This is the judgment following the trial of a claim and counterclaim in relation to an introducer’s/intermediary’s fee. By the claim, the Claimant, Kinled, claims £4.2 million as a fee for having acted as an intermediary between the Defendant, Zopa, and an investor, Silverstripe. By the counterclaim, Zopa seeks to recover £345,000; the fee it paid Kinled for Kinled’s initial introduction to it of Silverstripe. This case is not the first which has come to court in recent years in which intermediaries have claimed an introducer’s fee (see, in particular, Becerra v. Close Bros., Thomas J, 25 June 1999, MSM Consulting Ltd. v. United Republic of Tanzania [2009] EWHC 121 (QB), Moorgate Capital (Corporate Finance) Ltd. v. HIG European Capital Partners LLP [2019] EWHC 1421 (Comm) and Premia Marketing Ltd. v. Regis Mutual Management Ltd. [2021] EWHC 2329 (QB)). The earlier cases were decided on their facts, more or less, and, as it turns out, the outcome of this case has turned largely on its facts. This case is unusual because, by it, Kinled does not claim a fee for its initial introduction of Silverstripe to Zopa. That fee – the £345,000 which Zopa now seeks to recover – has already been paid. Rather, Kinled claims an additional, intermediary’s, fee, calculated at 3% of the sum invested, because Silverstripe made a second investment of £140 million in Zopa.

By the conclusion of the trial, Kinled’s case was being pursued on only two of the bases on which it had begun the claim; namely, that a written agreement – the engagement letter – by which it was originally engaged, had been varied so as to cover Silverstripe’s second investment in the circumstances which have happened and, alternatively, that Zopa is liable to pay the sum Kinled claims as a quantum meruit, because Kinled provided intermediary services relating to Silverstripe in the second investment round in both parties’ anticipation and expectation that a contract for those services would eventuate. Much of the documentary evidence and the oral evidence was directed to the other bases for Kinled’s claim which it no longer pursues.

Zopa’s counterclaim was also advanced in a number of ways, including that, in making the initial introduction of Silverstripe (and another investor, Lida) to Zopa, Kinled carried out regulated activities contrary to the general prohibition in the Financial Services and Markets Act 2000 (“FSMA”), so that, under s.26 of FSMA, the engagement letter is unenforceable and Zopa is entitled to recover the £345,000 it paid to Kinled for that introduction under the engagement letter.

I have come to the clear conclusion that:

there was no agreement to vary the engagement letter as Kinled contends;

even if there was an agreement to vary the engagement letter as Kinled contends, it was not contractually binding because it was not supported by consideration;

the intermediary work in issue which Kinled did was not done in anticipation that a contract would eventuate. Rather, both parties proceeded on the basis that any payment for that work would be made in accordance with the engagement letter, which does not entitle Kinled to any further payment in the circumstances which have happened;

the claim therefore fails.

I have also come to the conclusion that:

in making its initial introduction in this case, Kinled was carrying out regulated activities;

as a result, the engagement letter is unenforceable under s.26 of FSMA;

however, in the particular circumstance of this case, it is just and equitable to permit Kinled to retain the £345,000 payment under s.28 of FSMA;

therefore the counterclaim fails, Zopa having accepted (perhaps with s.28(9) of FSMA in mind) that, if its counterclaim under FSMA failed in the way it has done, the alternative bases on which it has brought its counterclaim fail too.

In this judgment I therefore propose to set out the evidence and the parties’ submissions, and consider the parties’ cases, only to the extent necessary to explain the reasons for my decision, although, to be clear, I have considered all the documentary evidence to which I was referred, all the evidence I heard (to which end, I have read the entirety of the trial transcript before preparing this judgment) and all the parties’ submissions.

It is helpful to begin by introducing the participants in the events to which I will be referring. The corporate structures are complicated but, as it turns out, do not need to be fully explored to understand the case. Similarly, who some of the individual participants are employed by and the relationship between their employers and the key businesses in the case are also complicated but do not need to be fully explored to understand the case.

The Claimant (“Kinled”) is, as Mr Novis explained, “a Hong Kong incorporated company which is a stand-alone part of a wider group of companies that make up a single family office”. A family office is a private wealth management advisory business which serves high net worth individuals, or families. Although the picture is not entirely clear, I formed the impression at trial that Kinled is, in effect, a vehicle through which the Aisher family invests its money. Mr Novis referred to Patrick Aisher as “the principal” when cross-examined on Zopa’s FSMA counterclaim. That evidence and related evidence leads me to conclude that, where Mr Novis requires direction, he takes it from Mr Aisher (particularly in relation to FSMA-related issues).

Rupert Novis has been Kinled’s investment director since 2014. Before that, he worked in the City in derivatives. He identifies investment opportunities for the Aisher family and manages the Aisher family’s investment portfolio.

The Defendant (“Zopa”) is the holding company in a group also comprising Zopa Bank Ltd. and Zopa Ltd., both of which were FCA-regulated at the time. Zopa Ltd. was the first peer to peer lending intermediary company. On 24 June 2020, the Prudential Regulation Authority (“the PRA”) granted Zopa Bank Ltd. a full retail banking licence, having granted the bank an “AWR” licence (that is an authorisation with restrictions licence) on 3 December 2018. The period between the grant of the two licences is known as the mobilisation stage. During this period, a bank may take deposits, subject to restrictions, in preparation for the grant of a full licence after which it may trade fully. The repositioning of the Zopa business as a retail bank has apparently been successful. It was reported in the financial press in October 2021 that the business was a Dollar Unicorn (that is, it had a value of at least US$1billion), which is a significant increase in its value from the period to which this case relates. (Footnote: ¹)

Jaidev Janardana is, and was at the relevant time, Zopa’s CEO. He has worked for Zopa since 2014. Before that he was employed by Capital One, a bank particularly known for its credit card business.

Jonathan Kramer also began working for Zopa in 2014, having previously been employed by Morgan Stanley. He joined Zopa as Head of Capital Markets, becoming its President in 2018. He reported to Stephen (known as Steve) Hulme, Zopa’s Chief Financial Officer, who began working for Zopa in 2018, and to Mr Janardana. He was responsible, on a day to day basis, for managing the investment rounds which are in issue in this case.

During the period with which I am concerned, Gordon McCallum became the chairman of Zopa’s board.

Tajmeet (known as Taj) Kalra was part of Mr Kramer’s team at the relevant time.

Victoria Matthews is, and was at the relevant time, Zopa’s in-house lawyer.

