Spring Finance Ltd v HS Real Company LLC

This is a claim for £1.5 million plus interest under a guarantee of obligations under a Loan Note Instrument. The Defendant resists liability claiming that the parties reached an agreement to defer enforcement of the guarantee for a five year period or alternatively that the Claimant is estopped from enforcing the guarantee for that period. Promissory estoppel, estoppel by representation, and estoppel by convention are all invoked.

Cheval Property Finance Limited (“Cheval”) is a company specialising in short term lending and bridging loans which until 31 May 2006 was owned by Cheval Investment and Finance Limited (“CIF”). The indirect beneficial owners of CIF are Mr Norman Epstein and Mr J Margolis. On 31 May 2006 CIF entered into an agreement (“the Agreement”) with Credit Investment Limited (“CIL”), an English company. By this CIF sold the shares in Cheval to CIL for £6 million.

CIL was incorporated to purchase the shares in Cheval and is owned by Ambition Capital Limited which in turn is owned broadly 50% by the Defendant (“HS Real”) and 50% by a trust settled by Mr Ellis Sher for the benefit of his family.

HS Real is a Delaware company which at the time of the purchase was owned by four trusts set up by Mr Colin Halpern and his wife for their children. Mr Halpern is the Manager of HS Real, a company which has a substantial shareholding in the well known and successful Domino’s Pizza of which he is a director. HS Real guaranteed the obligations of CIL under the Agreement.

The purchase price was paid by £3 million in cash with the balance due under a Loan Note Instrument dated 1 June 2006 issued by CIL and guaranteed by HS Real. Under the Instrument payment of £1.5 million was to be made on 1 June 2007 and the remaining £1.5 million on 1 June 2008. The first instalment was paid but the second was not.

The claim is brought by Spring Finance Limited, a company whose beneficial shareholders and directors are Mr Epstein and Mr J Margolis. This is because, with HS Real’s consent, CIF’s interest in the Loan Note was transferred to Spring in 2007. HS Real does not dispute that on 7 August 2008 it became liable to Spring for £1.5 million plus interest and it accepts that there was a default for which a valid demand was made by Spring on 31 July 2008. But liability is denied because of what HS Real says were the promises and conduct of Spring.

Mr Ellis Sher is experienced in banking and finance and much younger than other individuals involved in this case. HS Real were clients of Investec Bank for whom Mr Sher used to work and he and Mr Halpern became friends. Mr Sher identified Cheval as a potential acquisition and was aware of it through personal and family connections with Mr Epstein and Mr J Margolis. Essentially Mr Halpern supplied the money and Mr Sher, the expertise. Mr Sher anticipated that Mr Halpern’s investment would comprise not only the purchase price but also money to improve the capital structure of the business. He and Mr Halpern disagree about what the latter committed to do.

One of the attractions of Cheval to Mr Halpern and Mr Sher was a loan facility renewed at the time of the acquisition by which Volkomen Financiering BV (“Volkomen”) provided up to £22 million. Volkomen’s rights ranked after those of Cheval’s other banks, IDB, Landsbanki and Clydesdale. Volkomen is a Dutch company funded by loans made by Fiscal Financing Limited (“Fiscal”). Fiscal’s funds are/or were raised by Mr J Margolis and Mr Epstein through their own contacts. They are also directors and shareholders of Clermont Consultants (UK) Limited (“Clermont”). The ultimate owner of Volkomen is apparently a charitable trust. Its sole director is Phibren International Management BV (“Phibren”). Phibren’s sole director and representative is a Miss Houtman. HS Real claims that Volkomen is a creature of Mr Epstein and Mr J Margolis. They deny this.

After a good start the fortunes of Cheval fell away as the economy deteriorated and by July 2008 there were concerns about its continuing viability. Cheval’s directors then included Mr Sher, the managing director, Mr A Margolis, the son of Mr J Margolis, Mr Epstein, Mr J Margolis, a Mr Chesler and Mr Halpern. Mr Epstein, on behalf of Spring, pressed Mr Halpern to make arrangements for HS Real to pay the final instalment of £1.5 million plus interest. Cheval’s debt to Volkomen by then stood at over £17 million and Mr Sher on 7 July 2008 circulated a proposal which involved converting most of that debt into equity. Relations between the parties began to deteriorate. Mr Epstein became frustrated and then infuriated by HS Real’s failure to pay. Mr Sher was embarrassed as HS Real appeared to have assets, principally in the form of shares in Domino’s Pizza, vastly greater in value than the amount of the guarantee and it seems that HS Real was able to sell some of those shares but for a purpose other than paying the guarantee. For his part Mr Halpern became irritated and angry by perceived conflicts of interest on the part of Mr Epstein and Mr J Margolis and by what he saw as an inappropriate call on the guarantee at a time when all involved should have been working together to restructure Cheval so that it could cope with the problems presented by a deteriorating property market.

