrant. The Lenders may cancel any portion of their outstanding loans at their Redemption Price in lieu of paying to the SAV the exercise price for the purchase of the warrants, i.e. €91.00 per warrant.

Default Event: The Lenders shall have recourse to all of the assets of SAV to be made whole with respect to the Loan Redemption Amount should the Borrower fail to repay the due amounts in full on the Maturity Date. For the avoidance of doubt, if SAV is unable to repay the Loan Redemption Amount, JR and KT shall be jointly and severally liable to repay the Loan Redemption Amount.

In the event of default Maple Leaf Macro Volatility Master Fund and Lion Capital funds shall have an equal ranking with respect to recovery and the assets of the SAV but with any proceeds distributed on a pro-rata basis according the then outstanding loan amounts of the Lenders.

Security Lending: The Lenders shall have the right to borrow on a pro-rata basis all of the securities held by the SAV over the term of the transaction.

Documentation: The parties agree to use their best endeavours to complete further documentation as to the loan, securities lending, and as required perfection of all security interests shall be completed by 1 August 2007 or such later date mutually agreed by all of the parties with full reimbursement of all legal and professional expense by the Borrower to the Lenders.

Assignment: The Lender(s) shall have the right to assign any portion of the Loan to qualified third parties at any time prior to completion or the maturity date of the transaction.

Governing Law: England & Wales.

Jurisdiction: The parties agree to the exclusive jurisdiction of the Courts of England and Wales.

Service of Proceedings: JR and KT agree that in addition to any method permitted by law, proceedings under this Agreement be validly served on them by hand-delivery to the registered address on Belvédère.

In the event Borrower(s) and/or Management (specifically JR and KT) do not complete all steps necessary to complete the transactions contemplated in the Agreement or the Borrowers and/or Management are unable for any reason to close the transaction in accordance with the full terms and conditions of this term sheet (including the delivery of securities) on or before August 1 2007, that terms of this Agreement shall automatically terminate (unless extended in writing at the Lenders’ sole and absolute discretion), and Lender(s) shall thereafter be entitled to immediate payment of 25% of the Purchase Price plus the payment of any loss resulting from the sale of the Purchased & Contributed Securities in the market plus any Fees and the reimbursement of any professional and legal expenses incurred. For the avoidance of doubt, if the Borrowers are unable to make such payment, JR and KT shall be jointly and severally liable in respect of such payment.”

There was not a side-title against this last paragraph. I shall refer to it as the “termination provision”.

At the bottom of each of the four pages of Version 9 there was a “footer” in small print under the heading “Confidential & Proprietary”. It read: “This termsheet is a financing transaction and contains proprietary and confidential information. The terms included are intended to create a binding obligation on the part of the Borrowers, the management (specifically JR and KT) and their affiliates. This termsheet shall serve as the legally binding document until such time as agreed amongst the parties is finalised”.

At the end of Version 9, under the words, “Please sign to acknowledge agreement and acceptance of the terms of this transaction. This … day of July 2007…”, there were spaces for the signatures on or behalf of the two claimants, two defendants and Lion Capital. There were also spaces for witnesses to the signatures.

The claimants say that a contract was concluded between the parties when they and the defendants (but not Lion Capital) signed Version 9 and sent signed copies between them, although the parties agreed later to certain (relatively minor) variations. They have an alternative argument that, if no contract was concluded when Version 9 was signed, the parties entered into a binding contract when agreement was reached upon the variations.

While there is no dispute that the claimants and the defendants all signed Version 9 on 25 July 2007, the defendants deny that they concluded any effective and enforceable contractual agreement with the claimants. They say:

Maple Leaf’s case in deceit is advanced on the basis that by entering into Version 9 the defendants represented that “it was their genuine intention to honour their obligations under the Agreement including the undertaking to complete any further documentation necessary to carry out into effect the terms of the Agreement”, and that this representation continued at least until Maple Leaf had subscribed in the private placement; that it relied upon it in entering the Funding Agreement and in making its subscription; but that in fact the defendants had no such intention.

The counterclaim against Astin is based upon section 150 of the Financial Services and Markets Act 2000 (the “2000 Act”), it being alleged that the defendants suffered loss as a result of Astin contravening Conduct of Business (or “COB”) rules made by the FSA in that it did not, or did not sufficiently, make clear to them that the Funding Agreement was legally binding and explain about the security lending provision in the Funding Agreement.

As well as raising defences to the substance of the claim and bringing their counterclaim, the defendants also dispute the court’s jurisdiction, and have applied for an order that the proceedings be stayed. I should explain why this jurisdiction question comes to be determined at the trial of the action. Although their pleaded defence included (in terms that I shall consider further below) a denial of the Court’s jurisdiction, the defendants did not apply that the court should decline jurisdiction or that the proceedings should be stayed until the hearing of a pre-trial review on 24 October 2008. They then applied that the action be stayed on the alternative grounds (i) that a preliminary investigation had been started by a Prosecutor attached to the French High Court into a criminal complaint made by the defendants about the dealings that give rise to these proceedings, and (ii) that the English court does not have jurisdiction to determine the claim.

On 24 October 2008 I rejected the application to stay these proceedings because of the criminal investigation. With the parties’ consent, I adjourned the question of jurisdiction for determination at this hearing, partly because the claimants had had too little notice of it before the pre-trial review to prepare their response and also because the court had inadequate time to hear full argument. The claimants contend that the court has jurisdiction (i) under article 24 of the Council Regulation No 44/2001 (the “Brussels Regulation”), (ii) because the Funding Agreement contained a jurisdiction agreement which covers their claims in these proceedings and (iii) in the case of Maple Leaf’s claim in deceit, because it has jurisdiction under article 5 of the Brussels Regulation.

In broad terms, therefore, the many issues between the parties are these:

Before setting out the facts, I should say something about the witnesses. The claimants called three witnesses of fact, Messrs Castrounis, Bray and Ummels, and an expert witness, Dr. Desmond Fitzgerald. The defendants both gave evidence, and they called two factual witnesses, Mr. Philippe Hottinguer and Mr. Luc Demarre, and relied upon some expert evidence of a Mr. Michel Léger.

Mr. Castrounis has been employed by Maple Leaf since 2002, having been involved in derivatives trading since 1995. He was alert and intelligent and fully understood the transaction under negotiation. I consider him to be an honest witness, and have generally, but not in every respect, found his evidence reliable.

Mr. Bray and Mr. Ummels established Astin in about 2002. By 2007 Mr. Bray had had something over ten years’ experience in derivatives trading. His evidence was credible and consistent with the documents, and I have largely accepted it. Although there is no allegation of impropriety pleaded against him or Astin, in view of what is said in witness statements I should state that I consider that he acted in good faith and properly throughout his dealings with the defendants.

Mr. Ummels had worked for various banks before 2002. I consider him to be an honest witness and in general a reliable one. However, I conclude that on one point his evidence is understandably but significantly inaccurate.

The claimants’ expert witness was Dr Desmond Fitzgerald. He is and has been for some 15 years the chairman and chief executive of a company that specialises in arbitrage, volatility trading and risk management strategies and chairman of a company that provides specialised financial training and risk management consultancy. His evidence was relevant to the quantification of the claimants’ damages claim. I do not doubt that Dr Fitzgerald was properly qualified to give evidence about those matters upon which he expressed an opinion, or that he was straightforward and seeking to assist the court with his evidence. However, I am unable to accept his opinion on one matter that is important to the assessment of damages.

Mr. Rouvroy made five witness statements in these proceedings. I need say nothing about his third statement, which was made on 4 July 2008 in support of an application to adjourn the trial of these proceedings, nor about his fifth statement dated 10 November 2008, which was directed to answering the claim for specific performance that the claimants do not pursue. As for his first and second statements, which were made in French and dealt with the substance of the claim, and his fourth statement, which was made in English on 17 October 2008 in support of the application for a stay inter alia on the grounds that the court does not have jurisdiction, Mr. Peter Castle, who represented the defendants, acknowledged that these three statements are “not wholly reliable accounts of events”. This is clearly so. Mr. Rouvroy explained that they were prepared by lawyers and that before signing them he read them only on his Blackberry. It was apparent that he had not read them carefully, and, as I conclude, they do not accurately reflect his account of the facts. The statements are not consistent either with the documents or with Mr. Rouvroy’s oral evidence.

Two examples of the criticisms to be made Mr. Rouvroy’s written evidence will suffice.

Although Mr. Rouvroy explained that he is a very busy businessman, it is not to his credit that he signed inaccurate statements, not least because in his evidence in chief he confirmed the accuracy of his first four witness statements without any qualification. However, it does not follow that, because his written statements were unreliable and because he confirmed the truth of them, I should reject the rest of his oral evidence. Indeed, Mr. Castle argued that his candour in accepting the inaccuracies in his statements supported his credibility. Further, in assessing his oral evidence I must bear in mind that Mr Rouvroy gave his evidence in English, but it did not seem to me that this disadvantaged him: he had a good command of English.

I am, however, unable to regard Mr. Rouvroy’s oral evidence as reliable. I am prepared to accept that this was because he was blinded by his undoubted conviction that the claim against him is unjust and was unwilling to question this, rather than because he was deliberately lying, but parts of his oral evidence were, in my judgment, incredible and at times his evidence was unrealistic when faced with what did not fit his account of events. For example,

Mr Trylinski’s witness statement was written in Polish, his first language. He gave his oral evidence when cross-examined mostly in English. An interpreter assisted him from time to time to express himself when replying to questions, but he did not need assistance to understand what he was being asked, and he never used the interpreter or his limited English to protect himself from cross-examination.

Like Mr. Rouvroy, Mr. Trylinski did not seek to support his witness statement when he was cross-examined, and it was obviously wrong in places. For example he had written that on 26 July 2007 the defendants “explained to [Astin] that we did not want such a scheme”, but I am unable to reconcile this with his account of events given in cross-examination. He said in his witness statement that Astin included “a clause concerning the applied law and penalty clause” in the draft termsheet “in fine print at the bottom of pages of individual drafts”, which he asserted “indicates they were acting in bad faith”. The governing law clause and the termination clause (to which “the penalty clause” is apparently a reference) were not in smaller print than the rest of the draft, and the governing law clause was not at the bottom of a page.

When Mr. Trylinski was cross-examined, it became apparent that on many matters he had only a vague recollection of events, and he acknowledged that there was much that he could not remember. His evidence was not always reliable but that was not, in my judgment, because he was seeking to mislead me.

Before referring to other witnesses called by the defendants, I should refer to the complaint of a criminal offence made to the French authorities. It is dated 8 October 2008 and was signed by both the defendants. It included this statement in the context of a description of “the scheming” that constituted “attempted fraud”: “Between midnight and one o’clock in the morning [of 26 July 2007], David Ummels contacted Jacques Rouvroy by telephone and insisted that there was now a full and final agreement which Jacques Rouvroy and Christophe Trylinski could not evade in any circumstances”. I shall have to examine the evidence about this telephone conversation later in my judgment. However, when asked about this in cross-examination, the defendants said that the criminal complaint was drafted by lawyers in light of information that they had from the documentation. When it was pointed out to Mr. Rouvroy that he had signed the complaint, he said that he trusted his lawyers and had not read the document before doing so, explaining that he was too busy carrying out business transactions to read everything that he signs. Mr. Trylinski said that he had read the complaint once before signing it but that he knew nothing of the telephone call from Mr. Ummels to which it refers.

Mr. Demarre had previously worked as a banker with Credit Suisse before becoming a broker with Bucéphale Finance (“Bucéphale”), a company that provides specialist mergers and acquisitions advice. He is, or was in 2007, a director of Bucéphale, and had had dealings with Lion Capital in relation to a proposed acquisition by Lion Capital or its subsidiary, the Orangina Group, of Pulco, the non-alcoholic drink division of Marie Brizard & Roger International (“Marie Brizard”), a French subsidiary of Belvédère.

I have to treat the evidence in Mr. Demarre’s witness statement with some caution: he admitted in cross-examination that he himself had no knowledge of some matters that he stated in it. For example, he said in his statement that “Astin never explained to the Defendants that the position could be taken that this simple term sheet could be a final agreement”. He accepted in cross-examination that he had no real basis for knowing whether that was the case since he was not with the defendants at the relevant time: at best it was an inference that he drew. He also said in his statement that “There [was] … no doubt for me as a professional that Maple Leaf executed a subscription on 26 July 2007 in the evening … knowing that the term sheet signed the previous day had not been agreed either by the Defendants, or by Lion Capital, and that in complete good faith the Defendants and Lion Capital had proposed other approaches better adapted to their legal constraints and financial capabilities”. When cross-examined it became apparent that Mr. Demarre was able to say no more about this than that in view of what Mr. Rouvroy had told him he was very surprised that Maple Leaf had sent in its subscription for the warrants. Similarly, he had no basis for a statement that Mr. Ferran “had clearly said to [Astin] that the plan in the term sheet was not feasible…”. I cannot rely upon his written evidence. I accept that Mr Demarre was trying to assist the court in his oral evidence, but, as he properly made clear, he had little knowledge or recollection of matters in dispute and his evidence was generally of relatively peripheral importance. I do not overlook that during the evening of 25 July 2007 he spoke, as he said in cross-examination and as I accept, to Mr. Ferran of Lion Capital, but his recollection of when this conversation or these conversations took place and what was said was too vague for me to rely upon it.

Mr. Hottinguer is a co-founder and the managing director of H et Associés, an investment company in Paris licensed by the authorities to engage in placements of and investment in (inter alia) securities and financial instruments.

I found Mr. Hottinguer in some ways an unconvincing witness, although I bear in mind that, although he gave his witness statement in French, he was cross-examined in English. His evidence was often vague to the extent that he appeared to me to be deliberately evasive. For example, despite his experience and although he was managing the private placement, he said when shown one version of the termsheet that he could not understand it and did not understand about “warrants and things like that”. Mr. Hottinguer appeared from his answers in cross-examination to remember remarkably little of what happened on 25 and 26 July 2007, and seemed concerned to distance himself from the exchanges between Astin and the defendants, emphasising that, although the defendants were in the offices of H et Associés, they were not in the same room as he was. I conclude, however, that he participated in at least two important conversations between Astin and the defendants: one in which the defendants agreed to increase the return on funding to 25% and did so, as I find, at Mr. Hottinguer’s suggestion; and another, which I shall have to examine in some detail, when in the early hours of 26 July 2007 Mr. Ummels spoke to the defendants.

The defendants served reports by Mr Léger, the chairman of BDO France, who has expertise and experience in the valuation of shares and other securities. Mr. Léger also had a meeting with Dr Fitzgerald, after which they produced a joint memorandum dated 3 July 2008 of matters upon which they were agreed and matters upon which they were not agreed. In the event, however, the defendants did not call Mr Léger to give oral evidence. They applied for permission to rely upon parts of the written evidence of Mr. Léger. (At the case management conference the parties had been given permission to call oral evidence but not otherwise to introduce expert evidence.) I permitted the defendants’ application to adduce in evidence the parts of the reports upon which they wished to rely: namely, (i) in relation to valuing the option to buy the warrants in Belvédère that the claimants say they had under the contract, evidence of Mr. Léger’s opinion that bid prices for warrants should be used and as to the appropriate discount to allow for the illiquid nature of warrants in Belvédère; and (ii) some evidence (strictly factual evidence) about the volumes and prices for trading in Belevdere shares in December 2007 and January 2008.

Belvédère was founded in the early 1990s by the defendants. It is incorporated under the laws of France and is listed on the French stock exchange. Its head office is in Beaune. It is the head of a group of companies that produce and distribute alcoholic and non-alcoholic drinks internationally.

The company pursued a policy of expansion in the size and the scope of its business. In April 2006 it had acquired Marie Brizard, and had issued floating rate notes to raise capital to complete the acquisition. The rights under the notes included options to take equity in the company, and, having bought notes, CLF took a controlling interest of some 68% in Belvédère through exercising them. The defendants, themselves or through their family interests, retained a holding of something over 20%. (Reference was made during the hearing to them having an interest of 26%: it seems from the documents in evidence that by 25 July 2007 they had an interest of some 22%, Mr. Rouvroy and his family interests having some 9.5% and Mr Trylinski and his wife and family interests having an interest of some 12.5%.) This left a “free float” of some 10%.

In July 2006, CLF made a public offer, expiring on 31 August 2006, to take over Belvédère for some €200 million. Astin was instructed to find finance to complete the purchase, and, through Astin, Maple Leaf lent about €38 million, secured against CLF’s shares in Belvédère worth about €80 million. CLF defaulted under the loan and Maple Leaf threatened to enforce the security, but eventually the loan was repaid and CLF took back ownership of the shares in Belvédère.

By early 2007 a dispute about the strategy and management of Belvédère had arisen between the CLF group and the defendants. According to the defendants, in late January 2007 they discovered that officers of Marie Brizard had made unauthorised transfers of some €10 million from Marie Brizard to CLF’s accounts, and that this money had been used to repay Maple Leaf in January 2007. (Mr. Rouvroy said that on 10 January 2007 Maple Leaf told him that CLF had repaid €20 million.) In February 2007 Belvédère and Marie Brizard brought proceedings in the Chancery Division against CLF and others including the claimants, alleging that financial assistance had been given by Belvédère’s subsidiary to CLF in order to repay the loan made by Maple Leaf to CLF.

On 8 June 2007 the defendants and CLF entered into an agreement settling the proceedings in the Chancery Division (“the CLF Agreement”). Under its terms, the defendants were granted a call option to purchase all of CLF’s shares, warrants and bonds (the “CLF Securities”) in Belvédère by 30 September 2007 for €345 million. If the purchase was completed by midnight on 30 September 2007, the directors appointed by CLF were to resign from Belvédère’s board with immediate effect, effectively relinquishing control of Belvédère to the defendants. Conversely, if by 31 July 2007 the defendants had not made “a detailed written proposal to CLF for simultaneous purchase of the CLF Securities including a firm guarantee from financially sound persons or institutions for full payment not later than 30 September 2007 of at least 90% of the Price, together with a precise timetable for the transaction” (“the Proposal”)”, the defendants were to resign as directors of Belvédère with immediate effect. In order to gain control of Belvédère under the terms of the CLF Agreement, acquiring CLF’s investments and avoiding their own resignation, the defendants therefore needed to raise some €345 million. The CLF Agreement, which was governed by French law, provided that the parties agreed to act in good faith toward the implementation of the transactions referred to in it, including in the Proposal once it had been accepted by CLF.

The defendants sought to raise funds by means of a private placement of CLF’s securities. They undertook a tour of European cities in July 2007 in order to generate interest through “road shows”. It was advertised that “The book will be opened from July 16^th until July 25^th, 2007”. As Mr. Hottinguer explained, in order to avoid problems of the sort that had arisen with CLF, the strategy was to seek a larger number of relatively small investors: Mr. Rouvroy considered that a single subscription of €100 million was too large. He took the lead in negotiations with potential investors, but the two defendants conferred regularly and made major decisions together.

Although initially the defendants had agreed to place CLF Securities with a value of €345 million, by 24 July 2007 an amendment to the CLF Agreement had been agreed and the securities to be placed had been reduced to some €304 million, comprising 1,559,762 shares at an offer price of €167 per share, 610,416 BSAR1 warrants at an offer price of €82 per warrant and 20 BSAR2 warrants at an offer price of €60 per warrant. I understand that shortly before 24 July 2007 CLF had told the defendants that some 150,000 shares were pledged to Maple Leaf and they were excluded from the placement.

On 24 July 2007, the defendants sent their Proposal to CLF pursuant to the CLF Agreement. It was that the CLF securities should be “sold and purchased in the framework of a private placement” and included these provisions:

By 13 June 2007 the defendants had engaged to assist with the private placement two French companies specializing in the provision of corporate finance services, H et Associés, who acted as lead manager, and Bucéphale. H et Associés provided the defendants with a room in its offices in Paris to use during the placement. It was to be paid a commission of 2% of the sale price, some €6 million, if all the securities were placed but not otherwise.

There appeared at one stage to be dispute about H et Associés’ role, but in the end there was little real or relevant difference between the parties about this. The claimants contend that it included providing advice and assistance to the defendants. Mr. Hottinguer insisted that H et Associés acted neither as agent nor as adviser to the defendants in connection with the private placement, and in cross-examination he said that his company could not advise them and could only act as placing agent. In their defence the defendants deny that H et Associés were their advisers or their agents, averring that it was simply the bank instructed by CLF for the private placement. However, when Mr. Rouvroy was asked about this pleading in cross-examination he said that it was “absolutely untrue” and that he “could not sign a thing like that”. He said that H et Associés provided him with advice and assistance in negotiations with investors, including Maple Leaf, and that Mr. Hottinguer supervised the negotiations on the evening of 25 July 2007. (He had said in his written evidence that Astin knew that it alone was providing professional assistance to the defendants, but in view of his oral evidence it is clear that this is another part of his written statements that did not state Mr. Rouvroy’s own account.) On 13 June 2007, in an email copied to Mr. Hottinguer and also, among others, to Mr. Ummels, Mr. Rouvroy had written, “We are instructing Philippe Hottinguer at H et Associés to coordinate the pooling of the CL Securities with Bucéphale Finances … , which will be responsible for the info memo”. The contemporaneous statement of H et Associés about the private placement, sent by Mr. Hottinguer to Mr. Ummels amongst others, was that it was “committed by the Principals [that is to say, the defendants and Mr. Rouvroy’s family company, Société Financiere du Vignobles] to manage the private placement consecutive to this agreement”, that is to say the CLF Agreement.

As I conclude from his evidence, Mr. Hottinguer was concerned that H et Associés should not be taken to be the defendants’ advisers in any technical sense, and in particular to make it clear that they were not the defendants’ advisers for regulatory purposes; and he pointed out that the placement was of the CLF securities. He recognised that the defendants brought it about that H et Associés was acting in the private placement. I accept that Mr. Hottinguer correctly stated the formal position of his company. However, it is clear that his expertise was available to the defendants and in particular that it was available to them on the evening of 25 July 2007, and I consider that Mr. Rouvroy’s oral evidence gives the more realistic picture. I also accept that Astin and by the evening of 25 July Maple Leaf were given to understand that the defendants had the benefit of advice from H et Associés and also from Bucéphale.

The defendants also consulted Astin. It had worked on previous transactions for Belvédère with the defendants, Astin being paid according to the value of funding introduced by it.

In June 2004 Astin had been mandated by Belvédère to participate in raising funding of €35 million by an issue of bonds with warrants attached (to which Mr. Rouvroy referred as OBSAR bonds, or obligation a bons de souscription d’actions avec faculté de rachat des bons). These warrants, which entitle the holder to subscribe to 1.1 new shares, are due to expire in 2011, and it was warrants of this issue to which Maple Leaf subscribed in the private placement.

In March 2005 Belvédère had mandated Astin to arrange a €34.4 million private placement of newly created shares.

In January 2006 Astin had been mandated to act as global arranger to raise senior debt securities and in the issue of €375 million of Floating Rate Notes (or FRNs) to raise funds for the acquisition of Marie Brizard. It was also mandated to arrange an issue of subordinated debt with warrants attached, the BSAR 2 warrants. These warrants mature on 7 April 2014.

On three of these occasions Astin sent letters (dated 30 June 2004, 1 March 2005 and 25 January 2006) to Belvédère before the transaction setting out the terms on which it would act, and Mr. Rouvroy countersigned them on behalf of Belvédère. The letters required Belvédère to agree that it was solely responsible for “deciding to participate in the Structure” and was relying on its own advisers, and not Astin, “for the appropriate financial, legal, regulatory, tax and accounting treatment” of it. They said that Belvédère was to determine “based on its own independent review and such professional advice as it has deemed appropriate under the circumstances, the Structure (a) is fully consistent with its financial needs, objectives and condition, (b) complies and is consistent with all policies, guidelines and restrictions applicable to it, and (c) is fit, proper and suitable for it”. The letters also stated that in providing its services Astin proposed to treat Belvédère as “an Intermediate Customer as defined in the FSA Rules” and as such, “[Belvédère] would not obtain the benefit of the FSA Rules designed exclusively for the protection of private customers”.

In May 2007 (before the CLF Agreement was concluded) Mr. Rouvroy was in communication with Astin about finding funding for the CLF securities. Mr. Rouvroy sent him an email that contemplated an arrangement by which a new company would be set up to receive €345 million lent by “your hedge fund friends” and to hold as collateral for the funding the defendants’ shares in Belvédère and shares to be acquired from CLF. The proposal was that the new company should pay CLF for its securities in two instalments, €200 million by the end of June or July 2007 and the balance by the end of November 2007. The email exchange between Mr. Rouvroy and Astin about this proposal was copied to Ms Aline Poncelet of the defendants’ lawyers, Messrs Paul Hastings, Janofsky & Walker (Europe) LLP (“Paul Hastings”).

After the CLF Agreement had been concluded, on 15 June 2007 Astin told Mr. Rouvroy that it was pessimistic about the prospects of completing the placement at a price of €167 per share. By then H et Associés had been appointed to lead the private placement, and engaged Bucéphale to assist in preparing the prospectus, but after a meeting at Astin’s office with the defendants and Mr. Demarre, it was agreed that Astin develop an alternative strategy, a “plan B” as it was called, in case the private placement was failing. As had been contemplated in May 2007, money to fund the acquisition would be lent to SPVs (at this stage it was contemplated that there would be two separate vehicles, one for Mr. Rouvroy’s family interests and one for Mr. Trylinski’s). Mr. Rouvroy told Astin that he would discuss this plan with Ms Poncelet, and he wrote on 19 June 2007 to Mr. Ummels “If the worst comes to the worst, we shall use the SPV scenario”, but urged Astin in the meanwhile to work with Mr. Hottinguer “and his people”.

Astin kept in contact with Mr. Rouvroy and on 10 July 2007 Mr. Bray wrote to the defendants in an email that, having had “detailed discussions in the market”, he believed that Astin could secure funding: he said that, if the defendants provided €100 million of shares for the SPVs, Astin should be able to raise €120 million. He said that the SPVs would “have the obligation to lend shares to any of the lenders on a pro rata basis”, and that Astin anticipated that the loan would be convertible into shares at a slight premium to the placing price and that the interest rate would be 150 points above EURIBOR. He also said that Astin would need at least 7 business days to implement this strategy and recommended that the defendants consider mandating Astin immediately. He also said that, if funding was to be raised in this way, the SPVs should be established immediately. A copy of Mr. Bray’s email was sent to Ms Poncelet. However, Mr. Rouvroy responded that the defendants were confident that they would raise the funding that they needed, and that he could not make himself available to meet Mr. Bray before 25 July 2007.

It was submitted by Mr. Peter Castle who represented the defendants, that the defendants did not understand the implication of the proposal that investors might borrow shares in Belvédère, a proposal that was mirrored in the terms of Version 9: that they failed to appreciate that the investors might sell short shares that they had borrowed. (I use the expression “borrowed”: it was obviously contemplated that there should be returned not the self-same shares but identical securities.) However that might be, Astin introduced the proposal that the shares held by an SPV might be borrowed by investors some two weeks before the negotiations on 25 July 2007 and did so in an email copied to the defendants’ legal adviser. Astin was never given any indication that the proposal or its implications were not properly understood or caused the defendants any disquiet.