IAG Silverstripe LLC (“Silverstripe”) invested £10 million in Zopa in late 2018/early 2019 and a further £140 million in Zopa in June 2020. (Footnote: ²) As described to me by Mr Cuppage in cross-examination, for the purposes of this case in effect Silverstripe is the family office of the Hildebrand family (and possibly the family too of Chris Jones, Brett Hildebrand’s business partner). Brett Hildebrand is, in effect, Silverstripe’s principal (and is described as such on the agreed cast list prepared by the parties). Silverstripe and Mr Hildebrand are based in Charleston, South Carolina. Mr Hildebrand has a particular interest in the credit card business and has been actively involved in Credit One Bank, which operates one of the leading US credit card businesses. He is also interested, through corporate vehicles, in Jaja Finance Ltd., which operates Bank of Ireland’s UK credit card business.

Nicholas Aspinall is a lawyer and an investment professional. He was heavily involved in the arrangements, on the Silverstripe side, leading to its investment in Zopa, and, I formed the impression at trial, has worked closely with Mr Hildebrand.

Alex Cuppage is also an investment professional. He too was heavily involved in the arrangements, on the Silverstripe side, leading to its investment in Zopa, and, I formed the impression at trial, has also worked closely with Mr Hildebrand.

Keemia Holdings Ltd. and Beleverd Holdings Ltd. (together “Lida”), part of the Lida family office, invested £1.5 million in the first investment round.

Royal Bank of Canada acted for Zopa as lead advisor in the first investment round and Bank of America Merrill Lynch (“BAML”) (as it was then known) acted for Zopa as lead advisor in the second investment round.

By 2018, Zopa had decided that it should obtain a retail banking licence. As I have indicated, a licence is, or can, be obtained in two stages. At the first stage, a bank obtains an AWR licence, which allows the bank to carry out certain deposit taking activities, as I have said, and, at the second stage, a bank obtains a full licence, which allows it to carry out all deposit taking activities. At each stage, a bank must have sufficient regulatory capital. Zopa therefore decided to seek third party investment in its business in two rounds; known as “the first investment round” and “the second investment round” (or “the bank raise”). In the first investment round, Zopa hoped to raise sufficient regulatory capital to allow it to obtain an AWR licence and, in the second investment round, it hoped to raise sufficient regulatory capital to obtain a full licence.

For the first investment round, Zopa engaged Royal Bank of Canada as its lead advisor. By July 2018, Zopa had obtained a commitment from a lead (or cornerstone) investor, Wadhawan Global Capital (“WGC”), to invest about £50 million in the first investment round (although, as it turns out, WGC only invested about £31 million). Nevertheless, it needed or wished to raise further capital and it was against that background that it and Kinled (in particular, Mr Novis) began to have dealings in July 2018.

On 31 July 2018, Mr Kalra emailed Mr Novis:

On 14 August 2018, Kinled and Zopa entered into a written agreement (“the engagement letter”). The engagement letter originated from Mr Novis, who had used, as a template, an engagement letter from a previous occasion when Kinled had provided introductory services (although it was amended by Zopa on 9 August 2018 following a conversation between Mr Novis and Mr Kalra, and following suggestions from Zopa’s lawyers). Perhaps because the engagement letter was not specifically drafted for this case, on both parties’ cases, but in different respects, it was not obviously apt to cover the arrangement between them, at least so far as they each subjectively understood that arrangement. The engagement letter:

recorded the terms on which Kinled was to act “as financial adviser” to Zopa and “set out the services to be provided”;

listed those services, first, as “finance raising”, which included:

assisting Zopa “to select and approach a shortlist of potential equity funders in order to establish the degree of interest from such parties”;

sending Zopa’s investor presentation to interested parties;

ensuring any confidentiality arrangements were satisfactory to Zopa;

“receiving offers together with terms and conditions [and reporting] the details to [Zopa] and [giving Zopa Kinled’s] view on the potential equity funders”;

attending presentations “and co-ordinating the provision of any additional information required by the equity funders to enable them to provide a credit approved funding offer”;

listed those services, secondly, as “completion”, which included:

“reviewing the final equity investment agreement and any other legal documents” at least to a qualified extent;

“project managing the process to legal completion”;

set out a fee structure, which is ambiguous. Although the fee structure is ambiguous, the parties agreed for the purpose of this case, that, properly construed, it was as follows:

for any share subscription made during the 3 month “engagement term” (beginning on 14 August 2018 and ending on 13 November 2018) by an investor introduced (or deemed to have been introduced) by Kinled, Zopa would pay Kinled 3% of the sum it received by the subscription from the introduced investor;

for any share subscription made during the 3 months immediately following the end of the engagement term (beginning on 14 November 2018 and ending on 13 February 2019) (“the tail period”) by an investor introduced (or deemed to have been introduced) by Kinled, Zopa would pay Kinled 3% of the sum it received by the subscription from the introduced investor;

if an investor introduced (or deemed to have been introduced) by Kinled subscribed for shares during the engagement term, and thereafter made a further investment in Zopa in the period ending on 13 November 2019 (“the extended tail period”), Zopa would pay Kinled 3% of the investment made.

In due course, both Silverstripe and Lida were deemed to be introduced investors for the purposes of the engagement letter.

On 1 October 2018, a meeting took place (“the 1 October meeting”). The meeting was attended by Mr Janardana, Mr Kramer, Mr Kalra, Mr Jones, Mr Aspinall, Mr Cuppage and Mr Novis. The 1 October meeting was the first time the Zopa and Silverstripe teams had met to discuss the possibility of Silverstripe investing in the first investment round. It was not the first time that Zopa had had dealings with a company in what may be described as “the Silverstripe stable”. Nor was it the first time that some of the Zopa team had met with some of the Silverstripe team. Bamboo Ltd., a UK-based lender, which is part of the Silverstripe stable, had had an arrangement with Zopa since 2017 under which Zopa referred to Bamboo customers to whom it was unable to lend. The meeting participants not only discussed Zopa’s banking aspirations, they also discussed the possibility of a closer collaboration between Zopa and Bamboo. The impression I formed, from all those present who gave evidence, was that the 1 October meeting was very much a “getting to know you” meeting and that the discussions which took place were, consistently with the nature of the meeting, broad brush and tentative. By all accounts, the 1 October meeting ended positively.

After the 1 October meeting, Mr Novis emailed Mr Janardana, Mr Kramer and Mr Kalra at 1:45 pm:

Eleven minutes later, at 1:56 pm, Mr Janardana emailed Mr Kramer:

At 5:34 pm on 1 October 2018, Mr Kramer emailed Mr Novis, Mr Janardana and Mr Kalra:

Ten minutes later, at 5:44 pm, Mr Kalra sent an email to Mr Novis, Mr Janardana, Mr Kramer and Ms Matthews including a marked-up draft non-disclosure agreement. The email said:

On 2 October 2018, Mr Novis emailed Mr Janardana, Mr Kramer and Mr Kalra:

Mr Novis and Mr Kramer then spoke the same day (“the 2 October conversation”). What was discussed and agreed during the conversation is in dispute.

Lida subscribed for £1.5 million of Zopa shares on 29 October 2018 and paid that sum, and was issued its shares, in December 2018.