Discussions continued unfruitfully between July and October 2008. By the beginning of November it was clear that Cheval needed a new long term arrangement with Volkomen to ensure that the other three lenders did not withdraw their support. By this point Spring had started action to recover the £1.5 million plus interest and obtain permission to serve HS Real out of the jurisdiction. 31 January 2009, the date by which Cheval had to file its accounts for the year, was beginning to loom.

On 5 November 2008 Mr Halpern met Mr J Margolis at his home to discuss both the proposed conversion of the Volkomen debt into equity and payment of the final instalment of the purchase price plus interest. The meeting was also attended by Mr Simon Minitzer, another beneficial shareholder in Spring, as an observer on Mr Epstein’s behalf. Mr Epstein’s approach to this meeting is summarised in an email which he sent to Mr Minitzer beforehand:

In his first witness statement Mr Halpern recollected that the meeting had been attended by others as well, including Mr Epstein and Mr Sher, and that an agreement was reached by which the Volkomen debt would be converted into preference shares, Volkomen would take a more active role in the operations of Cheval and Spring undertook not to make a call on the guarantee for a period of five years with agreement also being reached on how the proceeds of any sale of Cheval should be distributed. When asked in cross-examination if he regarded himself as having come to a final and concluded agreement at that meeting Mr Halpern said “yes”.

Mr Margolis’s recollection was that while he was able to negotiate on behalf of both Spring and Volkomen at the meeting he could not commit Volkomen. The outcome was no more than a broad agreement in principle that the parties would work towards entering into an arrangement by which Volkomen would have the right to control Cheval, the debt would be restructured as preference shares and the guarantee would be put off for five years but subject to certain conditions. Mr Margolis thought it was clear that all understood that while hands were shaken and the principles had been agreed, the matter would need to be negotiated in detail and put into a formal written contract.

Following the meeting Mr Minitzer sent Mr Epstein an email summarising his impressions on the key points and Mr A. Margolis prepared a draft Memorandum of Understanding (“MOU”) which was circulated for comments. There were subsequently a number of different revised MOUs. After various changes to Mr A Margolis’ draft, a revised draft MOU was sent to Mr Halpern on 18 November 2008. The draft MOU provided for:

On 20 or 21 November 2008 Mr Halpern spoke to Mr J. Margolis on the telephone and outlined a number of concerns that he had with the 18 November 2008 draft MOU. He reiterated these to Mr Sher in a separate telephone conversation, and they are recorded by Mr Sher in an email to Mr J. Margolis sent on 24 November 2008. According to this email:

Emails were then exchanged between Mr Chesler, Mr Sher, Mr Margolis and Mr Epstein about how to respond and a further revised draft MOU was prepared and sent to Mr Halpern on 27 November 2008. This 27 November 2008 draft MOU contains track changes. These included:

These changes did not comply with all the requests made by Mr Halpern. For example, he had wanted the Guarantee capped at £1.5 million. Despite being pressed to do so Mr Halpern did not sign and return the further revised draft MOU or respond at all. Mr Epstein sought a reply on 29 November and again on 1 December in an email headed “please reply”. He sent a further chaser to Mr Halpern on 9 December in the following terms:-

HS Real relies on the words “agreed verbally” as evidence of a binding oral agreement. Mr Epstein said in evidence that there was no agreement and that he was stating an untruth to try and secure a response from Mr Halpern who rarely replied to emails.

On 21 November 2008 Mr Halpern spoke to Mr Margolis and Mr Sher but from the email report to Mr Margolis of that conversation, matters remained unresolved at that point. Mr Margolis denied ever having a conversation with Mr Halpern between 21 November and 27 November and Mr Halpern agreed in evidence that they had not spoken in that period. Mr Margolis emailed Mr Sher on 24 November agreeing to revert to Mr Halpern but he said in evidence that he had not done this and Mr Halpern did not disagree.