On 13 July 2007 Mr. Bray sent Mr. Hottinguer an email proposing that Astin should invest €1 million in the private placement as a token of Astin’s “utmost commitment to your cause and [acting] like good friends and loyal business partners”. He suggested that, if it was thought that the private placement was undersubscribed, it might be time to execute “plan B”. Mr. Rouvroy responded “that [t]hings look good so far. However let us discuss your plan B. One never knows”.

On 19 July 2007 Mr. Ummels met Mr. Rouvroy. Mr. Ummels suggested that Astin should seek to raise funding under “plan B”, but Mr. Rouvroy, still confident that the private placement would succeed, rejected the suggestion. Mr. Ummels understood that the defendants had no need of Astin’s assistance.

On 24 July 2007, however, Mr Rouvroy spoke to Mr. Ummels about whether Astin could assist them to find funding of €150 million. (The defendants insist that they thought that this funding might be needed, not that it would be needed, it still being uncertain whether the private placement would otherwise attract enough support.) Mr. Ummels spoke to Mr. Bray, who had a number of telephone conversations with Mr. Rouvroy. It was arranged that Astin should receive a fee of 4% of funds that it raised. Although the amount of funding said to be needed changed from time to time during 24 and 25 July 2007, Astin was given to understand that the defendants were looking for funding of more than €100 million. Mr. Bray gave evidence that he warned Mr. Rouvroy that the funding would be very expensive: this was in part because the tight timetable was such that investors could not carry out due diligence into Belvédère, and also because by the third week of July 2007 the market was, as Mr. Ummels told me and I accept, deteriorating significantly. Mr. Rouvroy told Mr. Bray that the defendants were willing to pay a high price for capital to keep control of Belvédère. (Mr. Rouvroy had no recollection of this conversation but acknowledged that it had possibly taken place. I find that it did.)

There was some difference between the parties about what prospects the defendants had by 25 July 2007 of successfully completing the placement without funding provided by Astin. On any view they and H et Associés were working under pressure. It is common ground on the pleadings that “The private placement … had to be completed by midnight, French time, on 25 July in order to give sufficient time for the transfer of securities prior to 31^st July deadline”. The timetable in the Proposal required the defendants to have identified the investors by 25 July 2007 and for them to provide CLF with a list of investors on 26 July 2007.

The defendants, however, dispute that the placement was in difficulties. They say that it is not unusual for investors to commit themselves only shortly before a deadline of this kind, and that they were confident of finding the necessary funding. I accept that they were still optimistic, but they simply did not know whether or not sufficient subscriptions would be received without Astin’s help.

I also accept the defendants’ contention that the placement would not necessarily have failed if they did not raise all the funding by the end of 25 July 2007. Indeed, Maple Leaf in fact did not send in its effective subscription until late on 26 July 2007, and, as I shall explain, Mr. Ummels was still seeking funding for the defendants on 29 July 2007. The Proposal did not stipulate any sanction if the defendants did not meet every stage of the timetable, provided that the required steps had been taken by 31 July 2007; and in the judgment of the defendants, and also that of Mr. Hottinguer and Mr. Demarre, CLF would not have insisted inflexibly upon compliance by the defendants with their obligations under the CLF Agreement, because CLF wanted the settlement agreement and the private placement to succeed.

I accept that this was the defendants’ contemporaneous assessment of the likely response of CLF if funding was raised late or if there was a modest shortfall in it, and there is no reason to reject their assessment as unrealistic. However, the defendants simply could not be sure that CLF would not insist upon compliance with the Proposal. Mr. Andrew Lenon QC, who represented the claimants, pointed out that on 27 July 2007 Mr. Doly, the manager in charge of administration at H et Associés, warned the defendants to take “the utmost care” to comply with the timings in the Proposal: whatever the defendants hoped CLF’s response might be if they did not wholly comply with the Proposal, I cannot accept that they were confident that they would be afforded latitude and were unconcerned about the possible consequences of non-compliance.

In my judgment, despite their optimism, by 25 July 2007 and especially by the evening of 25 July 2007, the defendants were worried that they might not raise the necessary funds, and that they might lose control of the company. Mr. Demarre said that the defendants were under “extraordinary stress”: in part this might well be attributable to exhaustion and nervous energy, but it was also, I conclude, because of anxiety that the private placement might fail. Indeed, as I shall explain, early on 26 July 2007 Mr. Rouvroy wrote to Astin that, if the investment by Maple Leaf did not go ahead, the “whole deal”, that is to say the private placement, would “[fall] apart”.

Maple Leaf had been defendants in the Chancery Division proceedings, and Mr. Castrounis had known about the private placement since June 2007: Mr. Rouvroy had spoken to him about it because Maple Leaf had had a shareholding in Belvédère since early 2005, having been introduced to the company by Astin. When asked by Mr. Rouvroy to find funding on 24 July 2007, Mr. Bray decided, given the constraints of time, to approach persons who had already had some dealings with Belvédère, including Maple Leaf. Astin also approached Credit Suisse, UniCredit, Bloomberg and Lehman Brothers.

On the morning of 25 July 2007, Mr Bray contacted Mr Castrounis, and told him that the defendants were still looking for funding and asked whether Maple Leaf would be interested. He emailed to Mr. Castrounis two drafts of termsheets to give some indication of the proposed investment. The first referred to a loan amount to SPVs of €120 million, and the second a loan amount of €150 million. He sent similar documents to other potential investors.

In broad terms the proposal was that Maple Leaf should purchase securities in Belvédère and transfer them to a “special purchase vehicle” (or vehicles), which should pay for them on a “loan maturity date” about a year later with an uplift of 20%; that in the meanwhile the special purpose vehicle(s) should hold the purchased securities in Belvédère by way of collateral; and that the investors should have an option to buy the securities so held.

According to Mr. Castrounis, he was not interested in investing as much as the amounts stated in the termsheets, and thought that if the funding was raised from a number of investors, the collateral would be shared correspondingly. He therefore did not initially respond favourably to the approach. It was suggested by the defendants that this was not Mr. Castrounis’ real reason for showing no immediate interest in investing and that in fact this was a tactical move designed to strengthen his negotiating position. I reject this suggestion. He answered it in cross-examination by pointing out that the investment that he later made was better secured than an investment of a part of the €150 million or €120 million would have been, and I accept this explanation for his initial response.

At around 4.00pm on 25 July 2007, Mr Rouvroy told Mr. Bray that the defendants needed to raise only a further €50 million. He also informed Mr Bray at around this time that he understood from Mr Demarre that Lion Capital might be interested in investing €20 million. Lion Capital’s interest in the placement succeeding was apparently driven by a wish to have the defendants in control of Belvédère because the Orangina Group was hoping to acquire Pulco, and it was thought that the defendants looked favourably on its proposal.

According to Mr Rouvroy’s fourth witness statement, he also told Mr. Bray during the afternoon that the defendants would entertain an offer from Maple Leaf only if they acted in conjunction with Lion Capital. In his oral evidence he did not go that far, but he made it clear to Mr. Bray that the defendants wanted to have Lion Capital and any other investor providing the balance of the necessary funds “tie[d] up in the same deal”. I accept that he did so: in any case the implication was that the defendants were willing to commit their own shares to stand as collateral in order to ensure that the placement was completed and not otherwise. That was, as Mr. Rouvroy said, “the purpose of the exercise”.

Mr. Bray spoke to Mr Javier Ferran, a partner at Lion Capital, and explained the structure of the funding arrangement that Astin had in mind. Mr. Ferran agreed to it in principle. At 5.36pm Mr. Bray sent him a draft termsheet. (It was also sent to a Mr. Tooth, who was at Blackstone, a co-investor with Lion Capital in Orangina.) Mr Ferran immediately confirmed Lion Capital’s interest in investing provided that Maple Leaf invested on the same or very similar terms.

At around this time Mr. Bray also contacted three hedge funds who had previously invested in Belvédère, including Maple Leaf. Mr Bray told Mr Castrounis that the defendants had received more subscriptions for the private placement, and that another party was willing to provide funding of approximately €20 million. He asked whether Maple Leaf would be interested in providing funding for the shortfall, the proposal being, as Mr. Castrounis understood it, broadly on the basis of the scheme contemplated earlier in the day for a larger investment. Mr. Castrounis understood that Maple Leaf would be able to borrow the securities held as collateral by the SPV (or SPVs). Mr Castrounis was sufficiently interested to enter into negotiations because the proposed investment was of an amount that Maple Leaf could contemplate and because the collateral available for the smaller investment made it more attractive.

I shall describe the negotiations over the next 5 hours or so in some detail. Mr. Castrounis was in Maple Leaf’s offices in London. Mr. Bray was in Astin’s London offices, and Mr. Ummels was travelling between Luxembourg and Bucharest, with a stop at Munich, and not involved in the exchanges until early on 26 July 2007. The defendants were at the offices of H et Associés in Paris. Mr. Hottinguer was also there, generally in a different room from the defendants but nearby and from time to time, as I conclude, with the defendants. Mr. Doly was also at H et Associés. Mr. Demarre was at the offices of Bucéphale in Paris. Mr. Ferran was in New York, leaving from JFK airport for London at around midnight.

The parties were in constant email and telephone contact with each other, but none of the participants took any notes of what was said by telephone. Although initially Mr. Bray kept contact with a couple of other investors whom, as he put it, he was “keeping them warm”, from about 8.00pm or 9.00pm Mr. Bray was dealing only with negotiations for the proposed investment by Maple Leaf or by Maple Leaf and Lion Capital. The defendants were speaking to other potential investors as well as to Astin.

Mr. Bray produced successive versions of the termsheet that reflected the developing discussions, including changes that the defendants required: for example, it was the defendants who determined whether there should be one or two SPVs and what collateral they could transfer to the SPV. I conclude that Mr. Bray discussed with the defendants the proposed commercial terms for the funding and there was no substantial disagreement or protracted negotiations about what they should be: the defendants were essentially willing to accept the terms available. They did not specifically discuss the individual “legal” terms, as Mr. Bray characterised them, but he made it clear to the defendants that Maple Leaf required provisions that would give legal effect to the agreement: he did not specifically discuss, therefore, the governing law clause, the jurisdiction clause, the precise wording of the defendants’ personal obligations and the evolving wording of the footer. He spoke mostly with Mr. Rouvroy, but Mr Trylinski was kept fully abreast with the negotiations. (In his cross-examination Mr. Bray referred to going through the proposed agreement “line by line” or “term by term” and was criticised by Mr. Castle for exaggeration. In my judgment it was clear from the context that Mr. Bray was not intending a literal meaning when he used these expressions and to my mind his evidence was not misleading.)

The defendants said nothing that indicated that they did not understand the terms under discussion or that they were unhappy with them. I am unable to accept that, as Mr. Rouvroy said, they did not have time to read through the various versions of the termsheets that Mr. Bray sent: certainly they said nothing to Mr. Bray that indicated that they were not reading them. They did not seek or receive advice from Mr. Bray about whether they should accept the funding on the proposed terms: the discussions proceeded on the basis that Astin was not an adviser but an intermediary arranging finance. It appeared to Mr. Bray that the defendants had Mr. Hottinguer and Mr. Demarre available to give advice if they required it and it was reasonable for him to conduct the discussions on the basis of that understanding.

Astin never took on the role of an adviser to the defendants and, in my judgment, the defendants never looked to them for advice. (As I shall explain, in an email on 26 July 2007 Mr. Rouvroy referred to Astin “stay[ing] in our first circle of trusted advisers for the next 30 years” but I am unable to attach any significance to that expression.) It is said by the defendants that by proposing “plan B” Astin represented that it would advise them. I do not accept this: “plan B” was simply a proposal about how funds might be raised through Astin, not a proposal to give advice, and in any case the defendants rejected it.

At 5.56pm Mr Bray sent an email to Mr. Rouvroy attaching a termsheet setting out the terms upon which Maple Leaf might contribute funding. This was the first of the series of drafts sent by Mr. Bray during the evening, and was designated Version 2a. (I refer in this judgment to the numbers that Astin gave to the versions of the termsheet. There is not a complete sequence in evidence: for example there is no Version 7, Version 8 or Version 8a, although one copy of Version 8b has an apparently aberrant marking “8a”. Mr. Bray has not been able to trace a continuous sequence of the termsheets.) In the email under cover of which he sent Version 2a Mr. Bray said that the investors would subscribe for securities and then contribute them to a holding company in exchange for loan notes: they required all documentation to be completed and the holding company established by the “funding date”. They would be repaid upon a maturity date (which, as the termsheet made clear, would be a year later) with a 20% uplift. Mr. Bray also pointed out that the investors were to have an option to buy the warrants at a strike price of €82, and this was also referred to in the termsheet under a heading in bold, “Warrant Option”. He observed, “This is a very different price to that we showed two weeks ago so please make sure that you’re happy with it”.

Version 2a the termsheet contemplated that there should be a one year loan of €74 million at 20% interest to two special purchase vehicles for Mr Rouvroy and Mr Trylinski respectively, with collateral for the loan comprising shares and warrants in Belvédère provided by the defendants. In fact by this time it was known that this level of funding would not be required, and the square brackets around the “purchase price” reflects, as I infer, uncertainty about how much was to be invested.

The provisions on the termsheet were headed, “Outline Heads of Terms”. At the foot of each page it was stated, under the heading “Confidential & Proprietary”, that nothing in the termsheet created any obligation on the part of Astin and that the terms were “preliminary and subject to change in the course of negotiations and the production of documentation”.

Mr. Rouvroy said that he probably would have discussed this email and the attached terms with Mr. Trylinski in broad terms, and I accept that evidence. Mr. Rouvroy also said that he did not discuss the proposed terms with Mr. Hottinguer and I accept that. Mr. Hottinguer was not significantly involved at this stage of the exchanges with Astin.

At 6.10pm Mr. Bray sent Mr. Rouvroy another version of the termsheet, which was referred to as Version 3. It had the same footer on each page as Version 2a. Mr. Bray’s covering email explained that the amended termsheet dealt with the defendants’ requirement that the securities to be acquired, and then be held by way of collateral, should include some PIK (payment in kind) bonds with a maturity date of 2014.

The email also said that three potential investors were expressing interest to Astin, and that Mr. Bray had “informed them that the documentation with the holdco would be completed prior to funding”. Mr. Bray wrote, “... please note that the investors will require the right to borrow the securities from the holdco”, although Version 3 itself did not include a term reflecting this. Mr. Rouvroy’s evidence was that he read this in the email but did not understand it. He did not, however, ask Mr. Bray what it meant because “we had no time”. Mr. Bray’s evidence was that in his telephone conversations he told Mr. Rouvroy that all the securities held by the SPVs were to be available for borrowing, and I accept his evidence. After the right to borrow had been mentioned in the email, it is inherently likely that some reference would have been made to it in at least one of the conversations between Mr. Bray and Mr. Rouvroy. I cannot accept that the defendants did not have time to discuss with Mr. Bray anything that they did not understand in the email of 6.10pm. After all it was sent nearly five hours before the defendants returned the signed Version 9 and during that time Mr. Bray and Mr. Rouvroy had numerous conversations.

I conclude that, once Mr. Rouvroy had received this email at 6.10pm, he was aware that the proposed deal was to include a right for investors to borrow securities held by way of collateral. I also conclude that Mr. Trylinski, who was with Mr. Rouvroy and discussing the proposals that were being received, was aware that the investors were to have this right. I am prepared to accept that Mr. Rouvroy and Mr. Trylinski did not appreciate that the investors might use the right to borrow securities in order that they might short sell Belvédère shares, and this was not explained by Mr. Bray. However in view of Mr. Bray’s email of 10 July 2007, the proposal that investors should have the right cannot be said to be a novel one or one that would be expected to take the defendants by surprise.

Between 7.00pm and 8.00pm Mr Bray was informed by the defendants that they no longer needed Lion Capital to participate in the transaction as they now required only €30 million. This is reflected in a message from Mr. Ferran to Mr. Bray sent at 7.05pm in which he said that he would prefer the defendants to raise this sum from other investors.

Mr. Doly emailed Astin at 7.19pm saying that Mr. Hottinguer had “asked [him] to ask you the terms sheet”. Mr. Hottinguer explained that it was convenient for the defendants that the draft termsheets should be sent to H et Associés so that they could be printed out and read in hard copy, rather than only to Mr. Rouvroy’s blackberry. I am prepared to accept that this was the reason for the request, but it would have appeared to Mr. Bray that Mr. Hottinguer would read the proposed terms and be available to the defendants to advise about them.

At 7.46pm Mr Bray sent an email to Messrs Doly, Hottinguer and Rouvroy, together with Version 5 of the termsheet. (No Version 4 of the termsheet was sent to the defendants. Mr. Bray had it on his computer and does not recall why it was not sent out.) The email referred to proposed terms for a €50 million loan and still contemplated that Lion Capital might provide €20 million, with Maple Leaf investing another €20 million and another €10 million coming from another source. The email said that the “potential investors are very concerned about the execution of this transaction and will require the management to sign up to the document prior to their submission of the subscription agreements or their return signature. Please review carefully”.

Apart from this email in which Mr. Bray expressly stated that the defendants would be required to sign a document to confirm their agreement to the terms reached with the investors, Mr. Bray made this clear to Mr. Rouvroy in telephone conversations, and the defendants raised no objection. It is not clear whether any of these conversations took place before Mr. Bray sent Version 5, but I accept Mr. Bray’s evidence that he mentioned this to Mr. Rouvroy on more than one occasion. Mr. Castrounis, as I find, had made it clear to Astin that Maple Leaf required such a binding agreement, and I cannot accept that Astin did not convey this to the defendants. Indeed, Mr. Rouvroy, when cross-examined, said that although he did not recall Mr. Bray telling him this, it was possible that he had done so. I also accept Mr. Bray’s evidence that he spoke to Mr. Rouvroy about the termination provision, a version of which was first introduced in Version 5.

Version 5 of the termsheet still had the heading “Outline Heads of Terms”, but the footer at the bottom of each page was amended. It read, “Confidential & Proprietary. This termsheet is for a proposed financing transaction and contains proprietary and confidential information. The terms included are intended to create a binding obligation on the part of the Borrower the management and their affiliates. This transaction is subject to successful completion of due diligence and receipt of Astin internal credit and transaction approvals. These terms are preliminary and subject to change in the course of negotiations”. The note was therefore confused and inconsistent about whether the terms were to be binding, but there had been introduced a change to them apparently designed to bring that about.

Version 5 itself included changes that were apparently directed to giving it legal effect and that were in due course reflected in Version 9:

In Version 5 Astin was named as a lender in the amount of €2.011 million. Mr. Rouvroy had discussed with Mr. Bray payment of Astin’s fee for arranging the transaction, and informed Mr Bray that the Defendants did not have the readily available funds to meet it. Astin therefore agreed to defer payment of the fee and include a provision in the agreement whereby the fee was treated as a loan to the SPV to be repaid with an uplift of 25% on the “Loan Maturity Date”.

Version 5 also introduced a term against the side note “Security Lending” that the lenders should have the right to borrow the securities held by the SPVs. It was in the terms of the provision that was later included in Version 9. The email of 7.46pm did not mention this, but, as I have said, Mr. Bray had advised Mr. Rouvroy about this requirement in his email at 6.10pm and, as I have found, had discussed it with Mr. Rouvroy.

Before Mr. Bray sent Version 5, Mr. Rouvroy had told him of a difficulty in the proposed arrangements: he and Mr. Trylinski had pledged some of their own or their families’ securities and so they could not use them as collateral for the proposed funding. I accept Mr. Bray’s account of this conversation and his evidence that Mr. Hottinguer participated in it: Mr. Hottinguer suggested that, in view of the reduced collateral, the investors’ return might be increased from 20% to 25%, and Mr. Rouvroy agreed to this. I so find although Mr. Hottinguer professed no recollection of such a conversation and although it was pointed out on behalf of the defendants that the loan-to-value ratio of the investment had earlier been less favourable to the investors when they appeared willing to accept a return of 20%, and that other changes in the loan-to-value ratio had not prompted the parties to adjust the level of the investors’ return.

At about 8.30pm Mr. Bray discussed this change with Mr. Castrounis, who assented to it. It was reflected in a further version of the termsheet, Version 6a, that Mr. Bray sent at 8.36pm to Mr. Rouvroy, Mr. Hottinguer and Mr. Doly. This version was generally similar to Version 5, but:

The email under cover of which Version 6a was sent to Mr. Rouvroy and H et Associés said that Maple Leaf had confirmed that it would “subscribe to 30.0 million euros of the transaction to have the warrants and bonds … placed into the holding company” and that in Version 6a the “amounts have been revised and the collateral requirement reduced to reflect the 300,000 shares and the 380,000 warrants available”. It concluded, “Please review carefully and call me with any questions”. The defendants did not seek further explanation of the terms or object to any of them.

Mr. Rouvroy said at one point of his cross-examination that he did not read Versions 5 and 6a of the termsheet. This was inconsistent with other evidence that he gave that he read the draft termsheets, albeit quickly, and Mr. Trylinski too said that Mr. Rouvroy read the termsheets quickly on his blackberry. I conclude that Mr. Rouvroy did read all the termsheets. He was keen to secure Maple Leaf’s investment and would not have ignored its proposals. I also understood from Mr. Trylinski’s evidence that he recalled that at least one draft of the termsheet was printed out and read in hard copy by both Mr. Rouvroy and Mr. Trylinski. This is confirmed by the email being sent from Mr. Doly at 7.19pm and Mr. Hottinguer’s explanation for it being sent. I conclude that Mr. Rouvroy had asked that the termssheets be sent to H et Associés so that they could be printed out for him to read and I conclude that he did read Version 5 in hard copy. Version 6 was also sent to Mr. Doly and, as I conclude, that too was printed out for Mr. Rouvroy to read. Having gone to this trouble to have printed copies of the termsheet; I cannot accept that Mr. Rouvroy did not read these versions, and subsequent versions of the termsheet, with some care.

At about 8:38pm M Rouvroy informed Mr Bray that Lion Capital was again to participate in the deal.

At 8.52pm. Mr. Bray sent to Mr. Castrounis a document that was called “SAV valuation”. The defendants observe that it includes an assessment of the risk premium at 3% and that they were not given any information of this kind by Astin. This is a curious document: for example, it assumed that there would be 400,000 shares by way of collateral provided by the defendants and their family interests, but this was never proposed in any version of the termsheet that is in evidence. (It had initially been contemplated that they would provide some 500,000 shares together with warrants, but the number of shares was then reduced to 300,000 and eventually was 325,000.) It is not at all clear why it was sent to Mr. Castrounis. He told me that he would never have relied upon a broker’s calculation of this kind, and in view of my impression of his energy and independence, I accept that. Mr. Bray said that it was sent by way of a “template” rather than for the figures that it contained. It seems strange that Mr. Castrounis should want a template of this kind from Mr. Bray, but this explanation seems to me more probable than that the calculation itself was thought to be of interest to Mr. Castrounis. Whatever the reason for which it was sent, I do not regard either the document itself or the fact that it was not sent to the defendants as significant to what that I have to decide. It does not indicate, as the defendants appeared to suggest, that Astin in some way unfairly or significantly assisted Maple Leaf to secure a favourable deal with the defendants.

At about 9.20pm M Rouvroy sent an email direct to Mr. Castrounis, although he sent copies of it to Mr. Bray and Mr. Doly. It is the only direct communication between them that evening. Mr. Rouvroy thanked Mr. Castrounis for “helping us for 30M€” but then suggested a very different transaction from that under negotiation, saying that the defendants were “willing to sign the term sheet with a substitution clause within the next few weeks latest 31 August”: that is to say, he was proposing that the funding should be for about a month rather than a year. Mr. Rouvroy also floated the suggestion of a deal along these lines with Mr. Bray, and Mr. Bray said that he did not think that there was any possibility that Maple Leaf would agree to it. In fact Mr. Castrounis did not reply to the email, but telephoned Mr. Bray to say that he was not interested in investing on such terms.

Although this email from Mr. Rouvroy had no apparent affect on the course of the negotiations, it is to my mind of some interest. First, its terminology is an indication that Mr. Rouvroy recognised that it would signal a commitment on the defendants’ part if they signed a termsheet. This is why he was concerned that, if they did so, there should be a “substitution clause”. Secondly, it suggests that Mr. Rouvroy appreciated that the funding from Maple Leaf was offered upon onerous terms and was trying to avoid a long term commitment to it.

The claimants go further. They submit that the inference is that the defendants had by now decided to sign an agreement with Maple Leaf despite their reservations in order to secure its subscription to the private placement, but intended not to implement it but to renege on it and to negotiate a different deal. I am unable to accept that the email provides any real evidence of this.

At 9.45pm Mr. Bray sent Mr Ferran an email saying that he had been informed by “the company” that Lion Capital was subscribing for 120,000 shares at €167 each and was to have a “second lien to the security”. He said that Maple Leaf now agreed to a greater investment on the basis that it would have “first lien”. He wrote “Please contact H & Associés to fill in the subscription agreement in the NEXT HOUR. Please see attached final termsheet which the company will sign shortly. I will confirm when they have signed”. The email referred to a Version 8a of the termsheet: no version so numbered is in evidence, but I infer that it was a reference to Version 8b or at least to a version in the same or materially the same terms as Version 8b.

At 9:49pm Mr Bray circulated Version 8b of the termsheet to Mr. Ferran, Mr. Tooth, Mr. Castrounis, Mr. Doly and Mr. Ummels. He described it in the covering email as a “finalised termsheet for signature by the company”, and said “This must be submitted immediately”.

This version contemplated investment of some €50 million, and, in line with Mr. Bray’s email, that Maple Leaf’s right to the security for its €30 million investment would have priority over Lion Capital’s right in respect of its €20 million investment. Version 8b of the termsheet provided for a single SPV. As I have indicated, I infer that this was a change made at the defendants’ request: Mr. Rouvroy had been uncertain as to whether there would be one or two SPVs and whether a company already in existence would be used for this purpose.

Mr. Castrounis had been taking advice from a solicitor about how Maple Leaf might ensure that the termsheet would be legally binding if the parties signed it. At 10.23pm he sent Mr. Bray a copy of Version 6a marked up with proposed amendments, which had been suggested by the solicitors. They did not change the commercial terms of the deal, but they provided that the defendants should undertake to establish the SPV (or, more precisely, the SPVs because Version 6a contemplated that there would be two SPVs), and undertaking personal liability for all the obligations of the SPVs if they were unable to perform them, including liability for payment of the Loan Redemption Amount and any sum payable under the termination provision. The changes required by Mr. Castrounis also included a change to the footer so that it referred to a “financing transaction” rather than a proposed financing transaction; the introduction of a jurisdiction clause; a provision that proceedings might be validly served on the defendants if they were delivered to the registered address of Belvédère; and a provision that the parties would use their best endeavours to complete further documentation. Mr. Castrounis also proposed that the heading “Outline Heads of Terms” be deleted.