Silverstripe subscribed for £10 million of Zopa shares on 31 October 2018. Silverstripe paid part of that sum on 13 November 2018 (the last day of the engagement term) and was issued some of its share allocation. It paid the balance of that sum on 9 January 2019 and was issued the balance of its share allocation on the same day.

Meanwhile, on 12 November 2018, Mr Novis and Mr Kramer met at The Ned, London for breakfast (“the breakfast meeting”).

The same afternoon, Mr Novis emailed Mr Kramer:

Mr Novis and Mr Kramer spoke on 19 November 2018.

The same day Mr Novis forwarded a copy of his 12 November 2018 email to Mr Kramer, adding:

The PRA granted Zopa an AWR licence on 3 December 2018. The grant of the AWR licence started a twelve month clock running. A bank must be granted a full retail banking licence within twelve months after it has been granted an AWR licence, otherwise its AWR licence lapses and it has to start the process of obtaining a retail banking licence all over again, unless, exceptionally, the PRA is prepared to extend the twelve month period. (In this case, as I shall explain, the PRA did extend the twelve month period, but no-one would know that until 2 December 2019, the penultimate day of the twelve month period).

On the grant of the AWR licence, the first investment round closed.

Mr Novis emailed Mr Kramer and Mr Cuppage on 5 December 2018:

On 16 January 2019, Mr Novis emailed Mr Kramer asking if they could meet because, he was “keen to hear about…my contract for the second part of the money raise” amongst other matters.

Mr Novis, Mr Kramer and Ms Matthews met on 21 January 2019. What was discussed and agreed at the meeting is in dispute. In a follow up email of “action points” Mr Novis sent to Mr Kramer and Ms Matthews the same day, he suggested the following action point for Ms Matthews:

On 26 February 2019, Mr Novis emailed Ms Matthews asking if they could speak and, on 1 March 2019, he emailed Ms Matthews again, referring to a discussion, and attaching “the contract” as discussed. Attached to the email was the draft of the engagement letter which had been attached to Mr Novis’ 12 and 19 November 2018 emails (without any introduced investors listed in Annex 1). This was the fourth time Mr Novis had sent the draft engagement letter to Zopa. It had not been signed by Zopa on the previous three occasions when it was sent and it was not signed this time.

On 19 March 2019, Mr Novis emailed a US contact:

On 25 March 2019, a meeting took place between Mr Janardana, Mr Hulme, Mr Kramer, Mr Hildebrand, Mr Jones and Mr Aspinall (“the 25 March meeting”). Mr Hildebrand was visiting the UK and he wanted to meet the management teams in businesses in which he had effectively invested. By all accounts, the meeting was not a success. As I have said, WGC had not invested £19 million of its promised investment and it was only now that Silverstripe was told this, although Zopa had attempted to let Mr Aspinall know in advance of the meeting. Mr Hildebrand was disappointed that WGC had not invested the sums it had promised and he was disappointed that Silverstripe was only told this at the meeting. There is a dispute between the Zopa participants and the Silverstripe participants who gave evidence about whether Zopa volunteered the information about WGC’s under-investment before, or after, Mr Aspinall had started to ask questions to clarify how much WGC had invested. There may also be a dispute about the extent to which relations between Zopa and Silverstripe were poor after the 25 March meeting. As it happens, nothing turns on any of this, although, if Mr Hildebrand’s perception at the meeting was that Zopa had not volunteered the information unbidden, he is likely to have been disappointed about that too.

On the same day, Mr Novis and Mr McCallum happened to meet.

The following day, 26 March 2019, Mr Aspinall emailed Mr Kramer about WGC’s under-investment:

On the same day, Mr Novis emailed Mr McCallum:

Mr Novis arranged a follow-up meeting between Mr McCallum, Mr Hildebrand, Mr Aspinall and himself on 27 March 2019, at Kinled’s office (“the 27 March meeting”). The participants who gave evidence agreed that Mr McCallum listened sympathetically to the Silverstripe’s concerns following the revelation a couple of days before about WGC’s under-investment. The Silverstripe participants explained at the meeting that Silverstripe wanted down round protection; that is, anti-dilution rights to protect the value of its existing shareholding in the event that, in the second investment round, the price paid by new investors for Zopa’s shares was less than the price paid by it in the first investment round. Mr McCallum promised to discuss this with Zopa’s board of directors. As it turned out, Zopa could not provide down round protection to Silverstripe for regulatory reasons. Mr McCallum confirmed this to Mr Aspinall at a meeting on 10 April 2019 (“the 10 April meeting”) which Mr Novis hosted, although Mr Kramer had sent Mr Aspinall an email to the same effect earlier.

It is Kinled’s case that Mr Novis and Mr Cuppage spoke on 4 June 2019. Kinled contends that this was an important conversation (“the 4 June conversation”). It pleads (in paragraph 29(5) of the Amended Particulars of Claim) that, during that conversation, it was “established that [Silverstripe] would be able to subscribe for the whole amount of £140 million in the second investment round”. Mr Novis’ witness statement (at paragraph 67), in which he described this as a “revelation”, is to the same effect.

The importance of the 4 June conversation was elevated even further by Mr Novis, for the first time, in his oral evidence. It is helpful to set out a discussion he and I had at the end of his oral evidence:

If the 4 June conversation was as Mr Novis claimed, it would indeed have been a “revelation”. As I have noted, relations between Zopa and Silverstripe had taken a downward turn in March 2019 (although the degree to which they had taken a downward turn is a matter of dispute) and, according to Mr Novis, only on 26 April 2019 had Mr Cuppage told him in a telephone conversation that Silverstripe was unlikely to invest at all in the second investment round because Zopa could not offer it down round protection.

Mr Cuppage’s recollection of 4 June 2019 was different. In a rather lengthy explanation in cross-examination about why Mr Novis’ recollection was unlikely to be right he said:

As Mr Novis explained, he and Mr Hulme spoke on 11 June 2019 (“the 11 June conversation”). Mr Hulme then sent an internal email, as a result of that conversation, suggesting that Zopa add to a presentation for Silverstripe a “break even analysis/path to profitability”.

Mr Hulme and Mr Kramer exchanged emails the same day. Mr Hulme asked Mr Kramer what Zopa’s “position” with Mr Novis was “if [Silverstripe] put £50m in!” Mr Kramer replied:

The Zopa team (including Mr Janardana and Mr Kramer) and the Silverstripe team (including Mr Hildebrand, Mr Aspinall and Mr Cuppage) met on 19 June 2019 (“the 19 June meeting”). Mr Novis was not present. Mr Cuppage’s recollection is that he and Mr Kramer met for lunch a little (perhaps a few days) before the meeting, when Mr Kramer explained that Zopa had built a proprietary credit card processing platform, following which they discussed Zopa making a presentation about its credit card business at the 19 June meeting. All the participants at the 19 June meeting agree that, at the meeting, the Zopa team (principally Mr Janardana) did make a presentation about its credit card business, that Mr Hildebrand appreciated Mr Janardana’s skill and expertise in that business and that, after the 19 June meeting, because of his own interest in that business, Mr Hildebrand began to contemplate Silverstripe making an investment in the second investment round.