There was no further communication from Mr Halpern until 10 December 2008 when, after receiving a further request from Mr Epstein for his “signed agreement and confirmation of the memo sent to you” he replied saying that he would “get the email back to you tomorrow.”

The following day, 11 December 2008, Mr A. Margolis sent Mr Sher an email attaching a further version of the MOU, called “Memorandum of Understanding final version (clean) 11.12.08 doc”. In this version, Mr A Margolis had accepted the track changes in the 27 November 2008 draft, added signature spaces for CIL, Volkomen, HS Real and Spring, and inserted at the top of the first and second page of the draft, under the words “Memorandum of Understanding”, the words “Subject to Contract”.

Mr A Margolis who was at the time Chief Executive Officer of Cheval says in his witness statement that he added the words “Subject to Contract”, following a discussion with a non executive director Mr Chesler, to make it abundantly clear that the MOU was not a legally binding document and that the proposals would have to be embodied in one or more contracts at a later stage as set out in an action plan which he had prepared.

Later that day Mr Sher met Mr Halpern. Mr Sher recalls that meeting being at the RIBA in London. Mr Halpern said it was at a hotel near Watford. Mr Sher recalled:

On 12 December 2008 the “Subject to Contract” MOU (“the Final MOU”) was signed by Mr J. Margolis for Spring. It has never been signed for and on behalf of Volkomen.

On 8 December 2008 SJ Berwin had advised Mr A Margolis amongst other things, that:

On 15 December 2008 Mr Sher and Mr A. Margolis met Cheval’s auditors, Chantrey Vellacott, in order to discuss the proposed course of action set out in the Final MOU. During this meeting the auditors advised that it was not possible for an equity instrument that was secured by a debenture to appear as equity rather than debt on a company’s balance sheet. This meant that Volkomen’s proposed preference shares would still have had to be disclosed as a debt in Cheval’s annual accounts. This would have defeated the purpose of the proposed conversion of debt into equity. As a result it was suggested that the best course of action for Cheval might be to restructure the Volkomen debt into a longer term form of debt.

This resulted in Mr Sher sending an email on 22 December 2008 to Mr. Epstein, Mr. Margolis, Mr. Halpern and others stating that solicitors’ advice had been received that the proposed structure set out in the Final MOU would not work. The email continued:

Later that same day Mr A. Margolis circulated a revised draft Loan Facility Agreement between Volkomen and Cheval. A further draft was circulated on 7 January 2009 and the new Loan Facility Agreement (“LFA”) was signed and returned by Ms Houtman for Volkomen on 27 January 2009, just in time for Cheval to meet the accounts deadline of 31 January 2009. Clause 5 of the LFA purported to give Volkomen the right to appoint a majority of the directors of Cheval until such time as the Loan Facility was repaid in full.

In the meantime Mr A. Margolis had drafted and circulated what he called the “Top Co Agreement” for approval before being sent to HS Real. He explained that this “deals with various matters that were in the Memorandum of Understanding, but could not be included in the New Loan Facility agreement between Cheval and Volkomen.” The draft Agreement was between CIF, CIL, HS Real, Volkomen and Spring and provided, amongst other things:

The draft was never sent to Mr Halpern and was not executed by any party. Mr Halpern was not involved in any of the discussions regarding the LFA or the draft Top Co Agreement. He emphasised that he was not an executive of Cheval and that his role in the project was to invest funds and not be active in management.

On 4 February 2009 SJ Berwin advised that:

In the absence of any further proposal from Mr Halpern the Claim Form was issued on 25 March 2009 and served shortly thereafter on 6 April 2009. Spring obtained judgment against HS Real but this was later set aside. Mr Epstein showed a regrettable lack of candour towards Mr Halpern over the events leading to that judgment.

Spring applied for summary judgment and that application was rejected by His Honour Judge Chambers QC on 29 January 2010. The action was tried over four days. I had, in addition to the bundles of documents, live evidence from Mr Epstein, Mr J Margolis and Mr Sher for the Claimant and from Mr Halpern for the Defendant. I also had in addition a witness statement from Mr A Margolis which is relatively uncontroversial and Mr Anderson QC did not seek to cross-examine him.