At 9.50pm Mr. Bray had emailed Mr. Ferran asking him to make contact. At 10.06pm he had emailed Mr. Rouvroy, asking him to call Mr. Ferran immediately. Lion Capital was not content to have a subordinate right to the security. Mr. Bray discussed this with Mr. Ferran and with Mr. Castrounis, and it was agreed that, as Mr. Ferran requested, the rights of Lion Capital and Maple Leaf to the security should rank equally. Mr. Bray told Mr. Ferran that there was to be “language to make [the agreement] legally binding”: he did not specify the changed wording and, as I infer, he was not asked.

At 10.22 pm Mr. Bray confirmed to Mr. Ferran in an email that Lion Capital and Maple Leaf would have “equal status with respect to security of the holding company with any proceeds distributed amongst the Lenders on a pro-rata basis and determined by the outstanding loan amount”. At 10.27pm, Mr Ferran replied in these terms to Mr. Bray, sending a copy of his reply to Mr. Castrounis: “Good news. I cannot physically execute any documents from a cab to JFK. Moonsieur (sic) Rouvroy should subscribe the shares and Maple Leaf and us can put together the financing documents in the meantime”. Mr. Bray sent a copy of this email on to Mr. Rouvroy at 10.42pm.

The defendants suggest that Mr. Ferran contemplated that Mr Rouvroy would be subscribing for the shares, and therefore he had in mind a different financing structure from that under negotiation, in which the investors were to subscribe in the private placement. I reject this suggestion: I find it impossible to accept that Mr. Ferran could have so misunderstood the proposed deal when he was discussing with Mr. Bray Lion Capital’s requirements about the collateral. Mr. Castrounis’ evidence was that he understood the email to be a “trade confirmation”, but that is, of course, no more than evidence of his own subjective understanding of it. As I understand Mr. Ferran’s email, he was agreeing to the terms of Version 8b and explaining why nevertheless he could not immediately execute any documents to confirm this, Astin having emphasised the urgency of the matter in the email at 9.49pm. Because he was himself unable to complete the subscription form, he authorised Mr. Rouvroy to do so on behalf of Lion Capital’s behalf.

After the email at 10.22pm, there was no further communication that evening from Mr. Ferran (or anyone else representing Lion Capital), apparently because he arrived at JFK airport and flew to London.

At 10.47pm Mr Bray circulated Version 9 to the defendants, Mr Doly and Mr. Hottinguer, and sent copies of it also to Messrs. Demarre, Ummels, Castrounis and Ferran. The covering email read as follows: “Final agreed terms. Pls sign and fax to Maple Leaf Capital LLC. Lion Capital and Astin Capital Management Ltd”. Version 9 was an amended Version 8b into which Mr. Bray had introduced the changes proposed by Mr. Castrounis in his email of 10.23pm, except that through oversight the heading “Outline Heads of Terms” was not deleted.

At 10.58pm, Mr Doly circulated a copy of the agreed terms that had now been signed, and individual pages initialled by both the defendants. His covering email read: "On behalf of Jacques Rouvroy, please find the signed scanned version of the contract. We are now waiting for your subscription order … Please send the original by express mail tomorrow to my attention. …”. It was sent to Mr. Bray, Mr. Ummels, Mr. Castrounis and Mr. Ferran, and also to the defendants, Mr. Hottinguer and Mr. Demarre.

Mr. Rouvroy said in cross-examination that wording of this email did not reflect his instructions to Mr. Doly: that Mr. Doly was simply told to send the termsheet back to Astin. I am prepared to accept that Mr. Rouvroy might not told Mr. Doly that the signed termsheet was a legally binding contract and that the defendants did not read the email, but I find it impossible to accept that the words used by Mr. Doly do not reflect an understanding in the offices of H et Associés, shared by the defendants, that by signing the termsheet they were committing themselves to the deal with Astin, Maple Leaf and Lion Capital and that this commitment would be what the investors required in order to send their subscription orders. It is another question, however, whether the defendants understood that the commitment was to be legally binding.

Mr Castrounis responded at 11.05pm by sending by email a copy of the subscription form for 330,000 warrants, saying that the original document would be sent the next day. The form stipulated that the subscription was “definitive and irrevocable” (although the Administrator, CACEIS Corporate Trust, had a discretionary right to refuse a subscription). Mr. Bray, on behalf of Astin, and Mr. Castrounis, on behalf of Maple Leaf, added their signatures to the copy of Version 9 signed by the defendants, and at 11.53pm Mr. Castrounis emailed it to the defendants and to Mr. Hottinguer and Mr. Doly. He also copied this email to Mr. Demarre, Mr. Ummels, Mr. Ferran and Mr. Tooth.

At 11:56pm Mr. Castrounis sent an email to Mr Rouvroy congratulating him on the buyout. Mr. Bray telephoned Mr. Ummels upon his arrival in Romania at about midnight or some time thereafter and told him that the Funding Agreement had been successfully completed.

I should say something about the Funding Agreement that the claimants say was concluded and the claimants’ rights under it. I am not in a position to assess the credit risk to Maple Leaf, and indeed Lion Capital, in providing finance on the terms of Version 9: on the face of it, the funding was well-secured, although ultimately the collateral depended upon the value of Belvédère, and it is unclear how valuable the personal undertakings of the defendants would be if Belvédère failed. However, the funding with a fixed return of 25%pa was on any view expensive and certainly far more expensive than that which on 10 July 2007 Astin indicated might be raised under “plan B” at an interest rate of EURIBOR plus 150 basis points, about 6%. As Mr. Ummels explained, by the third week of July 2007 market conditions had reduced the availability of credit, and Astin was asked to raise the finance very quickly. The defendants knew that the funding was expensive: they were experienced businessmen and Mr. Bray expressly told them. Whatever their chances of successfully completing the placement if they did not arrange the finance on 25 July 2007, the defendants were, as I conclude, unable to find funding on better terms in so short a timescale, and decided to accept the terms on offer. They probably hoped and believed that they could improve the terms through negotiation: I shall have to consider later in this judgment whether they intended to comply with the terms of Version 9 if they could not do so.

Mr. Castle pointed out, as I shall explain, that shortly after 25 July 2007 the defendants obtained less expensive funding from Lion Capital under the portage agreement and by 30 July 2007 Mr. Ummels had found funding to the value of US20 million at a rate of 12.5% pa and with a right to repay it for a premium of 7.5%. However, Lion Capital had its own reasons for seeking to retain the goodwill of the defendants in order to acquire Pulco, and Mr. Ummels was not asked to explain how he found the funding of which he told the defendants on 30 July 2007 or who the potential investor was. The fact is that on 25 July 2007 the defendants were not able to find funding that was less expensive than that offered by Maple Leaf despite the assistance available from H et Associés and Bucéphale: had it been available, they would no doubt have accepted it.

The terms of Version 9 were the more onerous for the defendants because the investors had the right (effectively) to convert the debt into equity through the call option, and to “borrow” the securities held by the SPV. Mr. Castle points out that this meant, first, that, if during the year to 1 August 2008 the value of warrants increased, Maple Leaf could make additional profit, whereas the SPV bore the risk of the value of warrants falling; and secondly that the claimants would be in a position to sell Belvédère securities short, and so make additional profits if the value of securities fell. Again, I shall have to consider the value of these rights later in my judgment, but I am satisfied that when they signed Version 9, the defendants were aware of the terms providing for the option and the right to borrow securities. So too was Mr. Castrounis: he gave evidence that the option was a “core part” of the deal for Maple Leaf.

At 00.57am on 26 July 2007 Mr Rouvroy sent an email to Messrs Bray and Ummels stating that “we have a problem as we realise that we have given bsar2 [warrants] in collateral to another investor”. Mr Rouvroy requested that Maple Leaf subscribed 366,000 warrants at €82 each instead of 330,000 warrants at €91 each, and that the number of BSAR warrants that the defendants were to provide to the SPV by way of security be reduced to 330,000. (Mr. Rouvroy copied the email to his lawyer, Ms Poncelet. It might be tempting to think that this reflects his appreciation that the defendants were unable to fulfil a legally binding commitment into which they had just entered, but Mr. Rouvroy was not asked about this when he gave evidence and in these circumstances I decline to draw this interference.)

In response Mr. Bray told Mr. Rouvroy that he would inquire whether Mr. Castrounis would agree to these changes, but urged Mr. Rouvroy to concentrate on completing the further documentation, establishing the SPV and having the security transferred to it.

Mr Bray gave evidence that, when he received this email from Mr. Rouvroy, Mr. Bray spoke to Mr. Ummels, who had now arrived in Bucharest, and expressed concern that the defendants were not taking the agreement seriously. Mr. Ummels had not seen the email. After 15 or 20 minutes Mr. Ummels telephoned him and reported, having spoken to Mr. Rouvroy, that Mr. Rouvroy knew that he had concluded a binding agreement.

Mr. Ummels gave evidence that in response to Mr. Bray’s first telephone call he spoke to the defendants, who were still at the offices of H et Associés with Mr. Hottinguer and Mr. Doly. They conducted the conversation, according to Mr. Ummels, on a speaker telephone. His account of the conversation was this: that he said that he understood from Mr. Bray that the defendants were trying to amend a concluded deal after signing it, and that, while he did not know all the details, he knew that a full and final agreement had been made. He said that Astin’s approach to business of this kind was that there were three phases in any deal: negotiation, signing an agreement and implementation, and it was now important to implement the agreement. Mr Trylinski expressed disappointment about the terms of the agreement and the cost of the funding, complaining that Astin had not done a good job. Mr. Ummels reiterated that the defendants had reached a binding agreement, and, as Mr. Ummels put it in his witness statement, Mr. Rouvroy confirmed that the defendants “had concluded a legally binding agreement which they would live up to”: that, Mr. Ummels said, was the last sentence of the conversation. Mr Ummels then telephoned Mr. Bray and assured him that the defendants understood that the next stage was that they should implement that signed agreement.

The defendants did not refer to the telephone call from Mr. Ummels in their witness statements and neither did Mr. Hottinguer. However, as I have said, in the complaint dated 8 October 2008, the defendants said that Mr Ummels contacted Mr Rouvroy by telephone and “insisted that there was now a full and final agreement which Jacques Rouvroy and Christophe Trylinski could not evade in any circumstances”.

When cross-examined, Mr. Rouvroy said at first that he did not recall the conversation at all but, when reminded of the criminal complaint, he said that the conversation took place but he could not remember what was said. Mr. Trylinski said that he had no recollection of the conversation. Mr. Hottinguer said that he did not know whether it took place, but could not deny that he took part in it.

I accept Mr. Ummels’ evidence that he spoke to the defendants on the telephone in the early hours of 26 July 2007 and had a conversation broadly as he described. Mr. Castle submitted that there had been no conversation between the defendants and Mr Ummels, but I am unable to accept that submission. That would mean that Mr. Bray and Mr. Ummels had concocted an untruthful account, and I do not consider that either was a dishonest witness. Further, on 2 August 2007 Mr. Ummels wrote this in an email to Mr. Rouvroy: “The last time we spoke, last week over the conference call with you, Philippe [Hottinguer] and Krysztof [Trylinski], we agreed the following: 1. proceed with the execution of the documentation, per the signed and legally binding agreement, in order to keep the good spirit amongst parties and live up by the agreed and signed deal. 2. try to renegotiate at a later stage with the investor, once he sees that we are not trying to renege the signed agreement, amongst intelligent people and on mutually acceptable basis”. I cannot accept that Mr. Ummels would have so written if he had not had a conversation broadly in those terms, and it was not suggested that such a conversation might have taken place at any other time than in the early hours of 26 July 2007.

I do not doubt that by the end of the conversation Mr. Ummels believed that he had explained and Mr. Rouvroy had agreed that the defendants were committed to a legally binding agreement. I also accept that that is what he told Mr. Bray immediately afterwards. However, I have had more difficulty in deciding whether the defendants and Mr. Hottinguer understood that Mr. Ummells was asserting that a legally binding agreement was concluded and whether Mr. Rouvroy intended to express agreement with that: in other words, I must consider whether there might have been a degree of misunderstanding between the parties. I have found this question the more difficult to resolve because, I would suppose, the conversation was conducted in French and I heard evidence about it in English.

As with other conversations between the parties, there are no contemporaneous notes of it in evidence and, as far as the evidence goes, none were taken. The circumstances in which it took place were these: for the defendants and Mr. Hottinguer, it was the end of a very long day when they were inevitably exhausted. They had believed that they had successfully completed the placement and then come across a difficulty that might jeopardise the deal. Mr. Ummels had just arrived off his flight to Romania All the parties to the conversation might well have been imprecise in what they said and not fully attentive to what others said. I have little difficulty in supposing a conversation in which Mr. Ummels, in response to Mr. Trylinski complaining about the costs of the funding from Maple Leaf (and maybe from Lion Capital), told the defendants that they had signed a deal, that Astin regarded them as committed and that he expected them to honour it. I also have little difficulty in supposing that Mr. Rouvroy agreed with that, considering himself committed as a businessman to go on to conclude a contract based upon Version 9 but without intending to acknowledge a legally binding agreement was already concluded or realising that Mr. Ummels was asserting that the defendants were already contractually committed. I conclude that Mr. Rouvroy went that far in agreeing with what Mr. Ummels said because I accept that Mr. Ummels’ account of the conversation was reliable to that extent. I am not persuaded, and I do not find, that the words used by Mr. Ummels were such as conveyed to the defendants and to Mr. Hottinguer that he was referring to them being legally bound to a contract in the terms of Version 9.

The defendants contend that, after they had had some sleep on 26 July 2007, they realised that the terms of Version 9 were not acceptable to them. After a couple of hours sleep, Mr. Rouvroy woke and looked at Version 9 and decided that he could not “continue along this direction” unless the investors agreed to an asset backed loan or a “convention de portage”, an agreement, as it was explained to me, whereby A transfers securities to B, and B undertakes to sell them at an agreed time and on agreed terms. Mr. Rouvroy realised that there was a “trap”, and he realised that there was a risk of the shares being sold short: “I felt all of a sudden, my mind flicks up and I say, “Something wrong there. I don’t understand. Why do they need to borrow our shares? I hope it is not to do with short selling”. But I’m not sure you know, and in fact I now realise that it is to do with short selling”..

Mr. Trylinski said that after they had had some sleep the defendants realised that the previous evening they had been exhausted and “had not been capable of understanding what [was] being proposed”. Mr. Rouvroy told him that many aspects of it were unacceptable, including the level of Astin’s fees and that the terms would allow the claimants to sell short the shares. Mr. Rouvroy said that he went to the offices of H et Associés early on 26 July 2007 but he did not remember what discussions he had with Mr. Hottinguer. Mr. Trylinski did not remember whether the defendants discussed their change of heart with Mr. Hottinguer. It is clear however that Mr. Rouvroy and Mr. Trylinski discussed it between themselves, and Mr. Trylinski agreed with Mr. Rouvroy that they should not continue with Version 9.

At 6.49am on 26 July 2007 Mr. Rouvroy sent Mr. Ummels and Mr. Bray another email about the defendants being unable to provide the agreed collateral: he described this problem as “most important” and said that if it could not be resolved “the whole deal falls apart”. By the “whole deal” Mr. Rouvroy meant, as he confirmed in his evidence, the whole private placement and not only the funding that Astin had arranged. Mr. Rouvroy asked that Maple Leaf should send another subscription, for 365,853 warrants to replace the subscription for 330,000 warrants that had been sent the previous night. Mr Bray understood that the defendants wanted to purchase a number of warrants themselves at a lower price, and this is why they were offering Maple Leaf the lower purchase price on the warrants. He told Mr Rouvroy in a telephone conversation that he would speak with Mr Castrounis and urged Mr Rouvroy to concentrate upon completing the documentation, establishing the SPV and transferring the collateral to it free from any pledges or liens. (I observe that Mr. Rouvroy’s email referred to the need for Maple Leaf to agree to a reduction in the collateral without reference to Lion Capital: it was not explored in the evidence why this was so. It might be that Mr. Rouvroy regarded the problem as less acute as far as Lion Capital was concerned because it had not yet sent in a subscription or it might be that Mr. Rouvroy was dealing with Lion Capital through Mr. Demarre; but that is speculation.)

Mr. Ummels replied to Mr. Rouvroy’s email at 8.31am, stating that Mr. Bray was seeking to resolve the issues. He wrote, “We just signed a binding agreement and it is incredibly embarrassing for Astin to even try to renegotiate such a signed agreement”. Neither Mr. Rouvroy nor Mr. Hottinguer, to whom the emails were copied, disputed that the defendants had signed a binding agreement.

Mr. Bray forwarded to Mr. Castrounis both the emails received from Mr Rouvroy (at 00.57am and 6.49am), together with Mr. Ummels’ reply to the later email. Mr. Castrounis accepted the changes proposed by Mr. Rouvroy. Mr. Bray had observed when forwarding the email of 00.57am that there was no issue about the amount of the investment and that it was only a matter of the number of warrants and commented that it was “good news”, meaning that Maple Leaf would receive more warrants; and Mr. Castrounis replied “Nice”.

Mr Bray emailed Mr Rouvroy at 8:38am on 26 July 2007 to confirm that Maple Leaf would revise its subscription as requested and that he would revise the “agreement” accordingly. In essence, the number of warrants to be purchased by Maple Leaf and lent to the SPV was increased from 330,000 at €91 to 365,853 at €82; and the collateral to be placed with the SPV was changed from 325,000 shares and 380,000 BSAR2 warrants to 325,000 shares and 330,000 warrants.

At 10:29am Mr. Bray sent to the defendants a revised version of the termsheet, Version 10, that incorporated changes to deal with the matters that had been raised by Mr. Rouvroy. Mr. Bray wrote in his covering email (which was sent in copy to, amongst others, Mr. Hottinguer, Mr. Demarre, Mr. Ferran and Ms Poncelet):

“I am pleased that you and your partner have finalised the funding requirements for your Share Acquisition vehicle. I have confirmed that Maple Leaf accept the terms of the collateral but I have not confirmed this as of yet with Mr. Javier Ferran. … We have reflected the changes in this later version of the agreement, version 10.

Please sign and return the amended termsheet. Please have your signature witnesses and returned by email and/or fax to [Maple Leaf and Astin]. We plan to immediately engage legal advisors to draft the required documentation.”

At 10.39am he sent the same recipients another version of the termsheet, Version 10a, but the only difference between Version 10 and Version 10a was that the latter spelt out more clearly and made consistent the exercise price for the option. In the covering email Mr. Bray explained that it had “an amended Share & Warrant option clause adjusted for the changed warrant purchase price and clarifying the option available to the Lenders”.

Apart from the changes designed to deal with the difficulties that Mr. Rouvroy had raised, Versions 10 and 10a were similar to Version 9 except that whereas Version 9 provided only for Maple Leaf and Astin to have an option to buy the warrants held by the SPV, Versions 10 and 10a introduced a provision that Lion Capital should have a comparable call option. Mr. Bray said that this change had not been requested by Lion Capital, and there is no specific evidence about why Mr. Bray made this change (although he did say that it might have been by way of compensation to Lion Capital for the reduced security).

Mr. Rouvroy responded at 11.06am to the request that the defendants sign and return Version 10, saying “I do that right away”. However, the defendants never did sign or return either Version 10 or Version 10a. Mr. Rouvroy said that this was because he was trying to contact his lawyer, Ms Poncelet, who was not available. Before he was cross-examined, he had not said that this was the reason for the defendants not signing Version 10a and it was submitted on behalf of the claimants that I should reject this explanation. I see no reason to do so: Mr. Rouvroy was insistent in his evidence that he did not regard termsheets as contractually binding, but I conclude that by this stage he realised that the defendants were in a difficult position and needed to take legal advice, and I am prepared to accept that he tried to contact Ms Poncelet before signing Version 10a. However, this was not explained at the time to Astin, who was led to believe that the defendants would agree to Version 10a. In fact, as Mr. Rouvroy acknowledged, by now he was “very close to deciding not to proceed”. He also said that he discussed the position with Mr. Trylinski: they were still together at the offices of H et Associés. Mr. Trylinsi did not disagree with Mr. Rouvroy: Mr. Rouvroy explained that Mr. Trylinski “leaves it to me to decide all those matters”. The defendants were (to use the expression of Mr. Castle in his final submissions) “fobbing off” Astin, and were playing for time in the hope that they could find a way of resolving the position and obtain finance on better terms without doing anything that would lead Maple Leaf to withhold its subscription for warrants on the revised terms. The claimants contend that the defendants were not simply close to deciding not to proceed but had already made a decision not to do so. I accept that the picture suggested by Mr. Castle is realistic: my conclusion is that by this time the defendants appreciated the difficulties that they were in and were playing for time and hoping that they could improve the terms of their agreement with Maple Leaf and Lion Capital. Although I reject the claimants’ submission that by this point the defendants had finally accepted not to comply with the agreed terms, they were not being candid about their intentions. Far from intending to sign relevant terms “right away”, they were undecided whether or not to do so.

Mr. Rouvroy continued to seek to renegotiate the terms of the funding. He wished to reduce the cost of capital from 25% to 20%. He also wished to restructure the deal in order to move away from a fixed one-year maturity for the funding and instead to negotiate an option to bring forward the redemption date. In an email at 12.49pm to Mr. Bray (which read “I hope that you can come up with the ok from [Maple Leaf] as to 20%. Also exit clause”) he alluded to these requests, and also asked Astin to reduce its fee to 2% because Lion Capital had been introduced by Mr. Demarre.

The claimants submit that it is implicit in this email that the defendants accepted that a deal had been done with Maple Leaf and were hoping to renegotiate it: and it is observed that the defendants do not state that they refuse to implement the Funding Agreement. I am unable to accept that submission: the email is certainly consistent with this suggestion, but does not necessarily indicate that the defendants recognised that they had entered into a contract with Maple Leaf.

At 2.30pm Mr. Rouvroy sent an email to Mr. Bray enquiring “Where do we stand with [Maple Leaf]? Hopefully you are making progress”. Mr. Bray replied, asking Mr. Rouvroy to telephone him and saying, “I think that I’ve been successful”. There was a difference between the parties about what Mr. Bray meant by this. Mr. Bray said that he was referring to success in finding replacement funding for Lion Capital. The defendants submit that Mr. Bray was referring to success in persuading Maple Leaf to accept terms more favourable to the defendants. I agree with the defendants that this seems a more natural interpretation of the email trail. However, Mr. Bray’s evidence about what he had in mind was not challenged, and there is no evidence that he and Mr. Castrounis had had any exchanges that might explain why Mr. Bray should think that Maple Leaf would agree to changes of this kind. Mr. Bray’s message is something of a mystery, whether or not he believed that a contractual agreement had been concluded, and it does not assist in deciding this question. It is possible that he was saying that he had resolved the problem over the collateral although he had already told Mr. Rouvroy that. Whatever Mr. Bray did mean, I cannot accept that he was intending to indicate that Maple Leaf had agreed to renegotiate the terms of the financing so that they should be more favourable to the defendants in any significant way or that Maple Leaf had given any such indication to Astin.

H et Associés continued to press for Maple Leaf’s revised subscription. Mr. Doly asked for it by email at 4.47pm, sending a copy of the email to Mr Rouvroy. Astin sought to send Maple Leaf’s revised subscription at 5.15pm but erroneously sent a further copy of the subscription for 330,000 warrants. The error was pointed out by Mr. Doly at 5.23pm, his email again being copied to Mr. Rouvroy, and the revised subscription for 365,000 warrants was sent by Mr. Castrounis at 5.36pm. Again, the form stipulated the subscription was “definitive and irrevocable”. It appears from Mr. Doly’s email of 4.47pm that the original subscription form was sent from London to Paris. I infer that it was, and this inference is supported by Mr. Castrounis’ promise in his email at 10.58pm on 25 July 2007 when sending the first subscription form that the original form would be sent the next day. Maple Leaf sent funds for the subscription at about the same time.

Before these subscription forms were sent, Mr. Bray and Mr. Castrounis had, as I find, discussed the defendants’ conduct of the negotiations. In an email to Mr Rouvroy at 5.40pm on 26 July, Mr Bray told him that Maple Leaf considered that the number of proposed changes to the agreement was inappropriate and that actions taken by the defendants were not in good faith. This, as I find, reflects a conversation that Mr. Castrounis had had with Mr. Bray, and he must have made clear his view that the attempts by the defendants to renegotiate the signed agreement demonstrated that they could not be trusted. Mr. Castounis did not accept this when he gave his evidence: he agreed that Mr. Rouvroy had made proposals designed to improve the deal for the defendants, but said that he did not see this as jeopardising the Funding Agreement that had been reached and said that nothing had happened between the time that Version 9 was signed and when he sent in the revised subscription form that made him feel concerned about the deal. However, he did not have a clear recollection of his conversations on 26 July 2007, and he offered no cogent explanation for what Mr. Bray wrote to Mr. Rouvroy. Mr. Castrounis accepted that by the end of 27 July 2007 he “felt [that the defendants] were not acting in good faith and fraudulent”: in my judgment, this was what he thought by 5.00pm on 26 July 2007.

In a further email sent to Mr. Ummels and Mr. Bray at 5:51pm on 26 July 2007, Mr. Rouvroy wrote this:

“Following our various conversations and your call with Luc [Demarre], you will find below what Christophe and I need to obtain from Astin/Maple Leaf in order to be able to meet with the financing requirements of the overall deal structure without loosing [sic] our shirts:

As regards arranging fees, we are happy to pay Astin 4% over 50m euros. Knowing that you brought in 30m euros and Luc brought in 20 euros, I am sure that you will find the appropriate fee arrangement with luc afterwards once the dust has settled;

Maple Leaf overall terms: maturity until 01/08/08 – interest rate 25% per annum pro rata – exit clause: whenever we want (or can!) with a two month interest franchise.

I appreciate that re-discussing these terms with Maple Leaf is not something easy for you but I trust you will appreciate the critical situation in which Christophe and I are currently and more importantly the fact that unless we can get approval on those terms we will not be able to meet without financing obligations. We also want to thank you once again for your full support in this very critical time and no doubt you will stay in our first circle of trusted advisers for the next 30 years.”

Mr. Bray sent the email on to Mr. Castrounis at 6.15pm.

Mr Bray’s evidence was that his response to the requests from Mr. Rouvroy about Astin’s fees was that he would discuss with Mr. Demarre sharing the fee. In the event he did not do so because the defendants have refused to pay Astin any fee.

On 27 July 2007 Mr Ferran had emailed Mr Bray and the defendants at 9.01am in reply to Mr. Bray’s communication at 10.29 am on 26 July 2007. He wrote that Lion Capital urgently needed to be put in contact with Maple Leaf’s lawyers to avoid duplication in work on the documentation. (According to Mr. Rouvroy’s written evidence, Mr. Ferran had already told him that he would not respond to Version 9 because he wished to have a “portage” agreement. Mr. Rouvroy did not give oral evidence to this effect. His written evidence is unreliable and this account is inconsistent with the sequence of events indicated by the documents. I reject it, and also reject that written evidence of Mr. Demarre in so far as it supports Mr. Rouvroy’s statement.) Mr. Bray replied that he planned to call Herbert Smith that morning to start coordinating the drafting of documents. He told the defendants that Astin was beginning to draft the documentation but at the same time seeking to improve the terms of the transaction. During the afternoon, Paul Hastings told Mr. Bray that they had been instructed by Mr. Rouvroy.