Mr Novis sent Mr Kramer the draft engagement letter for a fifth time on 8 July 2019. On this occasion, a number of businesses were listed in Annex 1 as introduced investors, but Silverstripe. Lida and Perscitus Advisors were not listed. Again, Zopa did not sign it. Mr Novis’ covering email said:

On 9 September 2019, Silverstripe asked to see any written terms under which any fees were payable to introducers for investments made in the second investment round. Silverstripe was apparently particularly concerned about the payment of any fee to Kinled. Mr Kramer sent an email to Mr Janardana and Mr Hulme:

On 9 October 2019, Mr Novis emailed Mr Hulme and Mr Kramer:

On 30 October 2019, Mr Novis emailed Mr Janardana, Mr Hulme, Mr Kramer and James van den Bergh (the existing investor in Zopa who had introduced Kinled to it) under the heading “URGENT request for meeting”:

Mr Novis received no response at all to the 30 October email. So, on 7 November 2019, he sent a chaser email. Mr Janardana replied the same day:

Mr Novis responded on 11 November 2019:

Mr Janardana replied twelve minutes later:

Mr Novis did try to meet with Mr Jones and Mr Aspinall about “an urgent matter” he wanted to tell them about “both from a historical and current standpoint regarding Zopa” but they did not meet with him.

On 2 December 2019, Silverstripe subscribed for £140 million of Zopa shares. In other words, it agreed to provide all the investment Zopa had sought in the second investment round. On the same day, the PRA gave Zopa an extension of time to apply for a full retail banking licence.

On 4 December 2019, Mr Novis emailed Mr Janardana, Mr Hulme, Mr Kramer and Mr van den Bergh an “invoice in accordance with our arrangement” in the sum of £4.2 million for “advisory on strategic investment for Silverstripe”.

Mr Hulme wrote to Mr Novis on 17 December 2019:

In March 2020, Silverstripe paid Zopa £2 million (and was issued with Zopa shares to that value). In June 2020, Silverstripe paid Zopa £138 million (and was issued with Zopa shares to that value) and Zopa was granted a full retail banking licence.

I need to set out the legal basis for Kinled’s claim and Zopa’s counterclaim in a little more detail than I have done already.

As I have indicated, Kinled now claims, first, that the engagement letter was varied. It pleads, in paragraph 17 of the Amended Particulars of Claim, that the Novis 1 October email and the Kramer 1 October email amounted to an agreement to extend the tail period in the engagement letter, so far as it relates to Silverstripe, to twenty four months expiring in November 2020. Kinled claims, alternatively, that Mr Novis, on behalf of Kinled, and Mr Kramer, on behalf of Zopa, agreed to vary the engagement letter to the same effect during the 2 October conversation.

Mr Paul O’Doherty represented Kinled at trial. During his opening, I mentioned that I understood that consideration is required for a contractual variation to be binding. (Footnote: ⁴) Mr O’Doherty agreed that consideration is required in this case. No consideration for Zopa’s alleged promise to pay a fee during an extended, twenty four month, tail period had been pleaded. Unopposed by Zopa, I permitted Kinled to amend the Particulars of Claim to plead consideration, which it did in the following way:

Kinled now, secondly, “brings a restitutionary claim, that it is entitled to a quantum meruit for introductory services undertaken by it at [Zopa’s] request”. As I have indicated, in closing, Mr O’Doherty put Kinled’s case for a quantum meruit on the basis that Mr Novis provided services relating to Silverstripe in the second investment round in the parties’ anticipation that a contract for a 3% intermediary’s fee would eventuate. Kinled relies on the following matters in support of that claim:

the 21 January 2019 meeting between Mr Novis, Mr Kramer and Ms Matthews, during which, Kinled explains, “Mr Kramer said to Mr Novis that the execution of the second letter of engagement would need to wait until [BAML] had identified a lead investor for the second investment round” and, as a result of which, Kinled contends that “from at least January 2019 it was clear to [Zopa] that [Kinled] expected to act in the second investment round on the basis of the same fee arrangement as in the first investment round and that introductory services provided in respect of the second investment round would not be provided gratuitously” and that “from at least January 2019 [Zopa] continued to instruct [Kinled]”;

that, it contends, Mr Novis arranged the 25 March meeting;

that Mr Novis arranged the 27 March meeting and hosted the 10 April meeting;

that Kinled’s “introductory services were critical in avoiding a complete breakdown in the relationship between [Zopa] and Silverstripe with numerous meetings, discussions and email exchanges between April and June 2019”, in particular the 11 June conversation.

Turning to Zopa’s counterclaim, s.26 of FSMA provides:

S.19 of FSMA defines “the general prohibition” as follows:

S.22 of FSMA defines “regulated activities” as follows:

Art.25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“the 2001 Order”) provides:

Kinled accepted, first, that the activities it carried out in this case were carried out by way of business. It accepted, secondly, that any activities it carried out which are regulated activities were carried out in breach of the general prohibition, because it is not an authorised person. It accepted, thirdly, that, if the activities it carried out in this case constituted either (i) making arrangements for Silverstripe and Lida to acquire shares in Zopa in the first investment round or (ii) making arrangements in which Silverstripe or Lida participated with a view to them acquiring shares in Zopa in the first investment round, it will have carried out regulated activities.

It follows, therefore, that, if (i) Kinled made arrangements for Silverstripe and Lida to acquire shares in Zopa in the first investment round or made arrangements in which Silverstripe or Lida participated with a view to them acquiring shares in Zopa in the first investment round and (ii) the engagement letter was made in the course of carrying on that conduct, prima facie the engagement letter is unenforceable against Zopa and Zopa is entitled to recover the introducer’s fee of £345,000 paid by it to Kinled.

Mr Alex Barden represented Zopa at trial. I raised with him, in opening, whether, because the engagement letter was made at the outset of any relevant arrangements made by Kinled, it was made in the course of carrying on those arrangements. Mr Barden suggested that it was, by reference to s.26(3) of FSMA. Mr O’Doherty did not apparently dissent from that suggestion, although I do consider the point briefly below.

Kinled argued that, even if s.26 of FSMA is prima facie engaged in this case, it has a defence to the claim for repayment of the £345,000 fee under s.28 of FSMA, which provides:

Zopa advanced its counterclaim in a number of ways, but, as I have noted, Mr Barden accepted that, if I conclude that the engagement letter was made in the course of Kinled carrying on the activities in issue, those alternative ways take Zopa’s counterclaim no further and, in such circumstances, they stand or fall with Zopa’s FSMA counterclaim.