This is one of those cases where the disputes about fact are limited but where live evidence from the witnesses has been crucial to an understanding of the negotiations at issue. The witnesses wore various hats but had the well being of Cheval as a common interest. Mr Epstein and Mr Margolis had an interest in Spring obtaining payment from HS Real and in Cheval continuing to trade profitably so as to service its very large debts to Volkomen. Mr Halpern had an interest in the prosperity of Cheval because he effectively owned half of it and had put up large sums of money. He also had an interest on behalf of HS Real, first in deferring payment under the guarantee if possible and secondly in not diluting equity in Cheval in favour of Volkomen more than was necessary to secure an adequate restructuring. Mr Sher had an interest in preserving Cheval because of his shareholding in it and also because of his genuine feelings of personal embarrassment both as regards Mr Halpern who had put up the money and also as regards Mr Epstein and Mr Margolis because of Mr Halpern’s failure to cause HS Real to pay the balance due under the guarantee. Mr Halpern resented what he saw as his company being taken back by the vendors via Volkomen. Mr Epstein resented what he saw as having to bail out a company owned by Mr Halpern and Mr Sher, not by him nor Mr Margolis. They appeared to blame each other for Cheval’s inability to respond to the crisis effectively and to believe that the other lacked integrity. I turn now to each witness.

Mr Epstein is a very successful and highly intelligent accountant and business man perhaps now coming towards the end of his career. He was cross-examined about the degree of control he exercised over Volkomen. His evidence was that all final decisions by Volkomen were made by Ms Houtman following consultation with its own legal and financial advisers. It became clear that while Ms Houtman was more than a rubber stamp she was certainly amenable to advice and direction from Mr Epstein and was so out of touch with events, being it seems unaware that Cheval had been sold to CIL even three years after this had occurred, that she is unlikely to have had much personal influence on decisions. There was no evidence of anyone other than Mr Epstein causing Volkomen to take decisions. While from a tax and regulatory point of view everything is no doubt in order, in broad terms it seemed clear that Volkomen would act on advice or direction from Mr Epstein.

Mr Epstein was asked about his email referring to what had been “agreed verbally” and it was put that what he had said was true. He denied this insisting that he exaggerated the truth to provoke a response from Mr Halpern who simply ignored requests for information or for his views.

Mr Epstein did not deny his lack of candour as regards Mr Halpern over the obtaining of judgment. He readily admitted his lapses from the highest professional standards but felt sorely tried by what he saw as Mr Halpern’s failure to pay and prevarication and refusal to engage during the efforts to restructure Cheval. I believe his evidence that there was never the verbal agreement referred to in his email. It is supported by the documents, the agreed absence of any relevant discussions between Mr Margolis and Mr Halpern at the time, the surrounding evidence and the probabilities.

Mr J Margolis is also a successful and intelligent businessman but one who takes a more restrained approach than Mr Epstein when things go wrong on a deal. It is clear from the correspondence that Mr Margolis urged patience and restraint upon Mr Epstein as frustrations emerged in the negotiations. He became involved in the 5 November meeting only because Mr Epstein was abroad. The meeting had come about because Mr Sher had sought to bring Mr Epstein and Mr Halpern together for a one to one meeting. This took place in Mr Margolis’ house because he was recovering from minor surgery. Mr Margolis seemed to me a calm, honest and straightforward witness. I have no reason to doubt his account of what occurred. It is consistent with the documents and what happened afterwards.

Mr Sher who has throughout been caught in the middle gave a calm straightforward and candid account of his role in events. He seemed to me a man of some principle and integrity - see for example his expressions of concern about his continued usefulness to the business and the level of his remuneration. His embarrassment about events did not cause him to flinch from the truth.

It does not seem to me that the differences in recollection between Mr Sher and Mr Halpern about the meeting on the 11 December matter very much but if they do, for the reasons that I will give, I prefer Mr Sher’s account.

Mr Halpern is another highly intelligent and successful businessman of great experience. He lives mainly in Florida but has been instrumental in the success of Domino’s Pizza in the UK. He is 74 years of age and his active business career may be mainly behind him.

Mr Halpern was unconvincing about HS Real’s ability to pay what was due under the guarantee should it wish to do so. It plainly had assets available should it have wished to pay the debt.

His claims about what was agreed at the meeting on 5 November were not credible. His claim was based on an inaccurate earlier recollection of who had attended the meeting. The subsequent documents are not consistent with what he said nor indeed is the Defendant’s pleaded case.