However, on 26 July 2007 Mr. Demarre had, on the defendants’ instructions, gone about trying to find alternative finance to replace Maple Leaf, Lion Capital and Astin. He sent an email to a colleague at Bucéphale, Mr. Jean Marc Forneri, briefing him about how Mr. Forneri might conduct discussions with BNP Paribas (which was the bank to Marie Brizard and had an established relationship with Belvédère), and writing (according to the agreed translation):

“Ask him to help with the most urgent: refinancing of 50m euros which were raised during the night of Wednesday to Thursday under very onerous conditions (interest rate 25%) in the form of a 12 month loan made to a SPV held by [the defendants], and in order to fill the gap of 50m euros in the Belvédère book. This refinancing must be done ASAP…”

At some point on around 26 or 27 July 2007, Mr Rouvroy asked Astin to reopen discussions with a view to securing a new investor. Mr Bray emailed the defendants at 6.13pm on 27 July and said that they were working very hard and “expect[ed] to be able to offer an improvement in the terms of the lending for the SPV”. According to Mr. Bray’s evidence, he was referring to substituting Lion Capital’s participation, not to Maple Leaf’s participation, but his email was not specific and gave the impression that he was hopeful that the terms of both investors would be improved. I accept that this was not his intention.

It appears that by the end of 27 July 2007 Mr. Demarre had secured new terms for the funding of Lion Capital or at least that he was confident that he would do so. Lion Capital agreed to a portage arrangement whereby it bought 119,760 shares in the placement at €167 per share (and therefore for a total price of some €20 million) and Belvédère agreed to buy the shares at the same price by no later than 30 September 2007. It is not entirely clear when the substitute funding was finally secured: it seems probable that some agreement was reached on 27 July 2007 but it was amended on 30 July 2007 and again on 1 August 2007. Whenever the agreement was reached between the defendants and Lion Capital, Astin and Maple Leaf were not aware of it until 30 July 2007.

Meanwhile on 27 July 2007 H et Associés were pressing Maple Leaf to complete the purchase of the warrants that it had agreed to buy. Mr Doly emailed Mr Castrounis at 7.29pm to ensure his subscription was correct and stated "As you know, the order has to match on Monday morning, or the whole deal will be off". (He was referring to the need to “match” securities subscribed with funds received.) Mr. Castrounis forwarded the email to Mr. Bray with this comment: “…they know the pressure is on them … best to have them sign something on Sunday (ie give them a deadline) … at very least we’ll have them sign new heads of terms but best we push for the whole thing”. Mr. Castrounis was concerned that the defendants had not signed Version 10a, confirming the changes about the number and price of the warrants to which Maple Leaf had agreed. Mr. Bray responded that from a conversation with Mr. Rouvroy that morning it appeared that he was more concerned about Lion Capital’s funding: he added, “The situation seems ok for now”.

On the morning of 30 July 2007 at 9.49am, Mr Ummels sent Mr. Rouvroy an email to advise him that Astin had been able to find an investor willing to replace Lion Capital’s participation. Astin had understood from a lawyer at Lion Capital that it was concerned about participating in the placement in light of Orangina’s contemplated acquisition of Pulco and French law relating to the use of corporate funds. (The precise nature of this concern was not explored in evidence.)

Mr. Castle pointed out that the email at 9.49am did not specifically refer to Lion Capital: it refers to finding “a 20 million Euro investor that could substitute one of the 2 investors of last week”. However, Mr. Bray made it explicit that this was the purpose of the proposed substitute funding when at 11.26am he sent Mr. Rouvroy a termsheet setting out terms for the substituted funding: they contemplated loan interest of 12.5% pa and that the funding might be redeemed on five days’ notice for 107.5% of the Loan Amount and any accrued but unpaid interest.

However, at 11.49am Mr. Rouvroy emailed Astin to say that the defendants did not need to find substitute financing for Lion Capital’s participation, since they were about to reach a separate deal by way of a portage arrangement by which Lion Capital would acquire shares “directly like an investor with an exit clause 30 September” guaranteed by Belvédère. Mr Bray informed Mr Castrounis about Lion Capital’s withdrawal from the Funding Agreement, and Maple Leaf had no objection to this.

Shortly afterwards, at 11.56am, Mr. Rouvroy sent Mr. Ummels and Mr. Bray an email again proposing a portage arrangement with Maple Leaf and asking that they should “simplify the scheme so that [Maple Leaf] will act as an investor benefiting by an exit clause guaranteed by [the defendants and Belvédère]. We have yet to agree on … the financing rate: we propose 25% with minimum guaranteed 3 months ie 31 Oct”. Mr. Bray replied that they needed to “act speedily on the Maple Leaf deal”, warning that there was “a serious risk of deal failure if we do not agree the final structure and documentation for the agreement signed last week with Maple Leaf”. Mr. Ummels responded to Mr. Rouvroy that he had “agreed to proceed with the documentation as it is signed and then try to renegotiate the terms with ML, in good faith and at a later stage”.

On 30 July 2007 at 6.19pm Paul Hastings sent a letter proposing a transaction whereby the defendants might buy back the warrants subscribed by Maple Leaf by 31 October 2007 paying a minimum of 25% interest at 25% pa. Mr. Bray sent it to Mr. Castrounis with the remark, “They’re trying it on”.

Over the weekend of 28 and 29 July 2007, Astin had asked Messrs Withers to begin preparing documentation for the transaction, but Withers were unable to produce drafts until late on 30 July 2007. Mr. Bray sent Withers’ draft documentation to Paul Hastings during the evening. No comments were received in response. By 31 July 2007 Maple Leaf had paid the purchase price of €29,999,946 and the purchase of the warrants had been settled. Astin requested the defendants to comply with their obligations to use their best endeavours to complete by 1 August 2007 the documentation necessary to carry the Funding Agreement into effect, but they did not do so or make any attempt to do so.

On 1 August 2007 Belvédère held an Annual General Meeting and a public announcement was made that the private placement had been successful and the CLF representatives had resigned from Belvédère’s board.

On 1 August 2007 at 2.33pm. Mr. Bray sent an email to the defendants and Paul Hastings, referring to the “Management’s” undertaking to execute the loan documentation by 1 August 2007 and the power of the “Lenders” to “extend the deadline”. It stated “accordingly we hereby do so until noon tomorrow London time”. As I read the email, Astin was purporting to extend the deadline on behalf of Maple Leaf as well as itself, and I infer that it was sent on behalf of both claimants. (A copy of the email was sent to Mr. Castrounis, who did not suggest either contemporaneously or in his evidence that it was not authorised by Maple Leaf.)

The defendants did not respond to this email. Mr. Bray sent a further email giving notice of a further extension until noon London time on 3 August 2007. This email was sent shortly after noon on 2 August 2007, that is to say, just after the extension given on 1 August 2007 had expired. However a similar notice was also sent on 2 August 2009 by fax. It is not apparent from the evidence whether it was sent before or after the expiry of the previous notice.

On 2 August 2007 at 1.47pm Mr Rouvroy sent an email to Mr. Bray saying that there “seems to be a misunderstanding between us”; and that the defendants wished to sign a revised termsheet providing that the defendants might end the funding at the end of September 2007, paying a minimum of three months’ interest. He also said that it was unnecessary to “lock …. our shares in a SPV” in view of the short funding period that he proposed. Mr Ummels responded at 3.22pm with the email referring to the telephone conversation in the early hours of 26 July 2007 that I have set out above. The defendants did not respond by denying his account of the conversation, and in none of the exchanges since 25 July 2007 had they disputed that they had entered into an agreement with Maple Leaf and Astin.

On 6 August 2007 at 4.50pm Mr. Bray said in an email to Paul Hastings that he believed that “documentation needs to be finalised with all due haste to avoid action being taken for Jacques and Christophe not abiding by their undertakings”. Shortly afterwards Mr. Bray sent an email to Mr. Rouvroy acknowledging the “proposal regarding a new term sheet” but confirming that Astin and Maple Leaf “expect[ed that they would] live up to you (sic) obligations to document the existing transaction as per the agreement signed”. He said that Astin had “exhausted all friendly methods of communication by which to have you and Christophe live up to your end of the agreement”.

By an email at 6.42pm on 6 August 2007 to Mr Bray and copied to Mr Trylinksi Mr Rouvroy said: “Our position is as follows: We will exit Mapple [sic] Leaf in Sept. I see no reason for setting up the SPV. … Either you accept to organize the exit in a way that is acceptable to us all. There will be no looser (sic). Or you want to force us into a deal where we will clearly be not able to meet with our obligations. I feel that the first solution is by far the best!!”. Mr. Bray replied, “Please don’t shoot the messenger. The documentation must come first”. Mr. Rouvroy replied at 6.59pm, “I shoot nobody. Situation is very simple: By mid Sept we take back the 30M from ML. We are willing to commit to that as Jacques and Christophe and as Belvédère. Nothing else.”

On 8 August 2007 Messrs Herbert Smith wrote on behalf of Maple Leaf to Paul Hastings asserting that Maple Leaf had concluded a legally binding agreement with the defendants and requiring the defendants to comply with it. They extended (or purported to extend) the period “for the agreement and finalisation of the further documentation referred to in the Agreement” to 5.00pm on 13 August 2007. It appears that on 13 August 2007 that Herbert Smith further extended the period to 5.00pm on 15 August 2007 although that letter is not in evidence. Paul Hastings replied on 15 August 2007 denying that there was a binding agreement. In their letter they referred to the notice extending this, and said that “It is not open to [Maple Leaf] to attempt to unilaterally extend the deadline” even if the Funding Agreement was enforceable.

On 16 August 2007 (after the deadline at 5.00pm on 15 August 2007) Herbert Smith wrote that Maple Leaf still required the defendants to “abide by the agreement” and purported to extend that time for completion to 5.00pm on 3 September 2007. They sent similar letters on 3 September 2007 and thereafter.

These proceedings were brought by Maple Leaf on 17 August 2007.

At the end of September 2007 Belvédère brought the shares to which Lion Capital had subscribed.

On 10 October 2007 Mr. Rouvroy sent Mr. Ummels an email in which the defendants offered to buy Maple Leaf’s warrants by no later than 31 October 2007, offering a return of 25% pa on the funding for three months. He said that an offer was planned to convert BSAR 1 warrants into shares and BSAR 2 warrants, and the alternative for Maple Leaf was to exchange its BSAR 1 warrants for 183,000 shares and 183,000 BSAR 2 warrants.

On 18 December 2007 Paul Hastings wrote to Herbert Smith a letter in which they referred to a planned offer to convert warrants and emphasised Maple Leaf’s obligation to mitigate its loss. It proposed that Maple Leaf should tender its warrants for exchange into shares and BSAR2 warrants and give the defendants a call option until 31 March 2008 on the shares received to enable the defendants to purchase them at €164 per share. It pointed out that Maple Leaf would keep the BSAR 2 warrants received at the time of the tender offer. The letter stated, “this call option must be accompanied by a settlement agreement with [Maple Leaf] (and Astin) which would be subject to the completion of the tender offer and the exercise of the call”.

The claimants did not accept the offers of 10 October 2007 and 8 December 2007.

Since 25 July 2007, Belvédère’s share price has fallen sharply, as has the value of the warrants in Belvédère held by Maple Leaf. The listed share price peaked at €197 per share in May 2007 and they were trading at around €167 per share on 25 July 2007. The share price dropped from August 2007, and by the end of May 2008 the price was around €90. In June 2008 the trading price of Belvédère fell by 30% following the disclosure that it had breached its covenants to noteholders and the shares were suspended from trading. (This apparently resulted at least in part from the agreement reached with Lion Capital.) On 18 July 2008 the Tribunal de Commerce of Beaune placed Belvédère in “sauvegarde procedure”, an insolvency process protecting companies from creditors.

The Loan Maturity Date has now passed, nothing has been paid to the claimants.

The termination provision of the Funding Agreement provided that it should terminate automatically if the “Borrower(s) and/or Management” did not “close the transaction” in accordance with the Funding Agreement on or before 1 August 2007 unless it was extended in writing by the “Lenders”. It is the claimants’ contention that they did so extend the Funding Agreement and it has not terminated under the termination provision.

In their pleading the claimants allege that they exercised the power to extend the agreement by the notices sent by Astin on 1 and 2 August 2007. They go on to plead this at paragraph 16 of the Particulars of Claim: “Thereafter [sc after 2 August 2007], Astin and/or Maple Leaf repeatedly requested the Defendants to complete the transactions and thereby expressly and/or by implication further extended the time by which all steps necessary to complete the transaction in accordance with the Agreement were to be completed, …”

I am unable to accept that the claimants sent notices that effectively extended the Funding Agreement as they allege. In my judgment in order effectively to extend the agreement (i) notice must be given before the Funding Agreement has been terminated and (ii) both the “Lenders” must exercise the power. Otherwise the provision would not to my mind make any business sense, particularly from the point of view of the “Management” and, if established, the SPV. If the power to extend the agreement could be exercised after it had terminated and therefore the Lenders were in a position to revive the Funding Agreement after, perhaps long after, it had terminated, the defendants and any SPV would have to organise their affairs to accommodate this possibility. I cannot accept that the parties intended that one Lender could extend the Funding Agreement as far as it was concerned and the other allow it to terminate as far as it was concerned.

I therefore do not consider that the letters sent by Herbert Smith on 8 August 2007 and thereafter were effective to extend the Funding Agreement and I conclude that it automatically terminated. By then the Funding Agreement had already terminated and in any case, as Herbert Smith’s letter stated, they were acting for Maple Leaf and did not purport to give notice on behalf of Astin. I accept that Astin’s email of 1 August 2007 prevented termination before noon London time on 2 August 2007. It is possible, depending upon when notice was sent by fax on 2 August 2007, it was further extended to noon London time on 3 August 2007, but it was not effectively extended thereafter.

I have had to consider whether this conclusion is open to me is view of the positions taken by the parties in the litigation. In his written opening Mr. Lenon stated that it is accepted in the defence that the Funding Agreement had been extended (subject to the challenge to its binding nature and to the validity of the right to extend). The defendants’ pleading is not clear: paragraph 17 of the defence admits paragraph 16 of the particulars of claim subject to denials of the binding nature of the Funding Agreement and the claimants’ entitlement “to unilaterally extend any deadline to complete the agreement alleged even had any such deadline been agreed…”. It also admitted that the letters of Herbert Smith “purported to further extend the ‘deadline’”. I can well understand why the claimants took it that it was not in issue that they had effectively extended the Funding Agreement, assuming that it was a concluded contract and assuming that the termination provision was effective and enforceable. It seems to me likely, however, that the defendants intended simply to admit that the notices (or purported notices) were sent, and I find this a natural reading of the pleading. In their written opening the defendants’ counsel stated that their case was that “at no point have the “Lenders” ever given a notice of purported unilateral extension of time to complete”. In their closing submissions however the defendants argued their case on the basis that the Funding Agreement was effectively extended by the claimants.

I cannot accept that the pleadings and the equivocation or even concessions in the defendant’s submissions compel me to decide the case on a false basis. In the end, the effect of the purported notices of extension is a matter of law, and I consider that the proper approach is to determine the claims in accordance with my view that they were not effective. As I see it, while this affects the legal nature of the relief to which the claimants are entitled, it does not significantly alter the amount of their recovery. However, in view how the case was argued by the defendants in their closing submissions, I shall allow the parties to address me further about this when I hand down my judgment.

As I have said, at a pre-trial review on 24 October 2004 the defendants applied that the proceedings be stayed on two grounds. Having rejected the application for a stay on the basis of the criminal complaint, I must decide whether the court has jurisdiction under the Brussels Regulation to determine the claims.

The claimants say that by October 2008 the defendants had entered an appearance before the court and the court has jurisdiction over the claims under article 24 of the Brussels Regulation.

I must set out something of the history of the proceedings. The claim was issued by Maple Leaf on 17 August 2007. The relief claimed was an order for specific performance of the Funding Agreement; damages in lieu of specific performance; damages for breach of the Funding Agreement; payment of €7,499,986.50 under the Funding Agreement; an indemnity in respect of any loss from the sale of securities in the market and other fees and expenses; damages for fraud; and statutory interest.

On 12 September 2007 Paul Hastings filed and served an acknowledgment of service on the defendants’ behalf. It was indicated on the acknowledgement of service form that the defendants intended to contest the jurisdiction of the court. On 10 October 2007 the defendants applied for an extension of time to serve a defence and to make an application “in the event that they propose[d] to dispute the Court’s jurisdiction”. On 17 October 2007 Herbert Smith wrote to Paul Hastings that the court has no power to extend time for a jurisdictional challenge. In this they were wrong: see Sawyer v Atari Interactive, [2005] ECHC 2351 (Ch) at para 45 and Global Multimedia International Ltd v Ara Media Services, [2006] EWHC 3107 (Ch).

On 19 October 2007 Herbert Smith consented to the request for an extension of time to serve a defence but not to an extension of time to apply to challenge the jurisdiction. On 25 October 2007 the defendants served their defence. They pleaded this at paragraph 35:

“In any event, it is denied that the English Court has jurisdiction in respect of the claims made by the Claimants in that the place of performance of the contract (if any) alleged is in France and the English Court does not have jurisdiction with respect to allegations in tort, delict or quasi delict within the Brussels Convention (sic). This defence is served entirely without prejudice to the rights of the First Defendant and the Second Defendant (which are fully reserved) to challenge the jurisdiction of the English Courts.”

At a hearing on 17 March 2008 Mr. Justice Flaux heard an application by Astin to be joined as a claimant in the proceedings. He ordered that it be added as second claimant and file and serve an amended claim form and an amended pleading. The amended pleading included the claims in contract that Astin pursues and a claim in deceit that Astin abandoned in the course of the trial. Among the claims in contract was one for an indemnity in respect of its fees of €2,002,800 to which it claimed to be entitled under the Funding Agreement. The defendants, who were represented by counsel at the hearing on 17 March 2008, did not resist the joinder of Astin or its claims being brought in this court on the grounds that they disputed the court’s jurisdiction to determine them. An order was made that Astin should pay the defendants’ costs of and caused by its joinder to the proceedings. The defendants made observations about other case management matters that were dealt with at the hearing.

In an amended defence in answer to Astin’s claims dated 8 April 2008 the defendants did not amend paragraph 35 of the original defence. The defendants also served a counterclaim against Astin with the amended defence. Thereafter they took part in the proceedings by, for example, making requests for further information in May 2008, by giving disclosure in March and April 2008, and by serving witness statements and an expert’s report in April and July 2008.

On 11 July 2008 the defendants applied to adjourn the trial from its original date, 21 July 2008. In his witness statement in support of the application, Mr. Rouvroy did not refer to any potential challenge to the court’s jurisdiction to determine the claims, and this was not mentioned by counsel when making the application. The implication was that the defendants were asking for the trial before this court to be deferred. The application was granted, and the new hearing date of 5 November 2008 was arranged.

A pre-trial review was held on 24 October 2008. On 20 October 2008 the defendants made the claimants aware that they would apply for a stay of the proceedings on the two grounds to which I have referred: the criminal complaint and the challenge to the jurisdiction.

During the trial the claimants applied for permission to plead claims in debt: that there had fallen due under the Funding Agreement and remained unpaid €29,999,946 to Maple Leaf and €2,002,800 to Astin. The application was resisted by the defendants upon the grounds that the court had no jurisdiction over a debt claim and on other grounds. I ruled that the other grounds provided no proper basis for refusing the amendment and that permission for it should be granted provided that the court has jurisdiction over the proposed new claims. Since I was to adjudicate what jurisdiction the court has in this judgment, I deferred determining that issue and so deferred ruling upon the application for permission to amend.

Article 24 of the Brussels Regulation provides that, “Apart from jurisdiction derived from other provisions of this Regulation, a court of a Member State before which a defendant enters an appearance shall have jurisdiction…”.

The claimants submit that the defendants have entered an appearance before this court in respect of the claims which are the subject matter of the proceedings: I use the terminology of Robert Goff LJ in The “Messiniaki Tolmi”, [1984] 1 Lloyds LR 266, 270.

In my judgment, the defendants entered an appearance within the meaning of the Brussels Regulation in respect of the claims originally brought by Maple Leaf when they acknowledged service of these proceedings. They did not thereby lose the right to challenge the jurisdiction: they had the right to do so under the CPR. To that extent the defendant did not unconditionally enter an appearance by the filing of the acknowledgment of service. They made this explicit by expressing their intention to challenge jurisdiction on the form, but it would have been the case in any event: see the judgment of Mr. Michael Briggs QC in IBS Technologies (PVT) Ltd v APM Technologies SA, unreported, 7 April 2003.

However, the defendants did not apply to challenge the jurisdiction in accordance with the procedures of the English court set out in the CPR and in particular CPR part 11. The procedures require that the defendants make any application to challenge jurisdiction within 14 days after filing an acknowledgment of service, that is to say in this case, by 10 October 2007, and the defendants did not do so. The CPR provide that otherwise the appearance before the English court then became unqualified: in the words of the CPR part 11(5): “If the defendant (a) files an acknowledgment of service and (b) does not make … an application [to dispute the jurisdiction to try the claim] within [14 days after filing an acknowledgment of service] he is to be treated as having accepted that the court has jurisdiction to try the claim”. Paragraph 35 of the defence does not avail the defendants: by the time that they served the defence, the defendants were treated under the rules as having already accepted the court’s jurisdiction. I do not consider that this analysis is affected because the court has discretion to extend the time for an application. (In fact the defendants have still not strictly applied for an extension of time to make an application under CPR part 11. They have simply sought a stay of the proceedings. But nothing turns upon that technical point.)

The defendants contend that they have not entered an appearance before the court for the purpose of article 24 because they took no step in relation to the substance of the claim before giving notice of their intention to contest the jurisdiction of the court. Accordingly they say that, notwithstanding CPR part 11, what they did does not amount to them entering an appearance within the meaning of, and for the purposes of, article 24. They cite the decision of the European Court in Elefanten Schuh GmbH v Pierre Jacmain (Case 150/80) [1981] ECR 1671 in support of their argument that a defendant is not to be taken to have accepted the jurisdiction of the court by making submissions upon the substance of the action if “the plaintiff and the court seised of the matter are able to ascertain from the time of the defendant’s first defence that it is intended to contest the jurisdiction of the court” (at para 15).

I cannot accept this argument. In the Elefanten Schuh case the European Court was concerned that a defendant should not be faced with a choice between either disputing the jurisdiction of the court or defending the claim on the merits having accepted the court’s jurisdiction. The procedure under the CPR does not present a defendant with such a choice and provides a means whereby he can contest the jurisdiction of the English court without prejudicing his case on the substance of the claim against him. It is therefore for the national procedural law to determine when and how a challenge may by made: see paragraphs 16 and 17 of the European Court’s judgment, and the Jenard Report which (referring to article 18 of the Brussels Convention, the predecessor of article 24 of the Regulation) states that “It will be necessary to refer to the rules of procedure of the State of the court seised of the proceedings in order to determine the point up to which the defendant will be allowed to raise this plea, and to determine the legal meaning of the term “appearance”.” The procedural law of this court requires that the challenge be made within prescribed time limits and that if there is no challenge within that period the claimant and the court treat the defendant as having accepted the court’s jurisdiction. I therefore conclude that the court has jurisdiction under article 24 to determine the claims originally brought by Maple Leaf.

What then of the claims brought by Astin? The machinery under CPR for challenging the court’s jurisdiction within 14 days of filing an acknowledgment of service does not apply when a second claimant is joined to an existing action against an existing defendant after the expiry of that time limit, and the CPR do not expressly specify either a procedure whereby a defendant can challenge the court’s jurisdiction to determine a claim introduced by amendment or when and in what circumstances a defendant is treated as having accepted that the court has jurisdiction to try the claim. However, if the amendment would introduce a new claim (whether by an existing claimant or a new party and whether in addition to or in substitution for an existing claim), the defendant may argue that the amendment should not be permitted on the grounds that the court has no jurisdiction. He will not necessarily be precluded from advancing such an argument by the provisions of CPR part 11: he is “treated as having accepted that the court has jurisdiction” to try the claim or claims that are the subject matter of the proceedings.

In this case the defendants did not contend when Astin applied to be joined and bring its claims that the court had no jurisdiction to determine them. Astin submits that the defendants are not now entitled to do so because they gave no indication before or when they serve the amended defence and counterclaim responding to Astin’s claim that they intended to dispute the jurisdiction, apart from retaining the reservation that had been expressed in paragraph 35 of the defence. I agree with that submission. The court ordered that Astin be joined as party to the proceedings and that it be permitted to bring its claims. The effect of that order is that Astin’s claims are the subject matter of these proceedings and the court has jurisdiction to determine these proceedings because the defendants are to be treated as having entered an appearance so as to accept the court’s jurisdiction to determine the claims brought in them. If the defendants wished to dispute the order made by Mr. Justice Flaux, they should have appealed against it (assuming that it was open to them to do so despite their acquiescence in him making it). It is not open to them to escape its consequences by arguing that I should preclude myself from determining the claims that it introduced into the proceedings.

In any case, it is confirmed that the court has jurisdiction to determine Astin’s claims under article 24 of the Brussels Regulation because the defendants continued to participate in the case without indicating any further challenge to the court’s jurisdiction. I am unable to accept that by serving an amended defence that included the original paragraph 35 they made it clear to Astin and the court that they intended to dispute the court’s jurisdiction to hear the claims by Astin if it rejected any objection to the court hearing the proceedings brought by Maple Leaf. Between March and October 2008 the defendants participated in the proceedings and appeared before the court without at any point indicating that they took any distinct point about the jurisdiction to determine Astin’s claims. In these circumstances, I conclude that they entered an appearance in respect of the claims by Astin and the court has jurisdiction to determine them under article 24.

There remains the application made by the claimants during the trial for permission to bring claims in debt by amendment: the claim for sums of €37,499,932.50 and €2,503,500 that are said to have fallen due to Maple Leaf and Astin respectively on the Loan Maturity Date. The court should not give permission for an amendment unless it has jurisdiction to determine the claim either because the defendant is to be taken to have accepted the court’s jurisdiction to determine the claim by entering an appearance in the proceedings or because the court has jurisdiction on some other basis. A defendant does not, by entering an appearance, accept that the court has jurisdiction to hear any claim against him related in any way to the subject matter of the original action: see Murray v Times Newspapers Ltd, [1997] 3 IR 97. That, however, does not mean that a defendant is to be taken to have accepted only the court’s jurisdiction to try the claims precisely as originally formulated.

As I shall explain, I consider that the court has jurisdiction to determine the claim in debt because of the jurisdiction clause in the Funding Agreement, and accordingly it is not necessary for the claimants to rely upon jurisdiction under article 24 of the Brussels Regulation to support their application for permission to amend to plead debt. However, had it been necessary to do so, I would have concluded that the court would be justified in permitting the amendment in view of the jurisdiction that the defendants accepted by making an appearance in respect of the original claims of Maple Leaf and the claims made by Astin when it was joined as party to the action.