In the light of my conclusions (which I have summarised above) and the parties’ respective concessions, in relation to the counterclaim I need to consider only three issues in this judgment; namely:

Did Kinled make arrangements for Silverstripe or Lida to acquire shares in Zopa in the first investment round, or make arrangements in which Silverstripe or Lida participated with a view to them acquiring shares in Zopa in the first investment round? (I may need to determine whether this question should be resolved by reference to the activities set out in the engagement letter which Kinled thereby promised to carry out (which is Zopa’s primary case) or by reference to the activities Kinled actually carried out (which is Zopa’s alternative case));

Was the engagement letter made in the course of carrying on that conduct?

If the answers to (i) and (ii) are yes, is it just and equitable to allow Kinled to retain the £345,000 fee?

Helpfully, there was a measure of agreement about what activities Kinled actually carried out which might amount to “arrangements” in relation to the first investment round for the purposes of art.25 of the 2001 Order and the first question I have to answer. Mr Barden identified the following activities, which he contended Kinled actually carried out, and which Mr O’Doherty accepted were actually carried out, subject to the qualifications I set out:

identifying and putting forward potential investors;

making contact with those potential investors;

facilitating the provision, and negotiation, of non-disclosure agreements for potential investors;

providing general information to potential investors about Zopa and its fundraising;

identifying specific issues and questions raised by potential investors, and discussing them with Zopa and the investors (but only, Mr O’Doherty contended, as a messenger);

arranging and attending meetings between investors and Zopa;

working through proposed terms of, and changes to, legal documents (but only, Mr O’Doherty contended, as a messenger);

procuring provision of adequate Know-Your-Client information for potential investors (but only, Mr O’Doherty contended, as a messenger).

I now consider the witness evidence, setting out in the case of each witness, evidence they gave.

Mr Novis said that he met Mr Janardana, Mr Kramer and Mr Kalra at Zopa’s offices for the first time on 23 July 2018. He said that he was told at the meeting that the first investment round was fairly advanced, with about £50 million secured, but that further investment of about £20-30 million was required to close the round. He said that he was also told that Zopa intended to raise capital to support its application for a banking licence in two rounds and the reasons for that; that is, the two stage approach, over a twelve month period (that is, a short period of time), adopted by the PRA for the grant of retail banking licences. He said that those present at the meeting agreed that Kinled and Zopa would enter into a written agreement, after which Mr Novis would introduce several families to Zopa and he deduced, from the fact that the first and second investment rounds were linked, that Zopa wanted him to introduce investors in both investment rounds. He accepted that no engagement term was agreed at the meeting.

He said that the purpose of the tail period in the engagement letter was to capture investments in the second investment round which was expected to complete in the first half of 2019 and, given the timescales, he considered the tail period and the extended tail period “to be ample time to capture the second round of investment”.

He accepted that, under the engagement letter, if a further investment by an introduced investor was made after the end of the extended tail period, “technically” Kinled would not be entitled to payment but, he suggested, that is not what the parties intended to agree. Rather, he suggested, the parties intended to agree that a fee would be paid if there was a further investment before the second investment round closed whenever that might be.

He explained that he made contact with Mr Cuppage on 11 September 2018 and they met on 21 September 2018. He then arranged a meeting between Mr Cuppage and the Zopa team for 1 October 2018, which he joined, together with Mr Jones and Mr Aspinall, as well as Mr Cuppage, on Silverstripe’s behalf. He, Mr Novis, made the initial introductions but then did not actively participate in the meeting. The 1 October meeting was successful.

Mr Novis explained the provenance of the Novis 1 October email thus in his witness statement:

He explained, in cross-examination, that, in return for Zopa agreeing to extend the tail period under the engagement letter to twenty four months, he was offering to introduce Zopa to other businesses in the Silverstripe stable.

He said that he “understood…straightforwardly” the Kramer 1 October email as agreeing to extend the tail period in the engagement letter to twenty four months and he added that, “from that moment on, [he] was satisfied that a 24 month tail period was in place in respect of Silverstripe”. It turns out that Mr Novis understood the Kramer 1 October email as agreeing to a twenty four month tail period because he, Mr Novis, was not asking for a twelve month tail period; that having been agreed, he understood, in the engagement letter. In other words, he interpreted the Kramer 1 October email, and the agreement in it to “a longer tail period”, against the background of the engagement letter, and because, in any event, that is not what he sought by the Novis 1 October email.

Mr Novis said in his witness statement, of the 2 October conversation:

Mr Novis’ evidence in cross-examination about the 2 October conversation may not have been so certain. This exchange took place between him and Mr Barden:

When Mr Barden pointed out that, from 2 October 2018 until Kinled’s pre-claim letter in July 2020, there was no mention of a twenty four month tail period or the 2 October conversation, Mr Novis said that they were “inherently referred to”.

Mr Novis agreed, in answer to a question from me, that he did not discuss, during the 1 October meeting, how he might contribute to facilitating the strategic investments mentioned in the Novis 1 October email. He agreed too that the Novis 1 October email did not mention anything about how he might contribute to facilitating strategic investments, but, he said, “the inference was that there were going to be more opportunities which [he] could help introduce, nurture for the companies on a separate basis”. When I asked Mr Novis how I, or Mr Kramer, might infer from the Novis 1 October email that Mr Novis might be willing to contribute to strategic investments, at first he did not answer the question, but then said that the inference should be made from the sentence in the email: “I believe this could be a significant investment over time with strategic follow on potential”. Mr Novis agreed that, during the 2 October conversation, there was no discussion about how he might contribute to strategic investments, but he then said that he could not remember if there was such a discussion. When I asked Mr Novis if he could remember any occasion when he discussed with Mr Kramer how he, Mr Novis, could contribute to facilitating strategic investments, he said that he could not specifically recall one.

Mr Novis explained, in his witness statement, that the breakfast meeting was “a chat over breakfast” which had been arranged to thank him for his work during the first investment round and to discuss the second investment round. He said:

In cross-examination, the following exchange took place:

One of the purposes of the 21 January 2019 meeting, Mr Novis said, was to find out what was happening with Kinled’s contract for the second investment round. Mr Novis recalled that Mr Kramer told him that, before Kinled was engaged, Zopa wanted BAML to secure a cornerstone investor. One reason, according to Mr Novis, that he was not troubled by the delay was because Kinled “was covered for any further investment by Silverstripe…because of the tail set out in” the engagement letter, including the “long tail agreed specifically for Silverstripe”. He only included Silverstripe’s name in the draft engagement letter he sent to Ms Matthews the same day, he said, “for belt and braces, particularly as [he] expected this agreement to replace the original contract once signed”. He said, in cross-examination, that he did not expect Zopa to sign a new engagement letter before a lead investor had been found and that he sent the draft engagement letter to Ms Matthews to “[tee] up something for the future that [he] hoped to be signed when or if a lead investor was found”. He continued that his email he sent that day with the draft engagement letter was “an opening discussion to agree a new contract”.