Mr Halpern’s own recollection of the events towards the end of November is consistent with Spring’s claim that no oral agreement was made at that point. He accepted that he had no conversation with Mr Margolis or Mr Sher apart from that which took place on about 21 November when matters were clearly still unresolved. Caution is needed, once it is accepted that Mr Halpern’s recollection is faulty about relevant matters, before placing reliance on what he remembers, whichever side’s case this helps. But both witnesses agree that there was no such discussion.

Mr Halpern’s recollection that the meeting on 11 December took place in Watford and not at the RIBA, emerged only with his witness statement of 15 November. In cross-examination he asserted that he had documents to demonstrate this but nothing more has been produced. His account of the meeting is a surprising one, although so too, to a degree, is that of Mr Sher. However Mr Halpern admitted in evidence that he saw the words “Subject to Contract” and that he did know what the words meant. His initials appear in two places on the first page of the MOU and one of these is by “Subject to Contract.” He claimed that he invariably initials each page of each document he signs. When shown by reference to other documents that this was not correct he qualified this by saying that it was perhaps his usual rather than his invariable practice. Unfortunately this sounded like Mr Halpern trying to explain away an inconvenient truth.

Mr Halpern accepted that despite his perception that his signing of the MOU created a legally significant commitment he had not enquired whether Spring and Volkomen had ever signed and had not sought a copy for himself until April 2009.

Mr Halpern was asked why he so rarely replied to emails even when these expressly asked for a response. Mr Halpern’s initial response was “because I didn’t.” Other reasons he gave were “I receive lots of emails, like many other people do... I am not the most proficient person. I will look at emails and some of them actually – and then, at some point, I will respond, and some of them don’t get responded to... Possibly I was preoccupied with other matters... At this point I can’t tell you why I didn’t respond... And many times I receive emails which I possibly should respond to and I don’t.”

Mr Halpern used his evidence as an opportunity to make repeated criticism of what he saw as the lack of good faith and integrity of Mr Epstein and Mr Margolis and to some extent Mr Sher. He put himself forward as a straightforward businessman of the old fashioned school who found that on the whole people were trustworthy and therefore you could depend upon a handshake. His low opinion of the other parties and Mr Epstein in particular, caused him to confuse recollection, which was in any event not strong on detail, with advocacy for HS Real’s case.

There was no oral agreement at the meeting of 5 November or later. Mr Margolis’ recollection is better than that of Mr Halpern and more consistent with the documents and with probability. Mr Epstein’s email referred to a verbal commitment untruthfully in order to provoke a reaction from Mr Halpern. The meeting of 11 December took place as described by Mr Sher and Mr Halpern knew exactly what he was doing. He is as I have pointed out a highly intelligent and successful businessman of vast experience. While from the United States he is thoroughly familiar with the conduct of business in the United Kingdom and is a director of at least one listed company. HS Real is sophisticated. Its interests in Domino’s Pizza were, at least in 2006, valued at more than US $60 million.

Mr Halpern, having been pressed to sign a document and having declined to do so, found to his good fortune that he was now being asked to do so without making a legally binding commitment. It is likely that he initialled the words “Subject to Contract” so that he could, if necessary, draw attention to this at a later stage. I accept the Claimant’s submissions that Mr Halpern’s actions in this regard were part of the same pattern as one sees in his decision not to answer emails. People do not become and remain highly successful in business by taking a casual approach to reading emails. People in that position when engaged in business negotiations either read emails carefully or cause others to do so on their behalf. Mr Halpern was enraged by the way in which events had turned out and by what he saw as the bad faith shown by Mr Epstein and Mr Margolis. He was determined to ensure that HS Real did not pay the £1.5 million plus interest under the guarantee, at least for the five year period he sought.

Volkomen would, in broad terms, act according to the wishes of Mr Epstein and Mr Margolis. Mr Epstein deceived Mr Halpern over the issue and service of these proceedings.

Mr Anderson QC and Mr George make detailed and very able submissions in support of the Defendant’s claim that the parties reached an oral agreement. As I have found, as a matter of fact, that no such oral agreement was entered into at any point I do not address those submissions or those of Mr Tozzi QC and Mr Hunter in response.

If I had formed a different view I would then have been required to consider whether an oral variation could have been effective given the requirement of the guarantee that variations could only be in writing. This would have required addressing the somewhat differing guidance given by the Court of Appeal in two decisions, World Online Telecom Limited v I-Way Limited [2002] EWCA CIV 413 and United Bank Limited v Asif, unreported, CA 11/2/00. My first impression, having heard the submissions of Counsel, was that there could in theory be an oral variation, notwithstanding a clause requiring that to be in writing, but that the court would be likely to require strong evidence before reaching such a finding. But it is unnecessary and inappropriate for me to express a considered view.