The debt claims which the proposed amendments would introduce are not in English law the same causes of action as the claims that have already been pleaded. Although Maple Leaf had already pleaded a claim in debt, this was not for monies falling due on the Loan Maturity Date. Astin’s claim for an indemnity in respect of its fees similarly is not, in my judgment, the same cause of action as the claim in debt that it wishes to introduce. However, I do not consider that the question whether the defendants entered an appearance in respect of a claim for the purpose of article 24 is to be determined by reference to whether the new claim would, as a matter of English domestic law, be regarded as the same cause of action as one already pleaded when the defendant entered an appearance: I consider that to be neither a necessary nor a sufficient condition for the defendant’s appearance to be taken to be acceptance of the court’s jurisdiction to determine the claim in a proposed amended pleading. The article must be given an autonomous interpretation.

In my judgment a defendant who enters an appearance does not only accept the court’s jurisdiction to determine the claim exactly as it is pleaded against him at the time that he enters the appearance. That would prevent minor amendments to correct inconsequential pleading errors. A defendant who enters an appearance is to be taken to be aware that the court has a discretionary power to permit claims to be amended. As is implicit in the judgment of Barrington J in Murray v Times Newspaper Limited (cit sup), with which Hamilton CJ and Murphy J agreed, the question is what jurisdiction the defendant can be taken to have intended to accept in entering his appearance. In this case, not least because they accepted the court’s jurisdiction to determine the claims for specific performance, which would include performance of the obligation to pay the money due on the Loan Maturity Date, I consider that the defendants are to be taken to have accepted the court’s jurisdiction to determine the causes of action to which the proposed amendment is directed. In substance the subject matter of the original action covered the debts that the claimants say have now accrued due.

I come to the claimants’ alternative argument that the court has jurisdiction under article 23 of the Brussels Regulation because of the jurisdiction provision in the Funding Agreement. Article 23 provides as follows: “If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. … Such an agreement conferring jurisdiction shall be … in writing or evidenced in writing…”. In order for the court to assume jurisdiction on this basis, the court must examine whether “the clause conferring jurisdiction upon it was in fact the subject of consensus between the parties, which must be clearly and precisely demonstrated”: see (for example) MSG v Les Gravières Rhénanes Sarl, [1997] ECR I-911, [1997] QB 731 at para 15

For reasons that I shall explain, I have concluded that the parties entered into a Funding Agreement of contractual effect, which contained the jurisdiction provision that was in Version 9. It provided, “Jurisdiction: The parties agree to the exclusive jurisdiction of England and Wales”. This agreement was “in writing or evidenced in writing”.

I interpret the jurisdiction provision as covering not only the contractual claims in these proceedings but also the claims in deceit: claims that in agreeing to Version 9 the defendants were guilty of an actionable misrepresentation about their intentions with regard to fulfilling their contractual obligations and thereby induced Maple Leaf to enter into the agreement and to submit its subscription. I cannot accept that the parties to the jurisdiction agreement are to be taken to have intended that it should apply only to claims that would be categorised by a lawyer (or at least an English lawyer) as contractual. The observations of Lord Hoffman in Premium Nafta Products Limited v Fili Shipping Corp, [2007] UKHL 40 at para 7, although made about an arbitration agreement, are in point:

“… [the] construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts. Could they have intended that the question of whether the contract was repudiated should be decided by arbitration but the question of whether it was induced by misrepresentation should be decided by a court? If, as appears to be generally accepted, there is no rational basis upon which businessmen would be likely to wish to have questions of the validity or enforceability of the contract decided by one tribunal and questions about its performance decided by another, one would need to find very clear language before deciding that they must have had such an intention.”

Similarly here, I cannot accept that the parties are to be taken to have intended to agree that these different claims in contract and deceit arising from the agreement should be determined in different jurisdictions.

In reaching the conclusion that the parties entered into a contractual agreement which contained the jurisdiction provision that was in Version 9, I have rejected arguments that the Funding Agreement was too uncertain to be of contractual effect and that there was no contract because no agreement was concluded with Lion Capital. However, even if I had not rejected those arguments, nevertheless, as it seems to me, the parties have entered into an effective jurisdiction agreement conferring jurisdiction under article 23.

It is important to distinguish the question whether the parties entered into an agreement that a court should have jurisdiction from the question whether the parties entered into a concluded and enforceable Funding Agreement such as the claimants allege in these proceedings. There is no attack on the jurisdiction clause on the grounds that it lacks certainty, nor is there any reason that the jurisdiction clause should not have effect as between the claimants and the defendants to determine whether the Funding Agreement itself is contractual in view of the position of Lion Capital. I refer to the judgment of Longmore LJ in Deutsche Bank AG and ors v Asia Pacific Broadband Wireless Communications Inc, [2008] EWCA (Civ) 1091. At paras 24 and 25 he said:

“…a jurisdiction clause, like an arbitration clause, is a separable agreement from the agreement as a whole. This is uncontroversial both as a matter of domestic law (see Mackender v Feldia [1967] 2 QB 590 and Fiona Trust v Privalov [2008] 1 Lloyds Rep 254; [2007] Bus. L.R. 1719) and as a matter of European law (see Benincasa v Dentalkit SRL [1997] ECR 1-3767 and Briggs, Civil Jurisdiction and Judgments (4^th ed. 2005) para. 2 105 esp. at page 131)… It follows that disputes about the validity of the contract must, on the face of it, be resolved pursuant to the terms of the clause and, indeed, the last sentence of the clause expressly so provides. It is only if the jurisdiction clause is itself under some specific attack that a question can arise whether it is right to invoke the jurisdiction clause. Examples of this might be fraud or duress alleged in relation specifically to the jurisdiction clause. Another example might be if the signatures to the agreement were alleged to be forgeries, although no authority has so far so stated. Even in such a case someone has to decide whether the signatures were in fact forged. It might well be thought that a mere allegation to that effect could not have the effect of rendering a jurisdiction clause inapplicable.

The importance of this concept of separability is that it shows that it cannot be the case that every claim made on the basis that a contract is void or has never come into existence must fall outside the terms of a jurisdiction clause expressed as widely as that in the present case. …”.

The defendants have another argument that the court does not have jurisdiction under article 23. They say that the Funding Agreement would be a consumer contract within the meaning of section 4 of the Brussels Regulation and therefore article 15 applies to it. Article 15.1 (which is in section 4) reads as follows:

“1.

In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5, if:

(a)

it is a contract for the sale of goods on instalment credit terms or

(b)

it is a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods; or

(c)

in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities.”

Article 17 allows section 4 to be departed from by agreement but only in circumstances that do not arise here, and accordingly, if article 15 applies, the jurisdiction clause in the Funding Agreement is of no effect.

The claimants raise two arguments in response to this contention. First they say that there is no, or no sufficient, evidence of the defendants’ domicile: that it is not proved that they are domiciled in France. Accordingly, it is said, the Funding Agreement is not covered by article 15.1(c).

Article 59(2) of the Brussels Regulation provides that the court should apply French law in order to determine whether the defendants are domiciled in France. There was no evidence of the relevant French law about this and so it is to be assumed that the relevant French law does not differ from English law. The Civil Jurisdiction and Judgments Act 1982 provides (at section 41(2)) that, “An individual is domiciled in the United Kingdom if and only if (a) he is resident in the United Kingdom; and (b) the nature and circumstances of his residence indicate that he has a substantial connection with the United Kingdom”. The assumption that French law is similar to English law means that the question here whether the defendants were domiciled in France depends upon whether they were resident in France and whether the nature and circumstances of their residence indicate a substantial connection with France.

The evidence about this is rather exiguous, and this, no doubt, is because the claimants never raised any question about the defendants’ domiciles until Mr. Lenon was making his final submissions (perhaps understandably because the article 15 argument was not advanced by the defendants in their original submissions about jurisdiction). Had anything turned upon this question, I would not have reached a conclusion adverse to the defendants without giving them the chance to adduce further evidence: indeed, Mr. Lenon’s submission was that there would have to be an inquiry about the defendants’ domicile if the point matters. In fact, it does not. Moreover, on the basis of such evidence as there is, I conclude that both defendants were domiciled in France at all relevant times, and I would not have allowed the matter to be reopened for the claimants to adduce further evidence about this. Both defendants are resident in France: they state their place of residence in their witness statements. Mr. Rouvroy is a French national. Mr Trylinski, while being Polish by birth and still a Polish national, has lived in France for some 17 years and works for a French business based in France. I consider this is enough, in the absence of other evidence, to prove their French domiciles.

The claimants’ second answer is that article 15 of the Brussels Regulation does not apply in this case because the defendants did not conclude the contract (assuming they concluded it at all) “for a purpose that can be regarded as outside [their] trade or profession”. I agree with that submission. The European Court provided assistance about the application of this article in Benincasa v Dentalkit Srl, [1997] ECR1-3767. Having observed that the concept of “consumer” in this context must be interpreted autonomously, in order to ensure consistency of application throughout contracting states, it said this (at paras 16-18):

“16.

… in order to determine whether a person has the capacity of a consumer, a concept which must be strictly construed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of that contract, and not to the subjective situation of the person concerned. … the self-same person may be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others.

17.

Consequently, only contracts concluded for the purpose of satisfying an individual’s own needs in terms of private consumption come under the provisions designed to protect the consumer as the party deemed to be the weaker party economically. The specific protection sought to be afforded by those provisions is unwarranted in the case of contracts for the purpose of trade or professional activity, even if that activity is only planned for the future, since the fact that an activity is in the nature of a future activity does not divest it in any way of its trade or professional character.

18.

Accordingly, it is consistent with the wording, the spirit and the aim of the provisions concerned to consider that the specific protective rules enshrined in them apply only to contracts concluded outside and independently of any trade or professional activity or purpose, whether present or future.”

The defendants relied upon the decision of Longmore J in Standard Bank London Ltd v Apostolakis, [2001] 1 Lloyd’s Rep Bank 240. In that case the defendants, who were married and resident in Greece, entered into an agreement with the claimant bank that provided for English jurisdiction and under which it was agreed that the bank would make forward purchases of ECUs on their behalf in exchange for drachmas. The defendants were a civil engineer and a lawyer: it was no part of those trades or professions to enter into forward currency contracts of this kind, and Mr. Justice Longmore decided that they were not “trading in foreign exchange contract in the sense that a banker or dealer can be said to trade”, and were entering into the contract as consumers. He observed that it was not a question of the scale of the trading.

As Briggs and Rees point out in Civil Jurisdiction and Judgments, (2005) 4^th Ed para 2.78, the Greek courts disagreed with the conclusion of Mr. Justice Longmore and considered the activity to be entrepreneurial, a view which Briggs and Rees tentatively endorse. For what it is worth, I would myself question the conclusion reached by Mr. Justice Longmore, but in any event I do not consider that his decision assists the defendants. In that case the question was whether the defendants’ dealing was of a nature such that they were to be regarded as carrying on a trade. Here the question is whether the agreement made by the defendants was so connected with their business activities as not to be regarded as outside their trade. The defendants point out that they gave personal commitments under the Funding Agreement and say that the shareholdings that were to be staked as collateral were held by their families. There was little evidence about how precisely the shares were held, although Mr. Trylinski certainly gave evidence (which I accept) that his wife shared his interest in Belvédère shares and I also accept that some shares were held by a company for Mr. Rouvroy’s family. But however that may be, I am unable to accept that the defendants made the agreement outside their business activities or outside their trade. Their business was managing Belvédère, and they entered into the agreement in order to pursue that business and to continue to manage Belvédère. I cannot accept that they made it as consumers or that article 15 of the Brussels Regulation applies to this case.

Maple Leaf has another argument: that the court has jurisdiction under article 5(3) of the Brussels Regulation to determine its claim in deceit. Article 5 provides that “A person domiciled in a Member State may, in another Member State, be sued:…(3) in matters relating to tort, … in the courts for the place where the harmful event occurred or may occur; …”. The expression “the place where the harmful event occurred” is to be given an autonomous interpretation and the European Court has said that article 5(3) “must be understood as being intended to cover both the place where the damage occurred and the place of the event giving rise to it”. In the case of tortious misstatement, the harmful event takes place where the statement is made rather than where it is received and so that provides no basis for English jurisdiction in this case: see Domicrest v Swiss Bank Corp, [1999] QB 548. Maple Leaf’s argument is that damage resulting from the defendants’ fraudulent misrepresentation occurred in England.

This leads to the question what Maple Leaf’s damage was. Maple Leaf’s complaint is that because of the deceit it entered into the Funding Agreement and subscribed for warrants by way of both its original and its revised subscription. It does not assert the English court’s jurisdiction on the basis that it made payments pursuant to those obligations, and indeed there is no evidence about where the payment for the securities by Maple Leaf, a Cayman Island company, was made.

Maple Leaf signed Version 9 in London but the general rule is that there is no acceptance of an offer so as to conclude a contract without communication of the acceptance. Maple Leaf communicated that it had signed when it sent its email at 11.53 pm on 25 July 2007. The email was addressed to each of the defendants, Mr. Hottinguer and Mr. Doly, all of whom were in Paris, and to Mr. Bray, who was in London. It was copied to Mr. Demarre (in Paris), Mr. Ummels (who was on his way to Romania or had arrived there), Mr. Ferran (who was either still in New York but might by the time of the email in transit by air) and Mr Tooth (and there is no evidence about where he might have received the communication).

As for the subscription to the security in Belvédère, both the original and the revised subscriptions were made by Maple Leaf when it sent the form by email from London to Paris and then sending a hard copy by post – again from London to Paris.

Does this mean that the “harmful event” occurred in England in the sense that the damage occurred here? In my judgment, it does. Maple Leaf suffered its damage when it committed itself to accepting the deal and sending its subscription form. In a case like this, to my mind, once Maple Leaf had put it outside its control to prevent the loss, the harmful effect occurred. It is beside the point whether the contract was concluded when Maple Leaf sent its communication or when it was received.

I conclude that the court has jurisdiction to determine all the claims under article 24 and also under article 23 of the Brussels Regulation. It has jurisdiction under article 5 to determine Maple Leaf’s claim in deceit. I also consider that it has jurisdiction to decide the claims in debt which the claimants seek permission to bring by amendment, and I permit the amendment.

The claimants say that the parties concluded the Funding Agreement on 25 July 2007. Their primary case is that it was then varied consensually on 26 July 2007 and the parties’ contract is on the terms set out in Version 10a, but they argue in the alternative that there is a contract in the terms of Version 9. The first question, therefore, is whether Version 9 was contractual.

There is no dispute that the defendants received Version 9 from Astin at 10.47pm on 25 July 2007, that they signed it, that H and Associés returned it to Astin at 10.58pm and that the claimants then signed it and told the defendants by email that they had done so. Nor is there any dispute that Maple Leaf subscribed for warrants in Belvédère. The defendants, however, say that they concluded no contract with the claimants. The following questions arise:

Both defendants gave evidence that they did not intend to enter into a contractual commitment when they signed Version 9. They were signing a termsheet and in their experience of business, they said, such documents are not regarded as legally binding. They would have expected that after the termsheet was signed, there would be further discussions and lawyers would be instructed to analyse whether the transaction was legally and fiscally feasible and, if so, to draw up a legally binding document. Their contention is that when they signed Version 9 they were simply signalling a (non-contractual) commitment to continue negotiations. Mr. Rouvroy’s evidence was that he did not believe that he had entered into a contract by signing Version 9 “as there were many points which still needed to be negotiated and analysed” and because Lion Capital was not party to it. He considered that signing Version 9 was “a commitment to negotiate terms with Maple Leaf, Astin and Lion Capital and nothing more”. Similarly, Mr. Trylinski said that he did not think that “the obligation to keep and meet so many “terms” which had still to be negotiated and defined would be binding”.

Mr. Demarre was not involved in the negotiations with Astin, but when he learned that the termsheet had been signed, he did not understand that it could be binding “because in France termsheets never are”. Mr. Hottinguer said that in France termsheets are documents that “change and evolve” and, generally being concerned only with the financial aspects of a proposed transaction, “their sole purpose [is] to assist the understanding of all those involved in the structuring of the proposed transaction and the negotiations”.

The claimants dispute the defendants’ contention that they had no intention to enter into a contractual commitment. They rely upon the evidence that Mr. Bray had made it clear during the negotiations in the evening of 25 July 2007, both orally and in his email at 7.46pm, that Maple Leaf required a written commitment from the defendants before it subscribed to the private placement; they rely upon the wording of Version 9; they rely upon Mr. Doly’s description of Version 9 as a contract in his email of 10.58pm on 25 July 2007; they rely upon the conversation between Mr. Ummels and the defendants in the early hours of 26 July 2007; and they rely upon the subsequent conduct of the defendants in not directly denying their commitment to the Funding Agreement while seeking to renegotiate it.

I certainly see great force in these points. I do not doubt that Mr. Bray made it clear to the defendants, and the defendants understood, that Maple Leaf required that the defendants to commit themselves to the terms that it was offering before it subscribed to the placement. I have found it more difficult to decide whether the defendants considered that by signing Version 9 they were entering into a legally binding commitment. My conclusion about Mr. Ummels’ conversation is that it does not unambiguously show that they did, and similarly in my judgment Mr. Bray’s communications with the defendants before they signed the termsheet did not do so. The footer of Version 9 refers to it being legally binding, but, especially given the misleading heading (“Confidential & Proprietary”), I accept that the defendants did not appreciate this. It does seem more remarkable if the defendants were unaware of, or did not raise objection to, Mr. Doly’s description of Version 9 as a contract despite not so regarding it, and his email was sent to both defendants, to Mr. Hottinguer and to Mr. Demarre as well as to Astin and others. However, as I have said, I accept that the defendants were not responsible for the wording of the email and that it is possible that the defendants did not read the covering email: there was no particular reason for them to consider its wording would be important. As for the conduct of the defendants on 26 July 2007 and thereafter, I am driven to conclude that by the time that they received Version 10a of the termsheet, they did realise that they might well have committed themselves legally, and they nevertheless sought a way of improving the terms upon which they could obtain the finance needed to complete the placement. However, that does not mean that they realised this on 25 July 2007 when they signed Version 9.

Despite the force of the claimants’ points, I decline to find that, when they signed Version 9, the defendants considered that they were entering into a legal and contractual commitment. This conclusion would be to attribute to them a level of dishonesty in their evidence that I am not willing to find. Their evidence was unreliable, but in my judgment that is because they showed a stubborn reluctance to recognise and face the reality of what happened in July 2007, and I am unable to regard their oral evidence as deliberately and fundamentally dishonest. In the end, I accept the evidence of both defendants that when they signed Version 9 they did not consider their commitment to be legally binding.

However, this conclusion does not assist the defendants. In deciding whether parties have entered into a contract, the courts normally apply an objective test: the relevant principles of law about whether the parties intended to enter into a contract are explained in the judgments of Bingham J and Lloyd LJ in Pagnan Spa v Feed Producers Ltd., [1987] 2 Lloyd’s Rep 601. The first question in a case such as this is how a reasonable man versed in business would have understood the exchanges between the parties. The fact that the parties recognised that their agreement would later be incorporated into a formal document and the fact that they expected that the terms of their commitment should be defined in more detail in such a document are not inconsistent with the parties having and evincing an intention to be legally bound. As Lloyd LJ said in the Pagnan case (cit sup) at p.619, “there is no legal obstacle to the parties agreeing to be bound while deferring important matters to be agreed later”.

I therefore have to consider whether, objectively assessed, the parties evinced in their exchanges an intention to conclude a contract. Their conduct is, of course, to be assessed against the background of the parties’ dealings and their experience in so far as it is to be taken to be known to the other parties.

I have referred to the evidence of the defendants about their experience of signing termsheets and about their understanding of the usual legal status of termsheets. I do not doubt that during their business life the defendants have signed termsheets that were not of contractual effect: there is no general rule that such documents are or are not of contractual effect, and their status can be determined only by the nature of the particular document and the facts of the particular case. But I cannot accept that there is a generally understood French business practice that documents such as Version 9 are not contractual regardless of their terms and regardless of what was said in negotiations leading up to them being signed. Still less is there evidence of a general practice of this kind that is so well established and well known outside France that the claimants were aware of it or are to be taken to have been aware of it. After all, Mr. Doly regarded Version 9 as a contract, and this description drew no criticism from Mr. Hottingguer or Mr. Demarre.

I consider that the wording and presentation of Version 9 are such that it evinced an intention on the part of the parties signing it to enter into a contractual commitment. In taking this view, I do not overlook that the footer on each page does not refer to the claimants being bound by their signature to the document, only that it is intended to create a binding obligation on the part of the “Borrowers, the management … and their affiliates”. This is perhaps the less remarkable since the defendants’ main concern was that the investors should subscribe in the private placement and it was contemplated that they would do so promptly once the terms of their investment were agreed. In any case, the argument that the parties evinced an intention to be bound by Version 9 does not depend upon the footers. It is demonstrated by the words under which the parties signed (“Please sign to acknowledge agreement and acceptance of the terms of the transaction”), and by the document as a whole.

I conclude that on an objective assessment the parties to Version 9 evinced an intention to be bound contractually by its terms. This conclusion is reinforced by what Mr. Bray had told the defendants orally and in his email of 7.46pm before they signed it, and by the wording of Mr. Doly’s email under cover of which he sent Version 9 signed by the defendants for the claimants to sign.

However, there are circumstances in which the parties to what would objectively be held to be contractual are not legally bound by it under English law. If the other parties actually and reasonably believed that the defendants intended to make a contract, there would be a concluded contract, but not if the other parties knew or would reasonably have believed that that was not the defendants’ intention and not, in my judgment, if the other parties had simply formed no view one way or the other as to whether the defendants so intended. That is the opinion expressed by Professor Sir Gunter Treitel in Chitty on Contracts, (2008) 30^th Ed at para 2-004, and I agree with it. The defendants submit that they are not contractually bound even if on an objective assessment they and the claimants evinced an intention to be bound.

Thus the defendants’ argument depends upon them showing that the claimants did not believe that the defendants intended to be bound by Version 9 or at least that they would not reasonably have so believed. They have not shown this: I conclude that both of the claimants reasonably considered that the defendants intended to be bound by Version 9 when they signed it. After all, shortly after Version 9 was signed by the claimants and the defendants Maple Leaf sent its form subscribing for warrants. It had, through Astin, made it clear to the defendants that it would do so only after it had reached a binding agreement with the defendants. I cannot accept that Maple Leaf nevertheless subscribed without believing that the defendants considered themselves to be contractually committed to the terms that they had signed. Nor can I accept that Astin thought that the terms of Version 9 that it signed were not binding upon defendants. And I cannot accept that the claimants had no reasonable basis for what they believed about this.

The defendants relied in support of their contrary contention largely upon those same arguments that they adduced in support of their submission that judged objectively the agreement in Version 9 was not intended to be contractual, and that I have rejected. The defendants also relied upon the fact that, having signed Version 9, the parties continued their exchanges about the terms of the funding: Astin sent further versions of the termsheet, Versions 10 and 10a, on 26 July 2007 and presented draft documentation prepared by solicitors; and Astin indicated that it would seek to obtain better commercial terms for the defendants. It is said that this shows that the parties were acting on the basis that they were not contractually bound. I disagree. It shows only that the parties needed to discuss the implementation of the agreement and that the defendants wished to improve the terms that had been agreed and sought to do so with Astin’s assistance.

The defendants’ further argument was that earlier versions of the termsheet than Version 9 were subject to contract and that Astin had not alerted them that Version 9 was to have a different status. I conclude that Astin did in fact draw this to their attention, but that in any case Astin would reasonably have taken it that the defendants appreciated this. It would reasonably have supposed that the defendants would have read its email of 10.47pm on 25 July 2007 describing Version 9 as the “final agreed terms” and that the description of the terms as “final” would have alerted the defendants to their contractual nature.

Furthermore, in order to succeed with this argument the defendants would have to show not only that Astin did not reasonably believe that the defendants intended to be bound by Version 9, but that Maple Leaf was in a comparable position. There is, to my mind, no real argument that it was. The defendants pleaded that knowledge would be attributed to Maple Leaf because Astin was its agent, but I cannot accept that Astin was Maple Leaf’s agent for this or any relevant purpose and this was not an argument developed by Mr. Castle in his submissions. Even if I had accepted that Astin had known or believed that the defendants did not intend to make a contract, I would not have accepted that such knowledge and belief was shared by, or is to be attributed to, Maple Leaf.

The defendants advance a further argument: they submit that what they call the rule in L’Estrange v Graucob, [1934] 2 KB 394 should not be applied. By this, I understand them to mean that, while ordinarily a party signing a contractual document is bound by its terms whether or not he has read them and whether or not he is ignorant of their legal effect, this is not the effect of the defendants signing Version 9. If this argument has any merit, it depends upon a contention that the claimants must have known that the defendants had not read and understood the terms of Version 9 or at the least that they had no positive and reasonable belief that they had done so. For the reason that I have explained, I do not accept that.

The defendants pleaded that they were led to understand by Astin that their signatures needed to be witnessed before the terms of Version 9 could be binding in any event. In support of this assertion, the pleading refers to the fact that Version 9, as sent to the defendants by Astin, was “drafted so as to require that the Defendants’ signatures were witnessed”. This argument was not supported by any evidence that either of the defendants had the understanding pleaded, and it was not advanced in Mr. Castle’s submissions. I reject it.

The courts are reluctant to conclude that what the parties intended to be a commercial agreement is too uncertain to be of contractual effect, the more where a party has acted upon it, as Maple Leaf did by subscribing in the placement: see Sykes v Fine Fare, [1967] 1 Lloyd’s Rep 53 at p.57 per Lord Denning MR and Trentham v Archital Luxfer, [1993] 1 Lloyd’s Rep 25 at p.27 per Steyn LJ. Steyn LJ said this:

“The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions.”

The defendants, however, argue that, while Version 9 stated the basic commercial terms, it did not specify key aspects of how the agreement was to be implemented, in particular about the SPV: who its members were to be; who its directors were to be; how it was to be prevented from disposing of the securities that were to stand as collateral; and how it was to meet its fiscal liabilities. The defendants argue that these were matters of such importance that no contract could be concluded without the parties’ agreement upon them.

I am unable to accept this argument. Version 9 provided that the defendants were to take “all steps to establish SAV”; and the implication was that they were to establish a company that would fulfil the role contemplated by the agreement. On the one hand, that means, as it seems to me, that the defendants were afforded discretion as to the nature of the SPV that they established, and on the other hand they were obliged to establish a SPV that would give effect to the Funding Agreement. If they did not do so, they bore personal liability.

Before turning to the defendants’ contention that the Funding Agreement was incomplete and non-contractual because Lion Capital was not party to it, it is convenient next to consider whether the Funding Agreement was varied so as to be in the terms of Version 10a. In his emails of 10.29am and 10.39am on 26 July 2007 Mr. Bray made it clear that Maple Leaf agreed to those terms, and the implication was that Astin also agreed to them. In my judgment the defendants too indicated their acceptance of the proposed terms, which were, after all, designed primarily to accommodate problems raised by them about fulfilling the terms of Version 9 in respect of providing collateral. I consider that the defendants accepted the varied terms in Version 10a in Mr. Rouvroy’s response to Mr. Bray at 11.06am and by allowing H et Associés to press for the revised subscription in accordance with Version 10a: as I have said, Mr. Rouvroy received copies of Mr. Doly’s emails asking for it, and he did not indicate that he or Mr. Trylinski did not agree to the terms on which Maple Leaf clearly understood that they were subscribing. (The defendants did not suggest that any distinction was to be drawn between the positions of the two defendants in this regard and I infer that, as previously, Mr. Trylinski was kept fully aware on 26 July 2007 of the exchanges to which Mr. Rouvroy was party.)