Mr Novis repeatedly said in cross-examination that the draft engagement letter which he kept sending to Zopa to be signed in relation to the second investment round was intended to secure Kinled’s fee for investments made by new introduced investors (i.e. other than Silverstripe, Lida and Perscitus) and that the engagement letter was “there and valid” to cover further investments by Silverstripe.

Mr Novis accepted in cross-examination that Silverstripe’s view about whether or not to invest in the second investment round was “turned around” by Zopa’s presentation, at the 19 June meeting, relating to its credit card business and that that presentation was “the real clincher”; although, he added, that meeting and presentation were “prefaced” by the 4 June conversation.

Mr Novis felt that he was “being cut out of things”, at least by Silverstripe, after the 19 June meeting. He continued that, at a meeting with Mr Kramer on 27 September 2019, Mr Kramer told him that decisions about commission payments had “now been taken to a higher level of authority and [were] out of his hands”. Mr Novis said that this was extremely concerning. By about this point, he felt that Zopa was “looking to cut [him] out of the process”.

Mr Novis concluded his witness statement by saying:

Mr Novis was cross-examined about the experts’ agreement (see below), with which he did not agree. He did accept, however, that, because Kinled had an indirect interest in Zopa through an investment it had made in Trufin (Mr van den Bergh’s business), Kinled and Zopa had a common interest in ensuring that Zopa was sufficiently capitalised. He also accepted that speculative work can be done by introducers to build goodwill with companies for the future, and to improve relations with other family offices, and that intermediaries’ actions may be motivated by more than one consideration. He accepted, finally, that it was in Kinled’s interests to maintain good relations with Silverstripe and to provide “aftercare” to it even if Kinled was not engaged in the second investment round, because family offices “help each other out where [they] can”.

Mr Novis was also cross-examined about FSMA. In that regard, he gave the following evidence:

he was aware at the relevant time that financial services businesses are regulated and that a person carrying out certain activities has to be authorised, which comes with a regulatory burden and cost;

Kinled has never sought advice about whether it requires authorisation for its introductory services;

Mr Aisher (who Mr Novis described as “the principal”) “was happy that the activity that [Kinled was] doing did not need to be regulated”;

Mr Novis did not know “what informed the principal’s decision” that Kinled did not need to be regulated;

he did not consider whether Kinled’s services in this case were regulated activities;

no-one has ever complained that Kinled is not regulated;

whether or not Kinled required authorisation is “a very grey area”.

Mr Janardana said that Mr Kramer and Mr Kalra were principally responsible for agreeing the engagement letter, adding, in cross-examination, that Zopa’s lawyers would have reviewed it.

He said that he did not conclude, from the 1 October meeting, that there were “significant synergies” between Zopa and Silverstripe, but he did recognise that there were “tactical opportunities” which might uplift Zopa’s revenues by one or two percent but not by as much as five percent.

He said that, when he replied to Mr Kramer, following receipt of the Novis 1 October email, saying “I am ok with that”, he was referring to the amended draft non-disclosure agreement which Mr Novis had also forwarded, because that “was the immediate action point” in the email. He explained, in cross-examination, that he was particularly concerned about the terms of the non-disclosure agreement Silverstripe was proposing to sign because of the correlation of their businesses. In effect, he explained, Silverstripe was, or might become, a competitor in some aspects of Zopa’s business. He added that, even though he had responded positively to Mr Kramer within a few minutes of receiving the Novis 1 October email, on his case in relation to the draft non-disclosure agreement Mr Novis had forwarded, he, Mr Janardana, still expected Zopa’s lawyers to check the draft non-disclosure agreement and propose any suitable amendments to it and he expected Mr Kramer to liaise with the lawyers without being told expressly to do so. He also said that he would not have agreed a twenty four month tail period, a twelve month tail being on “the longer side”, and that Mr Kramer knew, and did not need to be told, that.

He said that there was no commercial rationale for agreeing a twenty four month tail period, which could lead to further fees being paid.

Mr Kramer no longer works for Zopa, although he retains shares in the business which he acquired through an employee share incentive scheme.

He acknowledged that he, and Mr Kalra, who reported to him, were principally responsible for agreeing the engagement letter, but he added that it is likely that he would have sought approval of its terms from Zopa’s lawyers and Mr Janardana or Mr Hulme.

Mr O’Doherty put to Mr Kramer in cross-examination that Kinled provided the finance raising services listed in the engagement letter. Mr Kramer agreed that Kinled did provide those services. Mr Kramer added that Kinled partly carried out the “completion” services listed in the engagement letter. He felt that Kinled did provide some project management-related services in relation to Silverstripe’s first round investment because there was “back and forth” in connection with it.

Mr Kramer was cross-examined in detail about the events of 1 and 2 October 2018. He repeatedly made the point, indeed he was keen to emphasise (as he did about other events), that he could not recall them and that his answers were based on what he had read more recently in the contemporaneous correspondence and on how he now thinks he is likely to have acted. So, for example, in relation to his thoughts on receipt of the Novis 1 October email, he said that he could not “remember [his] thinking at the time” and, of 2 October 2018, he said that he could not “remember with any clarity that day” or the 2 October conversation at all. On that basis, Mr Kramer gave the following evidence about the events of 1 and 2 October 2018:

by the Kramer 1 October email, he agreed a longer tail period but “clearly…[pushed] back” against (i.e. rejected) a twenty four month tail period;

it is very unlikely that he would have agreed a twenty four month tail period during the 2 October conversation.

Mr Kramer was not cross-examined about any quid pro quo Kinled (that is, Mr Novis) proposed in return for Zopa’s agreement to a twenty four month tail period. Nor was he cross-examined about any quid pro quo Zopa had requested from Kinled in return for Zopa’s agreement to a twenty four month tail period.

The following exchange took place between me and Mr Kramer:

Mr Kramer had said in his witness statement that twelve months was a fair tail period and was consistent with the regulatory time frame for Zopa to receive a full retail banking licence. He said that his recollection has always been that the extended tail period under the engagement letter was twelve months.

Mr Kramer could not remember “the particulars” of the breakfast meeting but he did “have a memory of Silverstripe, Lida and Perscitus being carried forward”.

He explained that, whilst Mr Novis was keen for Zopa to sign the draft engagement letter he sent from November 2018 relating to the second investment round, Zopa was unwilling to sign it because its focus was on finding a lead investor through BAML’s efforts. Until a lead investor had been found, he said, Zopa would not know if, or the extent, it needed Kinled’s services, so that Zopa did not want to enter into what might be an unnecessary contract. He said that Mr Novis appreciated what Zopa was focused on, because he and Mr Novis discussed this many times.