I was also taken to authorities about the significance of the use of the expression “Subject to Contract” and there were submissions distinguishing the facts of this case from those addressed in the authorities because here the words were used just once after a series of exchanges containing no such indication (to those authorities I add the remark of Lindsay J in Gonthier, to which I refer below, at para 41, “I add that so familiar is the use of the phrase “subject to contract” in the conveyancing context that its effect is, without proof, to be taken to be known to the parties”. He then cites authority to that effect).

As I see it the meaning of Subject to Contract in the context of this case was blindingly obvious to all concerned. They were well aware that the signed MOU did not give rise to any legal consequence. It follows that I reject the claims that the MOU signed by Mr Halpern on 11 December constituted a legally binding agreement between the parties.

The general principles of estoppel are not in dispute between the parties and are helpfully summarised as follows in paragraphs 69 to 71 of the Claimant’s Opening skeleton argument:-

The Defendant rejects the proposition that there is limited scope for any estoppels in the context of pre contractual negotiations.

It would not be useful, and fortunately on the facts of this case it is not necessary, for me to seek to choose between what Gonthier sees as somewhat different approaches taken by appellate courts.

The Defendant says that Mr Epstein’s emails of 9 and 10 December are clear representations that the Claimant would not make a call on the guarantee for five years if Mr Halpern signed the MOU: “we can’t hold off on HS Real Guarantee until we have your signed agreement and confirmation of the memo sent to you.”

It is claimed that Mr Halpern relied on those representations and suffered a detriment as a result.

The email of 22 December 2008 gives rise, Mr Anderson submits, to an estoppel by convention and the parties acted between the 22 December 2008 email and at least 27 January 2009 when the LFA was signed on the understanding that the agreement to defer the guarantee was legally binding on both parties. It was only on 2 February that Mr Epstein formed the erroneous view that the LFA was void under section 678 of the Companies Act 2006. Mr Anderson points to the absence of attempts to enforce the guarantee during January 2009. He points to Mr Epstein’s email that, in the light of the advice received, “Our Memo of Understanding is not legal.”

He also relies on other indications which it is said are consistent with a recognition that a five year deferral was in place such as the tone of the emails requesting Mr Halpern’s assistance and the fact that Mr Epstein was not aware that the MOU was subject to contract at all or that it had not been signed by Volkomen. Alternatively the Defendant says that even if Mr Epstein and Mr Margolis did not share Mr Halpern’s understanding they were aware of that understanding and deliberately encouraged it. Moreover at this point the parties had waived any requirement that the final MOU be “subject to contract” as was clear from the 22 December email and the implementation of the alternative solution through the LFA. The Defendant contends that Mr Halpern had obviously relied upon the email because otherwise he would have insisted that the agreement to defer the guarantee was recorded in a further document. In that event the parties would undoubtedly have agreed to execute a further document to extend the guarantee and Mr Halpern could in effect have ensured that was possible through the power of his role as sole director of CIL, the sole shareholder of Cheval. (This in turn led to the question of the position of Mr Sher who was the co-owner of Ambition the sole shareholder of CIL. Mr Halpern suggested, remarkably, that he would if necessary have been able to put his own interest in securing deferral of the guarantee over duties which he had owed to the shareholders of CIL as a whole. The consequence of that flagrant breach of duty would however have been limited since it was clear from Mr Sher’s evidence that if Mr Halpern had said he would only agree to the restructuring and to handing over management control if his guarantee was deferred, he would in practice have been likely to go along with that.)

The Defendant asserts that the entering into of the LFA was in itself a detriment to HS Real. The LFA was acted upon in order to give Volkomen actual operational control of Cheval which was given effect to in the appointment of a director, Mr Benninger, purportedly under the rights granted by the LFA. (At trial there were detailed submissions about whether Volkomen gained control. It seems that it did not do so, at least by November 2009. That is unsurprising given the solicitors’ advice provided on 4 February 2009.)

Mr Tozzi QC and Mr Hunter submit that the emails of 9 and 10 December were not representations and would not in any event have survived the signing of the MOU. It was common ground that the 9 December email was no more than Mr Epstein pressing Mr Halpern to respond and that of the next day simply a request for the return of the document.