I conclude that the parties agreed to the terms of Version 10a by way of variation of the terms of Version 9.

As far as the evidence before me goes and as I conclude, Lion Capital did not sign Version 9 or indeed any other version of the termsheet. The defendants submit that there was no effective contract concluded between them and the claimants because the Funding Agreement was made on the basis that Lion Capital would be party to it and Lion Capital did not become party to it.

I agree with the first stage of this submission. Mr. Lenon submits that there is nothing in Version 9 to indicate that the participation of Lion Capital was a condition precedent to the formation of an agreement between the claimants and the defendants. I am unable to accept this submission. The “Purchase Price”, the “Loan Amount” and the “Redemption Price” were all single lump sums. The purchased securities were to include the 120,000 shares to which Lion Capital was to subscribe. The collateral held by the SPV was to secure the funding from Lion Capital as well as from the claimants. Further, while it is true that, as Mr Lenon submits, under the terms of Version 9 the obligations of the investors were several rather than joint, each agreeing to its own participation, from the defendants’ point of view their obvious purpose was to enter into an agreement for enough funding to complete the private placement. When they signed the Funding Agreement, they signed an agreement for funding of €50,070,000. The defendants never intended to enter into an agreement whereby they provided the security without raising all the funds that they needed and they never evinced such an intention in Version 9 or at any time.

This leads to the question whether Lion Capital entered into the Funding Agreement. In my judgment it did. Before examining the exchanges that lead me to this conclusion, I should say something of the proper approach to this question. Although the formation of contract is conventionally analysed in terms of whether a contractual offer was accepted, the law does not require rigorous compliance with an analysis along these lines. Nor does it require that any particular communication or act must in itself manifest that the party intends to contract: the court will, if appropriate, assess a person’s conduct over a period and decide whether its cumulative effect is that he has evinced an intention to make the contract.

In The Zephyr, [1984] I Lloyd’s Rep 58 at p.72 Hobhouse J said this:

“Where as in the present case, there is a clear intent to create legal relations and the transaction or transactions are clearly of a commercial character, English law is perfectly ready to recognize the contractual relations that the parties’ actions so clearly intend and will not frustrate them on account of some difficulty of analysis. Decisions illustrating this include Carlill v Carbolic Smoke Ball Co., [1893] 1 Q.B. 256, The Satanita, [1897] A.C. 59, and New Zealand Shipping Co. Ltd. v Sattherthwaite, [1974] 1 Lloyd’s Rep. 534; [1975] A.C. 154. The Carlill case demonstrates that further communication between the two parties is not necessary if the correct construction of the statement of contractual intent by the first party is that it dispenses with further communication by the second party. The Satanita recognizes the legal efficacy of multilateral contracts of accession whereby one document, the yacht club sailing rules, can be acceded to by a number of individuals in succession so as to put them all in contractual relations with each other. The Satterthwaite case demonstrates that contract between A and B can bind B to third parties who at the time of the making of the contract were unknown and unascertainable. The judgment of Lord Wilberforce in that case at pp. 539 and 167 stresses the need to adopt a practical approach and to give legal effect to inherently contractual situations. The analysis of the transaction may be relevant for the purpose of ascertaining whether there is a consensus between the relevant parties upon a mutual bargain and for answering other consequential questions, but once the consensus upon a mutual bargain has been demonstrated that suffices. .”

In Trentham v Archital Luxfer, (cit sup) Steyn LJ observed (at p.27) that:

“…, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But is is (sic) not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v Metropolitan Railway, [1877] 2 A.C. 666; New Zealand Chipping Co. Ltd. v A.M. Satterthwaite & Co. Ltd. [1974] 1 Lloyd’s Rep. 534 at p. 539, col. 1; [1975] A.C. 154 at p. 167 D-E; Gibson v Manchester Ciry Council, [1979] 1 W.L.R 294.”

He concluded (at p.29):

“The Judge analysed the matter in terms of offer and acceptance. I agree with his conclusion. But I am, in any event, satisfied that in this fully executed transaction a contract came into existence during performance even if it cannot be precisely analysed in terms of offer and acceptance. ”

The claimants’ primary case is that Lion Capital had become party to the Funding Agreement with the claimants and the defendants by the end of the exchanges on 25 July 2007. It had, the claimants argue, expressly agreed to the commercial terms of the Funding Agreement when it responded to Version 8b of the termsheet, and they impliedly assented to the additional provisions in Version 9.

In my judgment, in his email of 10.27pm Mr. Ferran indicated that Lion Capital agreed to the terms of Version 8b of the termsheet. As I have explained, I do not consider that he meant that Lion Capital could not agree to the terms and could not enter into a contractual commitment because he could not execute documents. On the contrary, to my mind the natural meaning of the communication is that he accepted the terms on behalf of Lion Capital.

At the time that he sent this email, Mr. Ferran had not seen Version 9. As I have said, he was responding to Version 8b of the termsheet that accommodated his concern that Lion Capital should have equal status with Maple Leaf and Astin with regard to the collateral held by the SPV. The terms of Version 9 differed from those of Version 8b in some respects, but the law does not require complete correspondence between an offer and an acceptance in order for a contract to be concluded. The question is whether what was introduced into Version 9 would have been regarded by a reasonable investor in Lion Capital’s position as introducing a new term into the bargain rather than acceptance of the terms to which Lion Capital had said they agreed: see Global Tankers Inc v Amercoat Europa NV, [1975] 1 Lloyd’s Rep 666 at p.671.

The claimants say that Lion Capital are to be taken to have accepted the terms of Version 9 because, apart from providing that Lion Capital should have equal status with Maple Leaf as to the collateral, the changes from Version 8b by way of additional or altered terms were either (i) terms to which Lion Capital had implicitly assented when it asked Astin that the terms of its investment should be very similar to those of Maple Leaf; or (ii) terms that did no more that make legally binding the provisions of Version 8b; or (iii) terms that were manifestly more favourable to Lion Capital than those of Version 8b. With regard to this last consideration, the claimants say that Lion Capital are to be taken to have accepted the terms of Version 9 in so far as it included terms that, through not in Version 8b, simply provided an indulgence or benefit to Lion Capital: see Chitty on Contracts (2008) 30^th Ed, Vol 1 para 2-032.

There was a revised provision in Version 9 to the effect that Lion Capital should have the interest in the collateral upon which it had insisted, and were slight adjustments in the value of collateral and the loan to value calculation, but in view of the communications from Mr. Ferran, the defendants do not argue that because of these revisions Lion Capital did not assent to and accept the Funding Agreement. As for the other differences between Version 8b and Version 9, there were provisions that placed obligations on the “Management” (an expression which Version 9 defined as referring to the defendants) with regard to establishing the SPV and being jointly and severally liable if the SPV was not able to fulfil its obligations. These were to the investors’ advantage and, to my mind, the sort of provision that Lion Capital would have expected by way of changes to make the agreement contractual and which it left to Astin to deal with. So too, in my judgment, was a change in the provision against the sidenote “Documentation”: the obligation in Version 8b stated that the documentation was to be completed by 1 August 2007 or a later agreed date, but had not said who was to complete it or that the obligation on the parties was to use best endeavours to complete it. There was another difference between Version 8b and Version 9 in that in Version 8b the “Lenders” were identified as “Funds managed by Maple Leaf Macro Volatility Master Fund” and Augustin Capital Management Limited (an Astin affiliate), whereas Version 9 referred to Maple Leaf and Astin, but it is rightly not argued that this affects the question whether Lion Capital accepted the terms. The provision for the service of proceedings, which was new in Version 9, provided only for a method of serving the defendants in addition to others allowed by law, and was accordingly a provision that could only be to Lion Capital’s benefit. I do not consider that any of these provisions, which were new in Version 9, mean that Lion Capital is not to be taken to have agreed to the Funding Agreement as set out the terms of Version 9

The other new provision in Version 9 was the jurisdiction agreement. Mr. Lenon submitted that it improved the agreement for Lion Capital and therefore it is not to the point that Lion Capital did not specifically agree to it. I reject that argument: the agreement would prevent Lion Capital from resisting the jurisdiction of the English court and, being an exclusive choice of English jurisdiction, it would prevent Lion Capital from bringing proceedings in any other jurisdiction. Although Lion Capital is English, it cannot be said that the jurisdiction agreement was inherently to the advantage of Lion Capital.

However, I am unable to accept that, as the defendants submit, because Lion Capital did not specifically accept the jurisdiction agreement and Version 9 in which it was introduced, it never became party to the Funding Agreement between the claimants and the defendants, and therefore that agreement was not of contractual effect. There are several reasons, I think, for rejecting that argument, but whatever the precise analysis that is preferred, in my judgment the consequence of the submission is quite contrary to any financial or business sense.

To my mind the simplest answer to this argument is that Lion Capital accepted the terms agreed between the claimants and the defendants by its email at 9.01am on 27 July 2007 if not before. By then Lion Capital had received the terms of Version 9 and raised no objection to the jurisdiction provision or to any other term. It had also received Versions 10 and 10a. The clear implication of Lion Capital’s message that there was no point in duplicating the drafting work that was to be done by Maple Leaf’s lawyers and asking to have contact with them was that it had no disagreement with those terms and that it accepted them.

Another answer, as it seems to me, to this argument of the defendants is this. By 30 July 2007 the defendants and Lion Capital had agreed that Lion Capital would not invest upon the terms of the Funding Agreement. Lion Capital and the defendants wished to make another deal and the claimants accepted this. By this time, the claimants had made it clear to the defendants that they considered that they had concluded the Funding Agreement. The defendants, although seeking to negotiate improved terms, had not disputed this. The implication of the arrangement that Lion Capital should withdraw from the Funding Agreement and invest upon different terms was that it should not affect the terms that had been agreed between the claimants and the defendants for Maple Leaf’s investment and indeed for Astin’s remuneration. If previously the agreement between the claimants and the defendants was incomplete because of an outstanding issue about Lion Capital’s participation, the arrangement that Lion Capital should not invest under the Funding Agreement resolved it. Therefore the implication of the new agreement between Lion Capital and the defendants, and the claimants’ assent to it, was that the claimants and the defendants agreed that the terms of Maple Leaf’s investment and Astin’s remuneration were those agreed by them with the defendants in the Funding Agreement.

In view of these conclusions, the claimants need not rely upon a further possible answer to the contention that the agreement was incomplete because Lion Capital had not agreed to the jurisdiction provision. Mr Lenon referred to the severability of jurisdiction agreements from the substantive provisions of the contract incorporating them. He submitted that, even if Lion Capital is not to be taken to have agreed to the jurisdiction provision, the agreement upon the substantive provisions was nevertheless concluded and contractual as between the claimants, the defendants and Lion Capital, notwithstanding that the jurisdiction provision was effective only between the claimants and the defendants. I see the attraction of this submission and consider that it reflects the commercial reality of the positions of the parties, but it is unnecessary to express any concluded view about it and I prefer not to do so.

I next consider arguments of the defendants about the meaning of the termination provision and whether it is penal at common law in so far as it requires the payment upon automatic termination of the contract of “25% of the Purchase Price plus payment of payment of any loss resulting from the sale of the Purchased & Contributed Securities in the Market plus any fees and reimbursement of any professional and legal fees incurred”. I shall assume for present purposes that the validity, effectiveness and enforceability of the termination provision is not affected by either the Consumer Contract Regulations 1999 (the “1999 Regulations”) or the provisions relating to “unfair relationships” in sections 140A to 140D of the Consumer Credit Act 1974 (the “1974 Act”). I shall consider those statutory provisions later.

The question of construction is whether the provision requires payment of Astin’s remuneration of 4% for arranging the funding to be provided under the Funding Agreement. It is the submission of the defendants that Astin’s remuneration is not covered by the expression “any fees and reimbursement of any professional …fees incurred” because this expression is directed to fees incurred by the “Lenders” upon a re-sale of the securities. In support of this contention, they point out that the payment to Astin is not referred to in the Funding Agreement as “fees” but rather as part of the Loan Amount. I accept the defendants’ submission.

This leads to the question whether the termination affects Astin’s right to remuneration that it was to receive under the Funding Agreement. Astin’s right to “4% of the Purchase Price for [Astin’s] participation for the arrangement of the funds” is, under the terms of the Funding Agreement, an element of the “Purchased & Contributed Securities”, but it was not an element that the parties could have contemplated would be sold in the market. In my judgment, the part of the termination provision that deals with the entitlement of “Lenders” to payment is directed to the position of Lenders who were to have “Purchased & Contributed Securities” by way of shares, warrants and bonds, and were to have “contributed” to the SPV. The provision does not apply on any literal construction to loss of remuneration that Astin would suffer as a result of the Funding Agreement being automatically terminated and it does not seem to be that this part of the termination provision can properly be strained to apply to Astin’s position. I conclude that Astin has no entitlement under this provision and that the termination provision does not apply to Astin’s rights under the Funding Agreement or affect them. If the termination comes about without breach on the part of the SPV or the borrowers, then Astin had no entitlement. If there was a breach of contract, then Astin has a claim for damages.

The defendants submit that the termination provision does not entitle Maple Leaf to recover all loss that results from a sale of the warrants, and that its entitlement is impliedly subject to a qualification that it would use reasonable efforts to sell the warrants in the market place for the best price reasonably available and do so within a reasonable period of time. It argues that otherwise the effect of the provision is that Maple Leaf could decide not to sell the warrants knowing that it would benefit from any increase in the value of the warrants if their value increased but be protected from any fall in their value.

I see force in an argument that Maple Leaf’s entitlement is limited to what can properly be said to result from the sale of the securities and does not extend to what results from Maple Leaf’s unreasonable conduct, that would have been within the reasonable contemplation of the parties that Maple Leaf’s entitlement should be subject to such a limitation. While there might be room to debate whether this provision is strictly to be classified as an indemnity, the observation of Rix J in The “Eurus”, [1996] 2 Lloyd’s LR 408, 424 is in point: “Just as in the area of damages for breach of contract the law has engrafted limitations on the basic principle of indemnity, so in the context of contractual indemnities the law has been concerned to examine critically the basic notion that the indemnifier is liable for all loss consequent upon the stipulated condition, and this is so even if the indemnity clause expressly refers to “all consequences”. The basic tool is one of construction, and this inevitably involves reference to the reasonable contemplation of the parties. Thus, in the absence of express language, an indemnity will not cover loss caused or contributed to by the negligence of the party who invokes the indemnity: The Fiona, [1994] 2 Lloyd’s Rep 506”. However, if and when Maple Leaf seek payment under the termination provision following sale of the warrants, it will be necessary to quantify its entitlement, and I shall not express any concluded view about the meaning of the provision.

Is the provision about Maple Leaf’s entitlement under the termination provision penal? In order for a provision for payment to be penal, it must provide for payment upon a breach of contract of an amount that is not a genuine pre-estimate of loss but extravagant and unconscionable in amount in comparison with the prospective loss: Jeancharm Limited v Barnet Football Club Limited, [2003] EWCA Civ 58 at para 27.

The defendants submit that the formula for a payment is extravagant and unconscionable because:

I accept these points as far as they go, but there are three possible answers to be considered. First, the payments are to be made in the event of automatic termination, which can, as I see it, come about either as a result of breach (on the part of the SPV or the defendants) or otherwise. Although the law about this has been a matter of some debate (see Chitty of Contracts (2008) 30^th Ed para 38-330), I consider the better view to be that if a payment is to be made upon an event that “where a sum is contractually payable on the happening of a number of events, including a breach of contract by the payer, the sum is capable of being a penalty when the circumstances giving rise to payment are the breach of contract, but not when the circumstances giving rise to payment are otherwise”: Lewison, The Interpretation of Contracts, (2007) 3^rd Ed para 16.04 p.598, and see Cooden Engineering Co Ltd v Stanford, [1953] 1 QB 86. I therefore think that this provides no answer to the defendants’ argument that the payment under the termination provision is penal.

Secondly, it is said that the amount does not exceed the amount of any loss that Maple Leaf might suffer in the event of breach because Maple Leaf would also be entitled to compensation for losing upon termination of the Funding Agreement the option to purchase and the right to borrow securities. This argument depends upon construing the termination provision as intended to satisfy any claim that the lenders might have for damages for the loss of these rights, and I do not so understand the termination provision. The formula for what is to be paid is designed to cover the loss in respect of the Loan Redemption Amount. It is not a formula directed to loss of the option and the right to borrow, and I cannot accept that it is to be understood to displace a damages claim if those rights are lost as a result of a breach of contract on the part of the SPV or the defendants.

Thirdly, however, it is well established that the law does not treat as penal a provision that requires immediate payment of a debt that would, but for a contractual breach, be payable at some later date: The Angelic Star, [1988] 1 Lloyd’s Rep 122. The position might be different if the 25% uplift were properly to be regarded simply as interest on the loan but to my mind it is not. It does not depend upon how long the funding was provided but was rather by way of a single fee that the defendants agreed to pay on the earlier of a year from the funding date and 1 August 2008 as consideration for the Lenders’ assistance in subscribing in the private placement.

I therefore reject the defendants’ contention that the Lenders’ entitlement to payment under the termination provision is penal.

The defendants next argue that, even if they did conclude a contract with the claimants, then some terms of it are not binding upon them because of (i) the 1999 Regulations and (ii) the provisions relating to “unfair relationships” in the 1974 Act apply to it. (The defendants further pleaded that their contract with the claimants was “usurious and consequently criminal and/or unlawful” as a matter of French law, but they adduced no evidence of French law. The validity and enforceability of the contract and its terms are to be determined under English law.)

The 1999 Regulations “apply in relation to unfair terms in contracts concluded between a seller or supplier and a consumer”: Regulation 4. They provide that “An unfair term in a contract concluded with a consumer by a seller or a supplier shall not be binding on the Consumer”, but that “The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term”: Regulation 8.

The defendants’ pleaded complaints about the unfairness of the terms of the Funding Agreement are:

The claimants do not dispute that they were “sellers or suppliers” within the meaning of the 1999 Regulations, or that the Funding Agreement was of a kind to which the 1999 Regulations might apply. The arguments that they advance in answer to this part of the defence are these:

A “consumer” means “any natural person who, in contracts covered by [the] Regulations, is acting outside his trade, business or profession”: Regulation 3(1). For the same reasons as I held that the defendants are not consumers for the purposes of article 15 of the Brussels Regulations, I agree with the claimants’ first argument. Indeed, in Standard Bank London Limited v Apostolakis, (loc cit). Longmore J considered that there was no “substantial” difference between the meaning of “consumer” in the 1999 Regulations and in the Brussels Convention.

Regulation 6(2) provides that, “In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate – (a) to the definition of the main subject matter of the contract, or (b) to the adequacy of the price or remuneration, as against the goods or service supplied in exchange”. The 25% return on the investment does relate to the adequacy of the “price or remuneration”, and it was not suggested, and to my mind could not properly be suggested, that this provision was not expressed in plain intelligible language. I do not consider that term to be covered by the 1999 Regulations. The other terms about which the defendants complain would have been covered if the defendants had made the Funding Agreement as consumers.

Are the terms unfair? Regulation 5(1) provides that “A contract term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising out of the contract, to the detriment of the consumer”. Regulation 6(1) provides that “the unfairness of a term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract or of another contract on which it is dependent”.

It is not easy to discern from the 1999 Regulations the relationship between the condition that a term that is to be regarded as unfair should cause “a significant imbalance in the parties’ right and obligations” and the reference to it being “contrary to the requirement of good faith”: see Director General of Fair Trading v First National Bank Plc¸ [2001] UKHL 52 and in particular, perhaps, para 17 in the speech of Lord Bingham. I shall not enter upon that debate, not least because I received no submissions about this. It suffices for present purposes to refer to the decision in Bryen & Langley Ltd v Boston, [2005] EWCA 973, in which the Court of Appeal, having held that the terms under challenge had not been imposed on the consumer in contravention of the requirement of good faith, considered that that in itself meant that they were not to be regarded as unfair and that it need not create a significant imbalance in the parties’ rights and obligations to the consumer’s detriment. Rimer J (with whom Pill and Clarke LJJ agreed) said this (at paragraph 44):

“I do not propose to engage in any consideration of whether, on some sort of attempted objective assessment, the particular provisions to which [counsel for Mr. Boston] refers do or do not cause a “significant imbalance” in the respective rights of B&L and Mr. Boston to the detriment of Mr. Boston. That is because, in my judgment, the performance of such an exercise will not, by itself, provide an answer to the question raised by [counsel’s] submission. As Regulation 5(1) makes clear, a term which has not been individually negotiated will only be relevantly “unfair” if it causes the relevant imbalance contrary to the requirements of good faith”.”

Then, having quoted from paragraph 17 of Lord Bingham’s speech in First National Bank, Rimer J. went on (at paragraph 45):

“It follows, in my view, that in assessing whether a terms that has not been individually negotiated is “unfair” for the purposes of Regulation 5(1) it is necessary to consider not merely the commercial effects of the term on the relative rights of the parties but, in particular, whether the term has been imposed on the consumer in circumstances which justify a conclusion that the supplier has fallen short of the requirements of fair dealing.”

He concluded (at paragraph 46) as follows:

“In my judgment, there was no lack of openness, fair dealing or good faith in the manner in which the June 2001 contract came to be made and in those circumstances I, like the judge, regard Mr. Boston’s case under the 1999 Regulations as not made out”.”

Although I find some difficulty in reconciling this reasoning with some of the observations in the First National Bank case (in particular those of Lord Steyn at paragraph 36), the Bryen & Langley case is binding upon me.

I must therefore consider whether the defendants agreed to the terms of Funding Agreement that are challenged under the 1999 Regulations in circumstances in which the “suppliers”, Astin and Maple Leaf, failed to observe standards of fair dealing. I do not accept that they did so fail. The circumstances were that the defendants, though no fault of Astin, had not invoked Astin’s assistance in finding finance until a late stage in the private placement: Astin had urged them to take steps to secure investment earlier than they did. Accordingly, in so far as the defendants complain that they entered into the Funding Agreement in a somewhat frenetic atmosphere, that came about because they delayed calling upon Astin’s services and not through any fault of Astin or Maple Leaf. Astin was led to understand that funding was required as a matter of urgency, it explained to the defendants that the finance required at short notice would be expensive and it was justified in supposing that the defendants understood this. Astin also understood, and reasonably understood, that the defendants themselves had experience of financing arrangements and also had available to them the advice of H et Associés. Mr. Rouvroy accepted that he could have taken legal advice from Paul Hastings during the evening of 25 July 2007 but did not do so because he did not feel that he needed it. Astin also urged the defendants to review the proposed terms, and, as I find, the defendants never gave any indication before signing the Funding Agreement that they had not had time to review them, or that they had difficulty in understanding them, or that they were unhappy with them. Given that the SPV had not been established, it was inevitable that the defendants should undertake personal liabilities and they could not have expected otherwise; nor could they have contemplated that the funding would not be secured. The uplift of 25% was suggested by Mr. Hottinguer in a conversation to which the defendants were party. (I have difficulty in seeing how it was not individually negotiated, but that point was not taken by the defendants.) The defendants had been told as early as 10 July 2007 of the proposal that the SPV should be obliged to lend the securities that it held (albeit this was first mentioned when a different sort of deal was contemplated). The call option was drawn to the defendants’ attention when Mr. Bray sent Version 2a and remained in all drafts sent during the evening of 25 July 2007. The right to borrow securities was drawn to the defendants’ attention in the email sent at 6.10pm. I do not consider that the terms were imposed on the defendants unfairly.

In view of these conclusions, it is not necessary for me to consider a further difficulty in the defendants’ argument. Even if criticism could properly be made of the way in which Astin dealt with the defendants, the real “seller” or “supplier” under the Funding Agreement was Maple Leaf. I see no argument that could properly be advanced that it acted “contrary to the requirement of good faith” in its dealings with the defendants when making the Funding Agreement, and, as I have already said, I do not consider that Astin was not the agent of Maple Leaf in any relevant way. However, this argument was not advanced by the claimants and, in view of my other conclusions, I need not consider the point further.

Section 140A of the 1974 Act provides that:

“The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair because of one or more of the following –

any of the terms of the agreement;

the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;

any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).”

Section 140B confers on the court wide powers to give directions to the parties and to set aside or to alter contractual terms. The defendants say that the court should use these powers: Mr. Castle did not specify a particular order sought by the defendants, but said that this should be the subject of a separate inquiry. The defendants’ pleading, however, suggests that they direct their criticism to the same terms as they challenge under the 1999 Regulations in their pleading, that is to say (i) the term about the “Redemption Price”; (ii) the terms about the collateral to be provided; (iii) the provision under the heading “Borrower”, and repeated in part in the termination provision, that the defendants should be personally liable for the obligations of the SPV if it was unable to perform its obligations; and (iv) the termination provision.

The claimants’ responses to the defence based upon the 1974 Act are:

A “credit agreement” (as the expression is used in section 140A and 140B of the 1974 Act) means “any agreement between an individual (the “debtor”) and any other person (the “creditor”) by which the creditor provides the debtor with credit of any amount”: section 140C. “Credit” in the 1974 Act “includes a cash loan, and any other form of financial accommodation”: section 9(1). As Professor Sir Roy Goode observes in Consumer Credit Law and Practice at para 24.8, credit involves the supply of a benefit to a debtor and a duty to pay being contractually deferred. If the recipient of the benefit has no duty to pay for it, credit is not being extended to him. “In other words, credit for the purpose of the [1974 Act] involves the contractual deferment of debt. If a person takes credit without having been granted it – as where he is slow in paying his dentist’s bill or his solicitor’s account – there is no extension of credit within the [1974 Act]. Even if the supplier agrees to a delay in payment, there is no credit agreement unless he receives consideration for consenting to the delay, as by stipulating for interest”: Goode, loc cit at para 24.24. Subject to this, however, “If payment for goods or services or land is deferred after the time when, if nothing about time of payment had been agreed, the payment would be due, the payer is being given credit”: Dimond v Lovell, [2000] QB 216 para 54, a view from which there was no dissent when the case went to the House of Lords, [2002] 1 AC 384.

Maple Leaf did not provide credit under the Funding Agreement. Maple Leaf was to buy CLF’s warrants and to pay CLF for them; and there was no benefit conferred on the SPV as a result of Maple Leaf buying the shares. A benefit was to be conferred on the SPV when the warrants were transferred to them. However, even if it be supposed that, in the absence of the Funding Agreement, the SPV would have been obliged to pay for the warrants immediately upon transfer, it cannot be said that by the Funding Agreement Maple Leaf provided credit to the SPV in that it deferred the date for payment by SPV: the SPV was not party to the Funding Agreement. Similarly, the Funding Agreement provided a date for payment by the SPV of Astin’s fee that was not immediate, and Astin did not thereby provide credit for the purposes of the 1974 Act. In any case it would not assist the defendants to show that under the Funding Agreement the claimants were to provide credit to the SPV that was to be established. The “debtor” under the “credit agreement” must be an individual if these provisions of the 1974 Act are to apply. The defendants were not debtors: their obligations to pay might or might not arise under the Funding Agreement, and without a debt owed by the defendants, there was no credit provided to them: see Nejad v City Index Limited, [1999] ECCA (Civ) 1812, [2001] CCCR 2461 and McMillan Williams v Range, [2004] EWCA 294, [2004 1 WLR 1858 at paras 16-18.