He believes that, during much of the second investment round, Mr Novis was more seeking a role to play rather than being requested by Zopa to play a role. Further, he does not believe that Mr Novis was an effective cause of Silverstripe’s investment in the second investment round (and he explained why in his witness statements and in cross-examination, when he said, for example, that, before Zopa’s credit card business presentation to Silverstripe at the 19 June 2019 meeting, no thought had been given by Zopa to Silverstripe being a cornerstone investor in the second investment round).

Mr Aspinall’s evidence was directed principally to his view that Mr Novis had no role in bringing about any investment by Silverstripe in the second investment round. He also gave evidence (i) about the discovery, during the 25 March 2019 meeting, about WGC’s under-investment in the first investment round and (ii) as other witnesses before him had done, that it was Zopa’s credit card business presentation at the 19 June 2019 meeting which was the immediate cause of Silverstripe’s investment in the second investment round.

Mr Aspinall explained that, in September 2019, he discovered that Kinled had been acting as a fee-paid intermediary, whereas, before that he had understood that Kinled was acting as an investor in Zopa concerned to ensure that the investment rounds were successful. Mr Aspinall was troubled that the true position had, according to him, not been made apparent beforehand. He explained why in cross-examination, as follows:

Mr Aspinall was cross-examined about one of the reasons he gave in his witness statement for his view that Kinled played no role in bringing about Silverstripe’s investment in the second investment round; that is that Mr Novis “was not sufficiently sophisticated to assist [Silverstripe] in any way”. Mr Aspinall said, of that remark:

Mr Cuppage’s evidence covered much the same ground as Mr Aspinall’s evidence.

Mr Cuppage too said that his view about investing in Zopa was influenced by his belief that Mr Novis was acting as a concerned investor who wished to make the investment rounds a success, rather than as a paid intermediary, and that he was “really unhappy that [Mr Novis] had lied…by positioning himself as an investor”.

He too made the point that it was Zopa’s credit card business presentation at the 19 June 2019 meeting which was an immediate cause of Silverstripe’s investment in the second investment round. He accepted that there had been an earlier reference in a written presentation to Zopa’s credit card business, but, he explained, that business had not been sufficiently promoted to Silverstripe and that it was only at a lunch with Mr Kramer (as it turns out, on 7 June 2019), (Footnote: ⁷) which he, Mr Cuppage, arranged, that he appreciated the significance of Zopa’s credit card business. He added that it was he and Mr Kramer who prepared the presentation for the 19 June 2019 meeting and it was they who decided that the credit card business should be promoted at the meeting. He said that Mr Novis had no role in any of this.

Both parties rely on the reports of experts; for Kinled, Ausaf Abbas a former merchant banker who “practises as an expert witness in investment banking and wealth management cases based on his historic experience” and, for Zopa, Dominic Hughes, a partner in an FCA-regulated corporate finance advisory business. Neither expert gave oral evidence.

They agreed the following propositions (“the experts’ agreement”):

for any intermediary, their contract or engagement letter defines the scope of work;

the market is sharply commercial because companies and their investors wish to protect cash;

intermediaries commonly carry out work for no agreed remuneration as a marketing exercise in the hope of obtaining an engagement, including providing speculative services or additional capacity;

where an intermediary provides services without a clear agreement as to scope of work and fees, a market participant would ordinarily assume the work is being done on a speculative basis;

an intermediary who acts without contractual protection is working “on risk” and would not expect to be paid unless formally engaged;

tail periods are customarily included in engagement letters as a protection to ensure that intermediaries are rewarded when/if deals close after formal termination of an agreement or engagement;

tail periods provide a clear cut-off point after which there is no liability for either party, and reflect an agreed compromise on the amount of time that can elapse;

it would be unusual for a tail period to be longer than twelve months, although specific periods for specific investors can be agreed in certain circumstances;

companies are usually reluctant to pay twice in respect of the same investor, particularly where they have formed a direct relationship with the investor. Investors are similarly reluctant to see their funds used for this purpose but may be obliged to accept payments according to contractual provisions.

Much of Mr Abbas’ report is taken up with an analysis of the factual evidence followed by a series of conclusions about what the factual evidence establishes. (Footnote: ⁸) Mr Abbas then says:

As I read Mr Abbas’ report, he puts forward a number of bases for his conclusion that any quantum meruit should be valued at £4.2 million (3% of £140 million) (perhaps subject to a 10% discount); namely:

because the quantum meruit can only be valued as a percentage of Silverstripe’s investment (perhaps because contractually agreed introducers’ fees are calculated as a percentage of an investment), and because, by the engagement letter, the parties had agreed 3% and the same percentage “would” have been agreed had the parties signed the draft engagement letter which Mr Novis kept sending to Zopa in relation to the second investment round (and perhaps because that is the rate Zopa agreed with another advisor);

because, based on his “market experience”, that is the correct fee (although, it is to be noted that Mr Abbas does not identify, by reference to comparables or some other aspect of the market, why, in the particular circumstances of this case, parties operating in “the market” are likely to have agreed such a fee);

because Kinled “deserves to be paid” having got “lucky”.

Mr Hughes was asked to answer the following question:

Much has been said, and written, about the fallibility of human memory and recall, and the role contemporaneous documentary evidence and probabilities can play in helping a first-instance judge reach a decision. Perhaps the most comprehensive, and well-known, exposition was given by Leggatt J in Gestmin SGPS SA v. Credit Suisse (UK) Ltd. [2013] EWHC 3560 (Comm) where the Judge said, at [15]-[22]:

Leggatt J was not the first, or only, judge to speak of the centrality of contemporaneous documents and probabilities in factual determinations. By way of example, in Khakshouri v. Jimenez [2017] EWHC 3392 (QB), Green J adopted the same approach to witness evidence and made the following point, at [15], about “the relevance of documentary evidence and the overall logic of a case in the context of potentially inconsistent oral evidence”:

More recently, in Simetra Global Assets Ltd. v. Ikon Finance Ltd. [2019] 4 WLR 112, Males LJ said, at [48]:

None of this is to say that witness testimony should simply be ignored and the factual issues determined solely on the contemporaneous documents and probabilities. Leggatt J did not say as much, and nor did Green J or Males LJ, or Robert Goff LJ before them. (Footnote: ⁹) Rather, all those judges had in mind, and in the case of Leggatt J gave a warning about, the fallibility of memory, and suggested that, in a case such as this one, a trial judge should test a witness’s assertions against the contemporaneous documents and probabilities and, when weighing all the evidence, should give real weight to those documents and probabilities.