The email of 22 December proposed an alternative solution after the parties had signed, subject to contract, an MOU which provided for an arrangement which was not feasible. An alternative solution was proposed as part of that arrangement, the details of which would have needed to be worked out. Neither party communicated approval of the alternative to the other.

It is not correct that HS Real relied on any alleged representation by participating in or permitting the negotiations for the new LFA which gave Volkomen control over Cheval or by not negotiating further with Spring so as to ensure that an agreement not to call on the guarantee for 5 years was made. In practice Mr Halpern did nothing, as had been his practice before the signing of the MOU. He made no attempt to progress any points, did not ask what was happening or even seek to see the revised LFA. He was not relying on anything, simply carrying on as he had done from the end of May 2008. It is unrealistic to suggest that Mr Halpern permitted negotiations which he would otherwise have blocked. That was not his way. Cheval had no choice other than to reach a deal with Volkomen, Mr Sher wanted the deal done, Mr Halpern wanted Cheval on HS Real’s balance sheet – it is not correct that that wish was simply because it “looked good”. Mr Halpern would not have wanted to be the sole director of an insolvent company and it was not his method of operation to be active so as to act to block a deal.

Even if other requirements of estoppel were established there was no detriment, almost self evidently so following the emails of 9 and 10 December. Further it is not correct that Volkomen gained control of Cheval. Clause 5 of the LFA which purported to do this was ineffective for reasons given by SJ Berwin on 4 February 2009. Volkomen has not in fact taken control as the minutes of November 2009 demonstrate.

Mr Tozzi submits that even if an estoppel case could otherwise have been made out it would not be inequitable for Spring now to enforce against HS Real. Volkomen had not got what it had hoped for under the proposals of the MOU, HS Real wanted the MOU to be subject to contract and so it was. HS Real’s behaviour has been unconscionable given its past failures to pay, the offering of deceitful excuses for not doing so and the way it has sought to take advantage of Cheval’s difficulties.

The emails of 9 and 10 December gave rise to nothing which was not realised in the MOU marked “subject to contract” signed on 11 December. The question which arises after that is whether given the email on 22 December “a very strong case can be made on the facts as to the obviousness and duration of reliance on a “subject to contract” dealing nonetheless being implemented.”

Before expressing further views about the facts in that period I bear in mind that the parties, or at least some of them, were accustomed to entering into relatively complex legally binding commitments including it seems some loan agreements, without reference to legal advice or assistance. In that context one is more ready to infer that the parties have indeed committed themselves in circumstances where it is inconceivable that others would have done so, except through careful documents executed after having been prepared and approved by lawyers. Nevertheless Mr Halpern knew perfectly well from 11 December onwards that the MOU was subject to contract. It is improbable that Mr Halpern would have wanted to prevent the LFA given the need for Cheval to survive and it is unlikely that he would have broken his fiduciary duty and used his position to risk the interests of Cheval in order to obtain a further advantage for HS Real. As Mr Halpern himself emphasised he was something of a sleeping partner and not one to take initiatives. For so long as efforts were not being made to enforce the guarantee, Mr Halpern was content to do nothing. By February Mr Halpern knew of the difficulty revealed by the solicitors. Mr Epstein was conciliatory towards Mr Halpern, not because he recognised a legal commitment but because further discussion was needed. Mr Halpern awaited developments, as he had done throughout, and understandably sought to use these in February and March to improve HS Real’s position with, at that stage, no hint of allegations which were later to found the claims of estoppels. Those efforts did not result in a deal between the parties and as a result steps were taken to enforce the guarantee.

There are no widows and orphans in this case and the participants are all highly intelligent businessmen of very great experience. In the context of an MOU being signed expressly subject to contract and all parties being alert to and well able to consider their particular interests, and there being little trust between them there are no bricks to build the “very strong case” that would be needed on the facts to give rise to any of the estoppels which the Defendant seek to rely on in this case. Indeed there is no such case. The Defendant was biding its time, not acting in reliance on anything said or done by or on behalf of Spring.

For the reasons I have given the defences fail and there will be judgment for the Claimant. I shall be grateful if counsel will, no later than 48 hours before the judgment is handed down, let me have corrections of the usual kind, a draft order preferably agreed and a note of any points to be raised at the hearing. If the parties can agree on all matters then I will dispense with their attendance when judgment is handed down.

Finally, I am grateful to counsel and solicitors for the admirable way in which this case was prepared and argued.