The defendants say that the purpose of the agreement was to provide funding to them and that accordingly its purpose was to provide credit to them. This does not seem to me to answer the claimants’ point. I do not consider that, unless the arrangements that the parties made were a sham (and it is not suggested that the Funding Agreement was a sham), the court must consider the structure of the arrangements that were agreed between the parties in order to determine whether the Funding Agreement is a “credit agreement”. As Lightman J observed in Wire TV Ltd v Cable Tel Ltd, [1998] CLC 244 at p 258, when examining an agreement that is not a sham, the court recognises that the parties have a choice as to how a contract is structured and pays appropriate respect to the structure adopted by the parties.

Although I conclude that for these reasons the provisions of the 1974 Act relied upon by the defendants do not apply to the relationship between the claimants (or either of them) and the defendants, I should also consider whether the relationship under the Funding Agreement (or the Funding Agreement as varied consensually) is unfair. Section 140A(2) of the 1974 Act provides that in deciding whether so to determine “the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor)”. Section 140B(9) places on the creditor the burden of proving that a relationship is fair once the debtor or a surety has alleged unfairness.

As I interpret the 1974 Act, it is not sufficient for the creditor to show that it was fair in the way in which it went about reaching an agreement with the debtor. The question of the fairness of the relationship between creditor and debtor calls for a different enquiry from that required by the 1999 Regulations, and it does not necessarily follow from my conclusion that the terms of the Funding Agreement are to be assessed as fair for the purposes of the 1999 Regulations that the relationship between the claimants and the defendants is fair for the purposes of the 1974 Act.

The defendants’ submission is that, in considering whether the relationship is fair under the 1974 Act, the court should assess not only the commercial content of the bargain but also the circumstances in which the parties came to make the contract, including their relative bargaining power and any “exigent circumstances at the time that the contract was made”, the knowledge that the creditor has, or is to be taken to have had, about the debtor’s circumstances, and the “actual consequences of the relationship, including its effect on third parties and the extent to which the creditor should have foreseen these”.

Under section 140A, the court is required to determine whether the relationship between the debtor and the creditors is unfair because of one or more of three specified matters: the terms of the agreement; the way that rights under the agreement (or a related agreement) are exercised or enforced by the creditor; and the conduct of the creditor (before or after making the agreement). I do not understand the defendants to complain in relation to the 1974 Act about how the claimants have sought to exercise their rights under the agreement or to enforce their rights; and I do not understand them to complain that the claimants have done anything after the Funding Agreement was made that makes the relationship with the defendants unfair. For the reasons that I have explained when assessing fairness for the purposes of the 1999 Regulations, I do not consider that the relationship of the claimants and the defendants is unfair because of anything done by or on behalf of the claimants before it was concluded. In so far as the defendants complain that their relationship with Maple Leaf and Astin is unfair because of the circumstances in which the Funding Agreement was made or the conduct of the claimants in relation to that, I reject the complaint for the reasons that I have explained when considering the 1999 Regulations. It therefore seems to me that the complaint that the relationship is unfair depends upon whether the terms of the agreement themselves were unfair. However, even if I were to adopt a broader approach to this question as the defendants appear to advocate, I would reach the same conclusion.

The defendants say that the relationship in the agreement with the claimants was unfair because:

As I have said, the defendants created the circumstances in which they had to resort to expensive funding, were warned explicitly by Astin that it would be expensive and accepted an increase in the cost of the funding at the suggestion of Mr. Hottinguer. I am unable to accept that, especially given the defendants were experienced businessmen, this in itself means that the terms were unfair.

Nor am I able to accept that the level of collateral was such that it was unfair to require the defendants’ personal undertakings or that the personal undertakings made the relationship between the claimants and the defendants unfair. It was fair for the claimants to protect their position before the SPV was effectively established and the collateral transferred to it; and it was fair that the claimants should not rely exclusively upon shares and warrants in Belvédère as security, especially given that the request for funding was too late for them to allow any real due diligence. I reject the defendants’ submission that their personal undertakings were unnecessary or unfair.

I also do not consider the relationship between the claimants and the defendants unfair because of the default provision. The primary purpose of putting assets into the SPV was to secure the payment to the claimants on the Loan Maturity Date. The defendants faced no comparable exposure to risk.

Finally, I am unable to accept that the relationship between the claimants and the defendants was unfair because the Funding Agreement included the Termination Provision and the Security Lending provision. It was natural that, if the contemplated machinery for the funding broke down, it should be within the claimants’, but not the defendants’, power to allow the funding arrangements nevertheless to continue. There is nothing inherently unfair in a securities lending provision of the kind in the Funding Agreement. Moreover, the submission that the relationship was unfair because of the termination provision and the securities lending provision is, as I understand it, that the claimants might have exploited these provisions unfairly. It is not said that they did exploit them unfairly: the claimants did not, as I have found, effectively use their power to avoid automatic termination of the Funding Agreement and did not borrow securities held by the SPV. There would have been adequate power under the regime in section 140A et seq of the 1974 Act for the court to make an order in the event that the claimants unfairly exercised these rights, and I do not accept that, even if these provisions might have been exploited unfairly, the court should make any relevant order in the circumstances that have occurred.

I therefore conclude that the Funding Agreement had contractual effect between the claimants and the defendants, that it is enforceable and that the claimants’ rights under it are not affected by the 1999 Regulations or the 1974 Act. The defendants failed to fulfil their obligations under it. I therefore come to consider the remedies to which the claimants are entitled.

In their claim form and at the start of the trial, the claimants sought specific performance of the Funding Agreement. The defendants adduced evidence that they could not perform the contract because their securities in Belvédère were pledged to a third party (or to third parties), and the claimants no longer pursue that claim. Their contractual claims are in debt, in damages and for an indemnity under the termination provision.

Maple Leaf seeks to claim in debt €37,499,932.50 on the basis that the defendants became liable to pay this sum on 1 August 2008 because the Loan Maturity Date was “1 August 2008 or one year from the funding date whichever is the earlier”; the defendants are jointly and severally liable to pay because the Funding Agreement provides that, “if SAV is unable to repay the Loan Redemption Amount, JR and KT shall be jointly and severally liable to repay the Loan Redemption Amount”; and no SPV is able to repay it. Astin seeks to claim €2,503,500 in debt on the same basis. (In fact, the evidence before me is that the funding was provided by Maple Leaf on 26 July 2007 and on that basis it might be argued that the Loan Redemption Amount was payable on 25 July 2008. The date when the debt fell due to Astin is less clear: it did not provide funds itself and some of the amount that its claim is attributable to funding that was to be provided by Lion Capital. It might be said that therefore its claim, or at least part of it, did not fall due until 1 August 2008. Since, however, the claimants present their case on the basis that the Loan Maturity Date was 1 August 2008, I do not need to consider these questions further.)

The defendants disputed that Maple Leaf has a claim in debt. They did not dispute that Astin has a claim in debt (assuming the validity of the contract), but disputed its amount and say that the proper amount is €1,201,200, being 4% of the funding provided by Maple Leaf. Thus it is said that Astin is not entitled to (i) a percentage of the uplift of 25%, or (ii) payment in respect of the part of the Loan Redemption Amount attributable to funds to be provided by Lion Capital.

I reject both these arguments. The first depends upon the defendants’ arguments about the unenforceability of the provision for a 25% uplift, which I have rejected. Assuming, as I have concluded to be the case, Lion Capital was a party to the Funding Agreement, the second argument depends upon a submission advanced by the defendants that, when Astin assented to Lion Capital withdrawing from the termination provision, it agreed, impliedly if not expressly, that it would no longer be entitled to the part of the Loan Maturity Amount attributable to the funding from Lion Capital. I have rejected that proposition: there is no evidence of Astin’s express agreement to this, and there is no proper basis for inferring its implied agreement, either as necessary to give business efficacy to the arrangement or as reflecting the parties’ obvious intention. On the contrary, there is no reason that Astin should have abandoned part of its entitlement.

However, these claims in debt cannot succeed if I am right in my conclusion that the Funding Agreement was not effectively extended by the claimants and that it automatically terminated before the Loan Maturity Date and before the debts accrued. Astin has no claim in debt under the termination provision, but, as I see it, it has a claim in damages in respect of the debt which would have accrued due to it on the Loan Maturity Date had the Funding Agreement not terminated as a result of the defendants’ breach of it. I shall, however, in view of the way that the argument proceeded before me, invite further submission about the form of Astin’s remedy.

Maple Leaf is entitled to the payments contemplated by the termination provision: that is to say, it is entitled to payment (i) of €7,499,986.50 and (ii) of any loss resulting to it from the sale of the warrants that it has bought and still holds, together with any fees incurred and reimbursement of any expenses incurred. The claimants also seek damages in respect of the “value of the options which should have been, but were not, granted on or about 1 August 2007”.

I add that, if I had concluded that the Funding Agreement was extended under the termination provision (or that it is not open to me to find otherwise in view of the position adopted by the defendants about this), the claims in debt for €37,499,986.50 and €2,503,500 would have succeeded. However, as Mr. Lenon acknowledged, Maple Leaf would have had to bring into account the value of the warrants (net of any costs involved in realising them). The question whether the agreement was extended affects the legal nature of the claimants’ relief but, depending upon the quantum of the claim for loss resulting from the sale of securities, might not much affect the amount of their recovery.

The claimants are entitled to damages in respect of the call option that would put them in the position in which they would have been had the Funding Agreement been fulfilled by the defendants. As I have explained, I do not consider this claim to be absorbed by the payment entitlement in the termination provision. I next consider the quantum of this damages claim: the claimants say that it is €9.42 million.

I should first say something about the nature of call option and the warrants. The agreement was that Maple Leaf and Astin should “have the option at any time over the term of the loan” to purchase the warrants. Originally in Version 9 the option was to buy 330,000 warrants at a strike price of €91 per warrant, but this was varied on 26 July 2007 to an option to buy 365,853 warrants at a strike price of €82 per warrant.

The warrants had been issued on 17 December 2004 and mature on 17 December 2011. There were 621,000 such warrants in this issue, each warrant giving the holder the right to acquire one share in Belvédère at a strike price of €85 per share. The rights were “American”, that is to say they might be exercised at any time before the maturity date, rather than “European”, that is to say exercisable only on the maturity date. The option itself too was American, being exercisable “over the term of the loan”.

The call option was to have been held and exercisable by the claimants jointly, but I accept Mr. Lenon’s submission that Astin would have accepted Mr. Castrounis’ decision about how the option should be exercised and exploited. It is apparent that Astin and Maple Leaf had a valuable business relationship and Astin would not have wished to jeopardise it with a dispute over such a matter, and Mr. Castrounis had, and Astin will, I infer, have known that he had, considerable expertise in this area. Certainly it was not suggested to Mr. Castrounis that he would not have been able to deal with the options as he decided because of opposition from Astin.

There is an issue between the parties about whether the claimants were entitled to exercise it in respect of some but not all of the 365,853 warrants. The defendants say that they were not, because the option was expressed (in Version 10a) in terms of purchasing “the 365,853 warrants”. The claimants submit that the expression allows the option to be exercised in respect of the 365,853 warrants or any of them. This, they say, is the implication of the option provision because it contemplates that by exercising it the Lenders might “cancel any portion of their outstanding loans” at their Redemption Price (125% of the Loan Amount). I am persuaded by this submission. It was said by Mr. Castle that the claimants had not pleaded that they might so have exercised the option, but in so far as this is not implicit in their pleading, the defendants were not prejudiced by this and I do not consider that this pleading point should inhibit me from quantifying damages on what I consider to be the proper basis.

The defendants also dispute that the option was assignable. Prima facie contractual rights are assignable under English law and there was no express prohibition on assignment. Nor, in my judgment, is there any basis for inferring that there was an implied prohibition. (It is true that the right related to warrants in a French company, but if it be said that therefore under article 12(2) of the Rome Convention their assignability is governed by French law, there was no evidence that the relevant French law is different from English law and it is presumed to be the same.) In any event, the question whether the option is assignable does not, in my judgment, affect the measure of the claimants’ damages. If the claimants could not have realised the option by assigning it, they could and, as Mr. Castrounis explained in his evidence, would have exploited it by entering into back to back arrangements with the third parties. Thus, it would have been possible to dispose of a part of the benefit of the call option.

Maple Leaf could not in practice exploit the option without formal documentation of the kind that the Funding Agreement contemplated and they were deprived of this by the defendants’ breach. Mr. Castrounis’ evidence was that if Maple Leaf had been able to exploit the option contemplated by the Funding Agreement, he would have sought to realise it in the market, and considered that the option would have been easier to realise than the warrants themselves: the option provided an opportunity to a purchaser to obtain a 13% shareholding in the company without disclosure and notification obligations and at a relatively low price. Otherwise Mr. Castrounis would have exploited the option by hedging transactions: this would have involved using the right under the Funding Agreement to borrow shares from the SPV, and taking a short position in the stock. If the price rose, Maple Leaf could have used the call option to cover the position, and if it fell, Maple Leaf would have profited from its short position. Mr. Castrounis considered that it would not have been possible to sell large parcels of shares by way of such a hedging strategy because of the illiquidity of the shares but the strategy could have been pursued over some weeks or months.

Maple Leaf’s pleaded case, which Mr. Castrounis explained and supported in his evidence, is this: that in fact on average some 3,500 shares in Belvédère were sold daily and Maple Leaf could have dribbled on to the market about 700 further shares each day (or increased the volume of trading by about 20%) without significantly affecting upon the market price: thus it could have sold about 70,000 shares between 1 August 2007 and 31 December 2007. By 31 May 2008 this position would have been worth €4,130,000 (or 70,000 x €59, the difference between the average share price of €149 during the period between 1 August 2007 and 31 December 2007 and the share price of €90 on 31 May 2008). The price of Belvédère shares fell significantly from the end of January 2008 from €120. The fall in the price of Belvédère shares meant that, while a further 70,000 shares might have been trickled on to the market between 1 January 2008 and the end of May 2008, after the first two weeks of January 2008, Maple Leaf would in fact have ceased any profitable hedging activity. The value of positions taken after 1 January 2008 would, it is pleaded, have been only about €300,000.

I generally accept Mr. Castruonis’ evidence about this and that this properly and fairly states how the claimants could and would have exploited the option by hedging. It was suggested by the defendants that it should be inferred that Maple Leaf would not have exploited their rights in this way because they did not in fact sell Belvédère securities short in the period after 1 August 2007. I reject that argument: the defendants’ default prevented Mr. Castrounis from pursuing the hedging strategy that he described.

However, I am not satisfied that scale of activity would have been as much as the claimants plead. Dr Fitzgerald’s evidence was that in August 2007 there were only some 12,000 shares traded, but I would suppose that that month, immediately after the completion of the private placement, was not a representative one. I regard the evidence that in December 2007 and January 2008 there was an average of 3,374 trades (slightly fewer than the 3,500 pleaded by the claimants) to be a more reliable guide to the usual volumes over the period in question.

Precise calculations are impossible but the best assessment that I can make of the value of the position that Maple Leaf could and would have established by 31 May 2008 is to adopt the method pleaded by the claimants and supported by Mr. Castrounis’ evidence but to apply it to lower trading volumes. The market was so thin in August 2007 that I am not satisfied that the option could effectively or significantly have been exploited that month but accept that thereafter Maple Leaf could have made short sales of an average of 675 shares per day. I do not have direct evidence of an average share price during the period from September to December 2007, but the price was falling. All I can do is suppose that the average price was somewhat lower than that used by the claimants for the period from August to December 2007, and therefore take an average price of €135. I am prepared to adjust this figure when I deliver this judgment if either the claimants or the defendants provide succinct and cogent evidence about this. On this basis, I calculate that the value of the position at 31 May 2008 would have been €2,430,000 plus the €300,000 in respect of sales in the first half of January 2008: a total of €2,730,000. The claimants do not advance any claim in respect of any further loss after 31 May 2008.

Dr Fitzgerald expressed the view that a trader who was interested in investing in Belvédère might prefer to buy an option that was “very in the money”, that is to say if the current price of the share was well above the strike price. Although, as the claimants plead and the defendants do not, as I understand it, dispute, the share price dropped by November 2007 so much that the option was of little or no value, nevertheless there was a window after 1 August 2007 when the option was comfortably “in the money”. The attractions for the investor would be then that he would have not have to pay the full price of shares, he would be protected against a fall in the share price and any position that he took would be less transparent. I do not doubt that this is a proper theoretical analysis of the position, but there is no evidence that there was such a potential investor. Certainly on 24 and 25 July 2007 Astin and Bucéphale (admittedly working in tight time constraints) appear to have found no investor other than Maple Leaf (and Lion Capital who had their own special motives) who wished to invest in Belvédère as Maple Leaf did, and presumably other investors who were approached would, like Maple Leaf, have considered the possibility of a funding arrangement including an option of this kind. It is pleaded by the claimants that there was also the possibility of identifying block trades to sell larger blocks of shares, but little detail is given other than that in the months following the Funding Agreement Maple Leaf made approaches to canvass interest in the warrants but, as far as the claimants’ pleading goes, there was interest only from one potential investor. The pleading about this investor was not supported by documentation or evidence. The real question is what prospect there was of an investor of this kind making an offer that was worth more than could be realised by exploiting the option through hedging. I am not persuaded that it was sufficient to affect significantly the value of the option.

Against this background, the claimants’ primary claim about this head of damages is that they should be measured by the value of the call option at the beginning of August 2007, when, but for the defendants’ default, they would have obtained the option rights in a documented form that they could have exploited. They have an alternative case, that they are entitled to damages measured by the profit the claimants would have achieved from exploiting the option. I must therefore consider (i) whether the proper measure of damage is the market value of the option (or something as closely equivalent thereto as possible) or whether it is the profit that Maple Leaf would in fact have made; and (ii) if the former, whether the value is to be assessed at the date when the claimants should first have had the call option in a properly documented form.

The defendants submit that these claims are too remote to be recoverable because the loss resulting from being deprived of a call option that naturally arises in the usual course of events is the loss of the opportunity to exercise the option, in this case to buy warrants. Other losses, it is said, were not within the reasonable contemplation of the parties at the time that the Funding Agreement was made. I reject that submission. I cannot accept that any experienced investor or businessman such as the defendants would not have readily appreciated the various ways in which a call option can be exploited, and indeed Mr. Rouvroy appreciated at least by early on 26 July 2007 that the option might be exploited to sell the shares short.

Subject to this remoteness argument, the defendants submitted that the proper measure of damages is the profit that the claimants would in fact have made from the option, but that any loss suffered from being unable to adopt the hedging strategy that Mr. Castrounis described is not recoverable. The argument is that it results from being unable to exploit not the call option but from not having the right to borrow shares, and no claim has been pleaded on this basis. I reject this submission. It is a pleading point devoid of any merit: the claim is for loss an effective cause of which was breach in respect of the call option as well as the borrowing rights. Further, I would, had it been necessary, have allowed any amendment of the pleadings to deal with this objection.

In any event, in my judgment, the proper measure of damages is the value of the option. Section 51 of the Sale of Goods Act 1979 provides that where a seller wrongfully neglects or refuses to deliver goods to the buyer the damages are the estimated loss directly and naturally resulting in the ordinary course of events from the seller’s breach of contract and that, where there is “an available market for the goods in question”, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods when they should have been delivered “or (if no time was fixed) at the time of the refusal to deliver”. The 1979 Act does not apply directly to this case, but, as Lord Brown said in Golden Strait Corp v Nippon Yusen Kubishika Kaisna, [2007] UKHL Civ 12 at para 79, “… the rule is by no means confined to the sale of goods context and … has been applied whenever there is an available market for whatever has been lost and its explanation is that the injured party should ordinarily go out into that market to make a substitute bargain to mitigate (and generally thereby crystallise) his loss”. Moreover, if there is not an available market, the court assesses the value on such evidence as is available: see Harlow & Jones v Panex, [1967] 2 Lloyd’s Rep 509, 530, and Benjamin’s Sale of Goods (2006) 7^th Ed para 16-077.

I also accept the claimants’ submission that the value of the call option should be assessed as at the beginning of August 2007. The general principle is that damages are assessed at the date of the breach, although it is not an absolute rule: Johnson v Agnew, [1980] AC 367 at p.400 per Lord Wilberforce. The defendants say that the value of the option should not be measured as in August 2007 but at a later date when, because of the fall in the share price, the option had no value at all; and that accordingly no damages are recoverable in respect of the call option.

In support of this contention, the defendants rely on the fact that, until they abandoned their claim for specific performance in the course of the trial, the claimants continued to press for performance of the Funding Agreement, arguing that it had not terminated. Therefore, it is said, whether or not they behaved reasonably in seeking to extend the Funding Agreement, the claimants took the risk that the value of the option might fall, and that the defendants were entitled to “rely” upon the claimants’ purported extensions of the Funding Agreement. In fact there is no evidence that I accept that the defendants did so rely in any significant way. In any event, it cannot be said that, by continuing to seek to have the defendants perform their obligations, the claimants acquiesced in their failure to perform them timeously. I reject the defendants’ submissions that it meets the broad justice of the case to displace the prima facie rule that damages are measured at the time of breach. On the contrary, it would mean that the claimants, having wrongfully been deprived of the opportunity to exploit the option before the share price fell, would unjustly be deprived of any compensation for that loss.

Dr Fitzgerald’s evidence was directed to establishing the value of the option at the beginning of August 2007. He explained, consistently with Mr. Castrounis’ evidence, that there would have been two reasons that the option would have been valauble: because it might have been sold, and because it might have been exploited through a hedging strategy. For the reasons that I have indicated, however, in my judgment the value of the option in this case was really attributable to the opportunity that it provided to adopt a hedging strategy of the kind that Mr. Castrounis had in mind.

Dr Fitzgerald calculated the theoretical warrant price and so the theoretical value of a call option over the warrants by use of Bloomberg pricing models, which he described as “standard reliable pricing tools”. There is no dispute that this was an appropriate method to adopt. His calculations were criticised, however, on the basis that in applying this model he used official closing prices. It was suggested that he should, like Mr. Léger, have used bid prices. I reject that criticism. A bid price does not represent a deal actually struck, but what a potential buyer offered. The more unreasonable the offer and therefore the less likely it is to be accepted, the longer it is likely to stand as a bid price in the market. I see no good reason for preferring bid prices over the closing prices used by Dr Fitzgerald that represent a mid-point between offer prices and bid prices.

Dr Fitzgerald’s evidence was that the value of the option depended upon the volatility of the warrants, but acknowledged that it was impossible to obtain reliable information about their volatility because of the low volume of trading in them in 2007 and because of their “extreme illiquidity”. Dr Fitzgerald sought to estimate the volatility of the 2011 warrants by reference to the volatility of 2014 warrants in Belvédère in July 2007 and also the historical volatility of Belvédère shares in the period to 31 July 2007. On this basis, he calculated the value of the option to be €9.37 million, but there are, as it seems to me, there are two difficulties with this valuation. First, the data available to assess volatility is not directly referable to the warrants and does not take account of the effect of the private placement and the resulting release of securities and increase of the free float in Belvédère; and secondly, as Dr Fitzgerald recognised, it does not take account of the illiquidity of the 2011 warrants.

Dr. Fitzgerald suggests that it would be possible in view of the lack of data about the volatility of the warrants to calculate the value of the option on the basis that there was zero volatility and on this basis he estimates that the option would have a value of some €8 million. It seems to me that this is a necessary adjustment, and that the claimants have not proved a greater value for the option than €8 million even before bringing into account their illiquidity.

As for the illiquidity of the warrants and the underlying stock, it was Dr Fitzgerald’s opinion that there is no justification for reducing the value of the option by more than 10% to take account of this. He was of the view that a “good trader” could have disposed of as many as 100,000 to 200,000 shares within a month at a discount of 5% to 10%, although he admitted that he had not had experience of a comparable disposal shortly after a private placement. In view of Mr. Castrounis’ evidence, I am unable to accept this: Mr. Castrounis was, in my judgment, a shrewd and well-informed investor and I cannot accept that he so markedly mis-assessed what was feasible. I am therefore not persuaded that Dr Fitzgerald takes sufficient account of the illiquidity of these instruments or that a 10% discount takes sufficient account of their illiquidity.

In his expert report Mr. Léger states that the discount should be 30%, but he provides no reasoning that I can accept to support this. Indeed, as Mr. Lenon pointed out, his reasoning would appear to support the contention that when the option was as much “in the money” as it was in August 2007, the discount should be no more than 16.5% and probably less than that. Certainly I found nothing in Mr. Léger’s evidence about this that has assisted me to resolve this question.

I am driven to conclude that I have no reliable guide about the effect of illiquidity on the value of the option other than the evidence of Mr. Castrounis about the value that it would have had to the claimants, in the sense of the profit that they have made from it. In my judgment the claimants have established only that the value of the option was the profit that the claimants would have achieved by adopting the strategy described by Mr. Castrounis and no more. It was worth at least that much to them and to others who might adopt such a strategy. It is perhaps less surprising than might at first appear to be the case that this is a proper measure of the value of the option: there are cases in which the court regards the best evidence of value of goods as being the price for which they were eventually sold by the claimants (see McGregor on Damages (2003) 17^th edition para 20-107), and my reasoning is, in principle, similar. I therefore conclude that the claimants have established damages in respect of the call option in the sum of €2,730,000, but have not proved greater damages under this head.

The defendants contend that the claimants did not mitigate their damage and advance two arguments. First they plead that Maple Leaf did not mitigate its loss because it did not sell the warrants on terms proposed in Mr. Rouvroy’s email of 10 October 2007 or those proposed in Paul Hastings’ letter dated 18 December 2007. I reject that contention. The proposals would have required the claimants to abandon their claims for a 25% return on the funding, the fee for Astin and the claim in respect of the option under the warrants. The claimants made a reasonable decision to reject the proposals.

In their closing submissions (but not earlier) the defendants also submitted that the claimants failed to mitigate their damage by not selling the warrants. If I am right in my view about the meaning of the termination provision and the extent of Maple Leaf’s entitlement under it, the reasonableness of Maple Leaf’s conduct would be examined when quantifying its entitlement under the provision and not as a matter of mitigation of damages.

Until it was expanded by an amendment for which I gave permission during the trial, Maple Leaf’s claim in deceit was that by signing Version 9 the defendants falsely represented their intentions about honouring the Funding Agreement, and this led Maple Leaf to enter into the agreement contained in Version 9. I shall call this the allegation of “Version 9 deceit". By the amendment Maple Leaf introduced what I shall call its claim of “subscription deceit”: that the representation in Funding Agreement remained uncorrected until (at least) 5.36pm on 26 July 2007 and that Maple Leaf relied on it in then submitting its amended subscription for warrants in Belvédère.

A defendant is liable in deceit if he makes a false representation knowing it to be untrue or being reckless as to whether it is true, and intends that the claimant should act in reliance on it, and if the claimant does so and suffers loss: see, for example, Clerk & Lindsell on Torts (2006) 19^th Ed para 18-01. However, it does not suffice to establish a case of fraud that, on an objective interpretation of Funding Agreement, the defendants made a representation and did not have an honest belief in the truth of that representation. The test for fraud is subjective and the question in the case of each defendant is whether he honestly believed to be true any representations that he intended to make: see Cartwright, Misrepresentation, Mistake and Non-Disclosure (2007) para 5.18 and Akerhielm v De Mare, [1959] AC 789 at p.805. There must be “moral obliquity”: per Lindley LJ in Angus v Clifford, [1891] 2 Ch 449, 468. The court does not readily find that such dishonest conduct is established and requires more convincing evidence to establish it than to establish negligence or other kinds of civil liability because the law considers it the less likely that people behave dishonestly: Hornal v Neuberger Products Limited, [1957] 1 QB 247 at p.258 per Denning LJ and Re H, [1996] AC 563 at p.586-7 per Lord Nicholls.

Maple Leaf says that, whether or not the Funding Agreement was contractually binding, by signing Version 9 the defendants represented that “it was their genuine intention to honour their obligations under the Agreement including the undertaking to complete further documentation necessary to carry into effect the terms of the agreement”. Mr. Lenon cited authority to support this submission: in Ray v Sempers, [1974] AC 370 at p. 385G Lord Morris said that “If someone goes to a restaurant … by his conduct in ordering a meal he would be representing that he had the intention of paying …”: and see p.379D per Lord Reid and p.382E per Lord MacDermott. In In re Eastgate, [1905] 1 KB 465 Bigham J said that, when a person made purchases on credit, he represented that he intended to pay for them. However, the question what, if any, representation a person makes when he enters into a contract or accepts performance under it depends on the facts of the particular case.

I accept the claimants’ contention that in this case, because the nature of the agreement was that the investors would commit funds to the private placement before the defendants carried out their obligations, the inference is that the defendants were making representations about their intentions. In two (ultimately inconsequential) respects I disagree with Maple Leaf’s formulation of the representation. First, the case in deceit against each defendant is put on the basis of his own intention. In particular it is not put against Mr. Trylinski on the basis that Mr. Rouvroy acted as his agent and that he is liable for any deceit on the part of Mr. Rouvroy. I consider that the implied representation that each defendant made was about his own intentions: I see no basis for inferring that either made a representation about the state of mind of the other.

Secondly, it was apparent when Version 9 was signed that the Funding Agreement would be followed by further discussions between the parties, and it would not be surprising if the defendants had it in mind (quite properly) to negotiate improved terms in the course of those discussions. The implied representation made by each defendant was not, without qualification, that he intended to honour the obligations: his primary intention might well have been to renegotiate the Funding Agreement. The representation, as it seems to me, was that he intended to honour his commitments if and to the extent that the other parties insisted upon him doing so.

I also consider that each of the defendants continued until 5.36pm on 26 July 2007 to make such a representation (modified, of course, to take account of the changes that they had requested and to which Maple Leaf agreed on 26 July 2007). Although they had indicated that they would seek changes to the Funding Agreement, they had not indicated that they would not honour their commitments if changes were not agreed.

Mr. Rouvroy accepted when he was cross-examined that by about 11.00am on 26 July 2007 he was very close to deciding not to proceed. Maple Leaf submits that in fact he and Mr. Trylinski had already decided not to carry out the Funding Agreement. I have rejected that submission: I do not consider that the defendants had decided how best to deal with their difficult position that by then they recognised. However, while they had not taken a decision that they would to dishonour their commitments in Funding Agreement, they no longer genuinely had any real intention to honour them. This suffices to make their continuing representation untrue.

I must therefore consider whether the defendants were dishonest in continuing to make the representation. As I have said, the court requires convincing evidence before concluding that a person is guilty of dishonesty. Nevertheless I have concluded that the defendants were dishonest on 26 July 2007. They needed the revised subscription form from Maple Leaf, and they avoided saying anything that might prevent Maple Leaf from submitting it. They so conducted their exchanges with Astin that it and Maple Leaf should believe that they intended to honour their commitments under the Funding Agreement if required to do so. This is demonstrated by the email in which Mr. Rouvroy said that he would sign the revised version of the termsheet “right away” when he had no intention to do so. Mr. Trylinski was fully involved in the decisions about how to deal with the exchanges with Astin and through it with Maple Leaf. I am driven to conclude that they were both dishonest in allowing Maple Leaf to proceed to revise its subscription on the basis of a false understanding of their intentions.

However, Maple Leaf also submits that the defendants did not have any genuine intention to honour their commitments when they signed Version 9. In support of this submission Maple Leaf relies upon the fact that the defendants did not take steps to implement the terms of the Funding Agreement and immediately sought on 26 July 2007 to renegotiate terms before eventually stating on 6 August 2007 that they saw no reason to set up the SPV. I am not persuaded by this submission. I accept that the defendants probably intended to negotiate improved terms and probably expected that they would be able to do so, but that intention would not be inconsistent with the representation that, as I infer, they impliedly made. It might well be that they were confused in their thinking when they signed Version 9 and did not properly focus upon the commitment that they were giving (whether or not that commitment was contractual). But there is simply not enough evidence to support Maple Leaf’s submission that on 25 July 2007 the defendants did not intend to honour their commitment or that they were dishonest.

In view of this conclusion, I do not need to consider whether Maple Leaf relied upon the defendants’ representations of their intentions when it entered into the Funding Agreement, but I find that it did do so. Was Maple Leaf still relying upon the defendants’ representations when it submitted the revised subscription form on 26 July 2007? In my judgment by 5.36pm on 26 July 2007 the position had changed. Mr. Castrounis, as I have concluded, had come to the view that the defendants were not acting in good faith and had told Mr. Bray this. I am not persuaded that he (or anyone acting for Maple Leaf) was still relying upon any representation that the defendants were making about how they intended to proceed. I consider that by then Maple Leaf had decided that it could not rely upon what the defendants said and no longer trusted them, but decided to send its revised subscription in reliance upon its contractual rights. In reaching this conclusion, I recognise that in order to found a claim in deceit the claimant need not show that he relied solely upon the representation: “…the misrepresentation need not have been the sole cause of the claimant acting as he did: provided it substantially contributed to deceive him, that will be enough”: Clerk & Lindsell on Torts, 19^th Ed (2006) at para 18-32. But I am not persuaded that the implied misrepresentation alleged by Maple Leaf did play any part in Maple Leaf’s decision to submit the revised subscription.

I therefore reject the claims in deceit: in the case of the allegation of “Version 9 deceit", because I am not persuaded that the defendants’ representations were fraudulent or dishonest and in the case of the allegation of “Subscription deceit” because I am not persuaded that Maple Leaf relied upon the representation.

There is another reason that the claims in deceit do not succeed. Loss must be proved for a claim in deceit to succeed and Mr. Lenon accepted that Maple Leaf suffered no loss as a result of the representations made by the defendants if its contractual claim succeeds, as I conclude it does.

In these circumstances, I shall mention only briefly the position about what the damages would have been had I upheld the deceit claim and had loss resulted from it because I had rejected Maple Leaf’s contractual claim. As a matter of broad principle, the measure of damages for deceit would have been the amount that would have put Maple Leaf in the position in which it would have been had the deceit not taken place: that is to say, the measure of damage for what I have termed Version 9 deceit would have been the sum that would put Maple Leaf in the position in which it would have been if it had not entered into the Funding Agreement; and the measure of damage for subscription deceit would have been the amount that would have put Maple Leaf in the position in which it would have been had it not acted provided the revised subscription form.

The damages for “Version 9 deceit", therefore, would have been the difference between what Maple Leaf paid for the warrants, €29,999,946, less the value to be brought into account in respect of the warrants that it received. The normal measure of damages in such a case is the purchase price of the securities less their actual value, if any, at the time of acquisition: McGregor on Damages (2003) 17^th Ed para 41-010. This is not, of course, the market price if that price is itself affected by the deceit by the defendant of which the claimant complains: Smith New Court Securities v Scrimgeour Vickers, [1997] AC 254 at p.261F. Maple Leaf submits that what is to be brought into account is the current value of the warrants, but Mr. Lenon did not develop the argument about that. If this claim for deceit had succeeded, I should have allowed Maple Leaf to do so upon an inquiry.

The position in the case of the claim of “subscription deceit” would, to my mind, have been less straightforward. It is to be supposed that but for the deceit Maple Leaf would have been in the position of having signed the Funding Agreement in Version 9 and of having agreed to the variations to it to which it assented through Astin’s email of 8.38am on 26 July 2007: and it is to be supposed that, rightly or wrongly, it considered itself to be contractually bound by those commitments. If there was a binding contract between the claimants and the defendants and Maple Leaf was obliged under it to submit a revised subscription form, it is difficult to see what damage Maple Leaf could claim to have suffered as a result of acting as it was contractually bound to act. I doubt whether it would have been entitled to assert a claim on the basis that it would not have fulfilled its contractual commitment. If, on the other hand, there was no binding contract obliging Maple Leaf to submit a revised subscription form, then the position would, as it seems to me, have been assessed on the basis that Maple Leaf erroneously believed that it was so contractually obliged. These questions were hardly touched upon in counsels’ submissions, understandably perhaps since the claim of subscription deceit was introduced by a late amendment. I should, if anything had turned upon the measure of damages in these circumstances, have invited Maple Leaf to develop its argument as to how it formulated its damages.

I come to the defendants’ counterclaim in which they assert that they are entitled to recover from Astin any liability that they have incurred in respect of the Funding Agreement.

There was no written agreement or mandate that set out Astin’s role in the transaction negotiated in July 2007, and while Astin had previously dealt with the defendants in their capacity as directors of Belvédère, it had not previously acted for them in their private capacity. The defendants plead that “Astin agreed to act as arranger of funding for the private placement … and identified various proposed investors for the placement …”, and that it is therefore liable to them, Astin being a regulated investment manager registered with the FSA. At one time the defendants based their counterclaim, in part, upon common law duties that Astin was said to have owed them, but that argument is not pursued. They now rely only upon section 150(1) of the Financial Services and Markets Act, 2000 (the “2000 Act”) that provides:

“A contravention by an authorised person of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to defences and other incidents applying to actions for breach of statutory duty.”

There is no dispute that Astin is an “authorised person” within the meaning of the section, a term defined in section 31(2): see section 417. Nor is there any dispute that the defendants are “private persons”. It is also common ground that the term “a rule” includes certain Rules made by the FSA under the 2000 Act: under sections 138 and 153(2) of the 2000 Act the FSA has powers to make rules relating to the conduct of regulated activities.

The relevant rules are set out in the Conduct of Business (“COB”) handbook published by the FSA. The COB handbook includes rules, evidential provisions and guidance, and the status of a provision is shown by marking each paragraph with the letter “R”, the letter “E” or the letter “G”. Section 149 of the 2000 Act concerns evidential provisions and states that contravention does not give rise to the statutory consequences of contravention of a rule, but it may be relied upon as tending to establish the contravention of a rule, just as compliance with it may be relied upon as tending to establish compliance with a rule. Section 157 of the 2000 Act states that the FSA may give guidance about, inter alia, the operation of the rules.

The defendants’ case is that Astin is liable to them under section 150 because Astin was in breach of COB paragraphs 2.1.3 and 5.4.3, both of these paragraphs being rules.

Astin denies that it contravened any rule in the COB and also denies that, if it did do so, the defendants suffered loss as a result. Further, it denies that COB paragraph 5.4.3 has any application to its dealings with the defendants and it is convenient first to deal with this issue.

Paragraph 5.4.3 of COB is under a heading “Requirement for risk warning”. So far as is relevant it provides:

“A firm must not:

(1)

make a personal recommendation of a transaction; or

(2)

act as a discretionary investment manager; or

(3)

arrange (bring about) or execute a deal in a warrant or derivative; or

(4)

engage in stock lending activity;

with, to or for a private customer unless it has taken reasonable steps to ensure that the private customer understands the nature of the risks involved.”

The defendants’ complaint is that Astin contravened this rule in that it had the right under the Funding Agreement to borrow securities because this involved it engaging in stock lending activity; and in particular they complain that it was not explained to them that the consequence of this was that the investors could sell securities in Belvédère short. A “stock lending activity” is defined as the activity of undertaking a stock lending transaction, that is to say a transaction involving the disposal of a designated investment subject to an obligation or right to reacquire the same or a similar designated investment from the same counterparty. In support of its contention that Astin was obliged to explain the consequences of the provision about the right to borrow securities, the defendants refer to COB 5.4.10, which is not a rule but an evidential provision. It is under the heading “Stock lending activity”, and provides that “A firm should not engage in stock lending activity with or for a private customer unless it has notified him: …(2) of the consequences of the stock lending activity, including what impact it may have on the rights of the holder of the designated investments concerned”. (Mr. Lenon complained that this paragraph of the COB was neither pleaded nor referred to in the defendants’ opening submissions. This is so, but given that they rely on it not to found a distinct allegation of contravention but in support of the allegation of contravention of COB paragraph 5.4.3, I see nothing in this complaint.)

Astin denies that it engaged in stock lending activity, and I accept that submission. The Funding Agreement did not involve either Astin or the defendants in disposing of instruments subject to an obligation or right to re-acquire those or similar instruments. The security lending provision that gave Astin a right under the Funding Agreement to borrow securities and that the defendants say allowed stock lending activity contemplated that the SPV might be required to dispose of securities that it held, but, to my mind, that does not mean that the Funding Agreement did involve the disposal of investments.

Further, the right that the Funding Agreement conferred was a right to borrow securities held by the SPV: it did not confer any right to borrow securities from the defendants. Therefore, even if, by acquiring the right under the securities lending provision, Astin engaged in stock lending activity, it did not do so with the defendants.

Astin has a second argument that COB paragraph 5.4.3 does not apply to its dealings with the defendants: it submits that the defendants were not “private customers”. COB 4.1.4 paragraph requires that, “Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty”. It is not contended that the defendants were market counterparties. The issue is whether, as Astin contends, they were intermediate customers or whether, as the defendants contend, they were private customers. An “intermediate customer” is defined for relevant purposes as “a client who is not a market counterparty and who is … a client who is classified as an intermediate customer in according with COB 4.1.9 (Expert private customer classified as intermediate customer)”. A “private customer” is defined for relevant purposes as “a client who is not a market counterparty or an intermediate customer, …”. COB paragraph 4.1.9(1) provides: “A firm may classify a customer who would otherwise be a private customer as an intermediate customer if (a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and (b) the firm (i) has given a written warning to the client of the protection under the regulatory system that he will lose; (ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and (iii) has obtained the client’s written consent or is otherwise able to demonstrate that informed consent has been given…”.

The defendants say that Astin has not shown that either of the defendants (for they are to be considered separately) has sufficient experience to be designated an intermediate customer. They also say that there was no written warning and no written or other consent.

I am unable to accept the first submission is either relevant or correct. The difference between a private customer and an intermediate customer depends not upon the objective characteristics of the client but upon the view taken by the firm and upon compliance with procedural requirements.

Mr. Ummels described the defendants as “financially sophisticated” and “financially savvy”, although he recognised that Mr. Rouvroy had more financial sophistication than Mr. Trylinski. Both had substantial market experience from being officers of Belvédère and were familiar with equity linked debt finance transactions, and both had substantial holdings in Belvédère. Mr. Rouvroy had been an active trader on the French stock market, taking long and short positions. Mr. Bray said that the defendants were “experts in the use of options and warrants and [had] dealt extensively with investments such as derivatives and loan transactions”, including those in which Astin acted as arrangers and dealt with Belvédère through the defendants; and that the defendants would be classified as intermediate customers rather than private customers.

This evidence was not questioned. I accept that it reflects the view taken by Astin of the defendants’ experience and understanding and that they took reasonable care in forming it. (Guidance as to what a firm should consider in making this determination is in COB paragraph 4.1.10. It includes the client’s knowledge and understanding of the relevant designated investments and markets and the risks involved; the length of time that he has been active in the markets and the frequency of dealings and the extent to which he has relied upon the firm’s advice; the size and nature of transactions undertaken, and the client’s financial standing.) Indeed, for what it is worth, I would agree with the assessments of Mr. Ummels and Mr. Bray. Moreover, when Astin dealt with Belvédère, it classified the company as an intermediate customer, and that classification was based, I infer, upon an assessment of the experience and understanding of the defendants. It was not suggested that the classification of Belvédère was inappropriate.

However, although Astin would properly have regarded the defendants as intermediate customers, they called upon Astin to raise funds at very short notice, no formal mandate letter recording their categorisation was provided, and so the steps contemplated by COB paragraph 4.1.9(b) were not taken. Mr. Lenon argued that a failure to observe the procedural requirements of COB paragraph 4.1.9 does not mean that a classification by a firm of a customer as an intermediate customer is ineffective, and that nevertheless the provisions of the COB are to be applied on the basis that the defendants are intermediate customers.

In support of this argument, Mr. Lenon relies upon the judgment of by Morgan J in Spreadex Limited v Sanjit Sekhon, [2008] EWHC 1136 (Ch). In that case a spread betting company brought proceedings against an experienced spread better for money owed when it closed his account and the claim was resisted on the basis that the claimant was in breach of the COB rules. A question arose as to whether the defendant was an intermediate customer or a private customer and in this context Mr. Justice Morgan had to consider the effect of the failure of the claimant to warn the defendant in writing of “the protection under the regulatory system that he [would] lose”. He concluded that there had not been compliance with the requirements for effective classification under COB paragraph 4.1.9, but that was not the end of the story: he went on to consider whether, having failed to comply with those requirements, Spreadex could take advantage of the rule in COB paragraph 4.1.4, which provides as follows: “A firm which takes reasonable steps to classify its clients, as required by the rules of this section, and treats a client in accordance with the classification established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client”.

Mr. Justice Morgan concluded that Spreadex could take advantage of the rule in COB paragraph 4.1.4. At paras 136 and 137 of his judgment, he said this:

“136.

… . On one view, it would be strange to say that giving an oral warning was a reasonable step to classify as required by the rules in COB 4.1 when those rules required a written warning; at least that would be the situation where there was no difficulty in giving an appropriate written warning. The rival view would be to ask, more broadly, whether Spreadex had taken reasonable steps to classify Dr Sekhon as an intermediate customer. One should have regard to the dealings between those two parties and ask whether it was in all the circumstances reasonable for Dr Sekhon to be classified as an intermediate customer even though one of the procedural safeguards in COB 4/1/9R was not fully met.

137.

In my judgment, one can adopt the broader view in this case. The classification of a client as an intermediate customer under COB 4/1/9R involves a mixture of an assessment of the experience and understanding of the client, the obtaining of a written consent from the client and also compliance with certain procedural requirements. In a particular case, a procedural requirement may serve no real purpose and no harm would be done if the procedural requirement was not met in full, or at all. In such circumstances, the language of COB 4/1/4R which refers to “reasonable steps to classify” can without undue difficulty justify one in looking at the substance of the matter and, in effect, dispensing with the procedural requirement if, in substance, no harm has been done.”

I am prepared to accept that the reasoning of Mr. Justice Morgan was justified on the facts of the case before him, but I am unable to accept that it applies to the facts of this case or that Astin can similarly take advantage of COB paragraph 4.1.4(2). That rule applies only where a client has been classified by the firm, albeit “inappropriately”: paragraph 4.1.4(1) provides, “Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty”. This was not a case like that in Spreadex in which the evidence shows that the firm had classified the client: the furthest that the evidence goes is that, as Mr. Bray states, Astin “would definitely have described the Defendants as Intermediate rather than as Private Customers”. I have some sympathy with Astin: the defendants turned to them at such short notice that I can understand that its usual procedure were not followed. But this does not, to my mind, mean that the defendants were intermediate rather than private customers for the purposes of applying the COB. When applying the COB rules and determining what steps were reasonable in relation to the defendants, it is of some relevance that their experience and understanding would have justified their classification as intermediate customers, but that is a different matter.

I conclude, however, that COB paragraph 5.4.3 has no application in this case because Astin did not engage in stock lending activity.

I come to the question whether Astin contravened any rule of COB. Although I have concluded that the rule in paragraph 5.4.3 did not apply to Astin’s dealings with the defendants, I shall consider whether Astin would be in breach of the rule if I am wrong in my conclusion about its application, as well as the defendants’ complaint in relation to the rule in COB paragraph 2.1.3. I have already set out paragraph 5.4.3. Paragraph 2.1.3 of COB is under a heading “Clear, fair and not misleading communication”. It provides, “When a firm communicates information to a customer, the firm must take reasonable steps to communicate in a way which is clear, fair and not misleading”. Astin accept that this rule is applicable to its dealings with the defendants in as much as it is a “firm” within the meaning of the rule and the defendants were “customers”.

Thus in considering both rules, it is necessary to consider whether Astin took reasonable steps. In assessing the reasonableness of how Astin dealt with the defendants, the following matters are, in my judgment, of some importance:

The defendants say that Astin was in breach of the rules in the COB for two reasons: that it did not make it clear that Version 9 was more than a “commitment to negotiate terms” and did not explain its legally binding nature; and that it did not explain that because of the securities lending provision in the Funding Agreement the claimants (and Lion Capital) would (as the defendants plead) “be able to short sell the Defendants’ shares which were to be held as collateral by the SAV”.

I am unable to accept that Astin was in breach of the rule in COB paragraph 2.1.3 in either of these respects. Mr. Bray made it clear to the defendants in his email of 7.17pm on 25 July 2007 that the “potential investors” required that the defendants “sign up to” a document before committing their funds. He also spoke to Mr. Rouvroy about the need for a legally binding agreement. I do not consider more was required of Astin to make it clear to the defendants that when they signed Version 9 they were entering into a legally binding agreement. It took reasonable steps to communicate to the defendants the nature of the document that they were asked to sign. They were not in my judgment required to draw specifically to the defendants’ attention the footers in Version 9 or the jurisdiction clause or governing law clause or any other provisions that make it clear that it was a legally binding document and that it imposed obligations upon the defendants personally. Indeed, in my judgment Astin could probably properly have taken it that these matters would be apparent to the defendants without it being specifically pointed out to them and I am not persuaded that Astin would have been in breach of COB paragraph 2.1.3 even if Mr. Bray had done nothing to draw them to the defendants’ attention.

I am not persuaded that advice that the defendants would be entering into a legally binding commitment by signing Version 9 was “information” within the ambit of COB paragraph 2.1.3, but assuming that it is, I consider that the position was clearly and fairly presented to the defendants and do not consider that there was anything misleading that they were told in this regard. In any event, Mr. Bray took reasonable steps to ensure that the position was clearly and fairly presented and that they were not misled.

As for the investors’ right to borrow securities, the defendants contend that in order to communicate the terms of the Funding Agreement so as to comply with COB paragraph 2.1.3, Astin was obliged to explain that the investors would be in a position under it to sell the securities in Belvédère short. Astin’s obligation to do so is reinforced, the defendants say, because Astin itself was one of the lenders who benefited from the right to borrow: they say that there was something of a conflict of interest in Astin’s position that made it the more imperative that the implications of the right to borrow were understood by the defendants.

Mr. Bray drew the security lending provision to the defendants’ attention in his email of 6.10pm on 25 July 2007: I have rejected Mr. Rouvroy’s evidence that he did not read that email, but even if he had not, Astin was entitled to proceed on the basis that he had done so and conveyed its contents to Mr. Trylinski. I have also found that Mr. Bray referred to this right when speaking to Mr. Rouvroy by telephone. But the defendants say that that was not enough: he had to explain how investors might use the right conferred by the Funding Agreement.

I cannot accept that Astin failed to take reasonable steps in this regard. It had properly drawn the provision to the defendants’ attention. It was entitled to proceed on the basis that the defendants would assess why the investors might wish to have a provisions of this kind, and the obvious reason is that they wished to be in a position to trade in the securities and that this might involve some short selling. Indeed, on Mr. Rouvroy’s own evidence, he recognised this possibility on 26 July 2007. It was for the defendants to consider the commercial implications of the Funding Agreement, and to decide, with the assistance of advisers if they required it, whether they accepted the risks involved.

Again, I do not consider that this amounts to a complaint that Astin failed to communicate information clearly or fairly or a complaint that Astin misled them. Even if, as the defendants have at times asserted, Astin had assumed some sort of advisory role to them (and in my judgment it did not do so), this would not oblige them to give advice of this kind. It means little to assert that a person has an advisory role without asserting more specifically the width of the advisory activity that he is said to have undertaken: see J P Morgan v Springwell Navigation, [2008] EWHC 1186) (Comm) at para 57 per Gloster J. I cannot accept that COB paragraph 2.1.3 requires a firm to assume an advisory role of any relevant kind. After all, the letters that Astin had sent when it was acting for Belvédère made it clear that it did not do so.

I also consider that Astin took such steps as were reasonable in the circumstances to ensure that the defendants understood the nature of the risks involved in the funding transaction, including the provision about security lending, and therefore, if the rule had any application to this case, Astin was not in breach of COB paragraph 5.4.3.

I therefore conclude that Astin was not in breach of the rules in the COB. In reaching this conclusion I recognise that, in deciding whether Astin took reasonable steps, the position of each defendant requires separate consideration; that, as far as the evidence goes, it appears that Mr. Rouvroy was the more financially sophisticated of the two defendants; and that Astin dealt primarily with Mr. Rouvroy. However, Mr. Trylinski was content for Astin to deal directly with Mr. Rouvroy, and he and Mr. Rouvroy discussed at every stage the proposed funding agreement. In the circumstances Astin had no real alternative to dealing with Mr. Trylinski through Mr. Rouvroy and it was reasonable to do so. In taking reasonable steps to communicate properly with Mr. Rouvroy and to ensure that he understood the risks involved in the proposed funding agreement, Astin also took reasonable steps to communicate with Mr. Trylinski and to ensure that he too so understood.

Therefore I dismiss the counterclaim. However, I should refer briefly to Astin’s further argument that, if it was in breach of the rules of COB, the defendants have not shown that they suffered loss as a result. As I have said, I accept that the defendants did not realise when they signed Version 9 that they were entering into a legally binding commitment and, while they were aware of the investors’ right to borrow securities held by the SPV, it had not occurred to them that this might be used for short selling. This leads to the question whether the defendants would not have signed Version 9 if they had appreciated either or both of these matters. I am not persuaded that in these circumstances they would have behaved differently in any way: their evidence is simply too unreliable to establish this.

I consider that the defendants were determined to have in place by the end of 25 July 2007 the funding that they needed to retain control of Belvédère. They were confident that they could negotiate improved terms if they needed to do so. I consider that they would still have been confident of this even if they had realised that they were agreeing to legally binding terms. I am also unable to accept that they would have been deterred by the risk of the investors short selling the securities in Belvédère. After all, Mr. Rouvroy did appreciate this risk on 26 July 2007 and, while the defendants sought to renegotiate several of the terms that had been agreed, they did not seek to renegotiate the securities lending provision.

In my judgment, the defendants have failed to prove that, if there were any contravention to a rule of the COB, they suffered any loss as a result.

Therefore, subject to any further arguments that the parties wish to present about whether they extended the Funding Agreement and how this affects the relief to be granted, my conclusions are these.

I invite submissions about the claim for statutory interest.