I do not ignore Mr Novis’ evidence, but I treat it with caution, accepting it only when it is corroborated by contemporaneous documents or when it is consistent with what otherwise probably happened, because I have come to the clear conclusion that Mr Novis’ evidence was significantly affected, albeit probably unconsciously, by his belief in the merits of Kinled’s (and, in truth, his) case and by matters of which he could not have been aware at the time.

A clear example of what I have in mind is Mr Novis’ evidence about the 4 June conversation. As I have noted, until Mr Novis gave oral evidence, Kinled’s case was consistently that, on 4 June 2019, Mr Novis discovered that Silverstripe was financially able to be a cornerstone investor in the second investment round. Whilst, in oral evidence, Mr Novis initially maintained that case, when it was drawn to his attention that, even if Silverstripe could have been a cornerstone investor on 4 June 2019, it might still not invest at all in the second investment round (so possibly rendering the 4 June conversation significantly less important than is Kinled’s case), Mr Novis went further and said that Mr Cuppage said, during the 4 June conversation, that Silverstripe was contemplating being a cornerstone investor, and Mr Novis supported that claim by suggesting that, on 4 June 2019, Silverstripe was contemplating the possibility that it might find out “something of interest” such as Zopa’s credit card business. When Mr Novis was pressed about whether Mr Cuppage did actually say, during the 4 June conversation, that Silverstripe was contemplating being a cornerstone investor, he resiled from his earlier evidence and suggested, instead, that that claim had to be inferred from the conversation.

It is improbable that Mr Cuppage gave any indication, during the 4 June conversation, that Silverstripe was contemplating being a cornerstone investor.

Relations between Zopa and Silverstripe were not good following the 25 March meeting. They did improve after, but there is no evidence, and no witness other than Mr Novis suggested, that they had improved so far that Silverstripe was contemplating being a cornerstone investor by the beginning of June 2019. Indeed, as I have noted, Mr Novis’ own evidence was that, even in late April 2019, Silverstripe’s position appeared to be that it would not invest at all in the second investment round.

There is no evidence that Mr Novis appreciated the significance of Zopa’s credit card business on 4 June 2019. The uncontroverted evidence is that Silverstripe (and, in particular, Mr Cuppage) did not appreciate the significance of Zopa’s credit card business then. Its significance only first emerged three days later on 7 June 2019, when Mr Cuppage and Mr Kramer met for lunch. On 4 June 2019, there was apparently no possibility that Silverstripe would discover something so significant about Zopa’s business that might lead it to being a cornerstone investor. It is most probable that, by referring, in his oral evidence, to Zopa’s credit card business, Mr Novis was reconstructing the 4 June conversation from material he did not know at the time.

That it is improbable that Mr Cuppage gave any indication, during the 4 June conversation, that Silverstripe was contemplating being a cornerstone investor is reinforced by the plausibility, indeed the probability, of Mr Cuppage’s version of the conversation. It was not disputed that Mr Cuppage was at Dublin Airport during the phone call. It is unlikely that a conversation about high value investments would be conducted in such a public place. Nor was it disputed that Mr Cuppage had his own self-interested reason for not encouraging Mr Hildebrand to make a significant further investment in Zopa at that time, which too supports the improbability of Mr Novis’ oral evidence about the 4 June conversation.

There are further examples when Mr Novis’ evidence was based on reconstruction, influenced by Kinled’s case and later events.

In his witness statement, Mr Novis apparently said that he clearly recalled Mr Kramer agreeing a twenty four month tail period during the 2 October conversation. His oral evidence, on the other hand, was that he called Mr Kramer on 2 October 2018 to remind him about what the engagement letter had provided, that the conversation lasted only a couple of minutes, and, it seems to me, that they must have then agreed to vary the engagement letter by extending the tail period to twenty four months (even though Mr Novis cannot specifically recall what was said) because the extended tail period already extended the tail period overall to twelve months. (As it happens, I do not accept Mr Novis’ evidence on the subject, as I have noted and as I shall explain).

As I have said, when it was suggested to Mr Novis that there was no mention of a twenty four month tail period or the 2 October conversation, between 2 October 2018 and July 2020, he responded that they were “inherently referred to”. That makes no sense on the evidence. The fact is that they were not referred to and no-one suggested that Zopa could have inferred either of those facts from the available material. Mr Novis’ response was an attempt to reconstruct events with Kinled’s case in mind.

Mr Novis’ oral evidence about whether there was a discussion during the 2 October conversation about how he might contribute to strategic investments changed, probably because he appreciated that his initial answer, that there was no discussion on the subject, was not helpful to Kinled’s case.

Mr Novis suggested, first, that, at the breakfast meeting, Mr Kramer had said that Mr Novis should use the engagement letter as the basis for a further contract for the second investment round. When I pressed him on that evidence, he resiled and said that Mr Kramer had merely said that Mr Novis should send something over and that he, Mr Novis, had elected to send a draft of the engagement letter as a starting point.

The conclusions that I have reached about Mr Novis’ evidence, and the approach I take in relation to it, are significant, because the only witness who gives any evidence (unsupported by contemporaneous documents) about what was actually discussed during the 2 October conversation is Mr Novis and because only Mr Novis has given evidence in support of Kinled’s claim that the work he did relating to Silverstripe in the second investment round was in anticipation of a contract.

It is convenient to say a little now about other witnesses.

Mr Kramer was a notably impressive witness. He reflected on questions in cross-examination before he answered them and his answers were measured. As I have noted, he was alive, and keen, to emphasise the limits of his recollection and to point out that some of his answers were based on a reconstruction of events. In weighing his evidence, I do bear in mind though, that he was the only witness who suggested that the pre-condition for the extended tail period to operate was waived in relation to Lida and Perscitus, and that I was not taken to any contemporaneous documentary evidence to support that.

Mr Aspinall had sufficient insight to acknowledge that his view about Mr Novis’ omission to inform Silverstripe that Kinled was a paid intermediary did affect his evidence. In the light of that acknowledgment, I do need to approach Mr Aspinall’s evidence cautiously.

Mr Cuppage too expressed unhappiness that Mr Novis did not tell him that Kinled was a paid intermediary. I have borne that in mind in weighing Mr Cuppage’s evidence. As I have explained, his version of the 4 June conversation is probable and that conclusion is not undermined by the fact that Mr Cuppage was unhappy about Mr Novis’ conduct. The other relevant evidence he gave, about the circumstances in which the credit card business presentation at the 19 June meeting actually came about, was not controversial.

As I have indicated, I have come to the clear conclusion that the parties did not agree, in October 2018, to vary the engagement letter, to extend the tail period to twenty four months, whether by an exchange of the Novis 1 October email and the Kramer 1 October email or during the 2 October conversation. I now explain why.

The background to the exchange of emails and the 2 October conversation is important.

The experts’ agreement makes clear that (i) the market is sharply commercial, because companies and their investors wish to protect cash, (ii) a tail period of longer than twelve months is unusual and (iii) companies are usually reluctant to pay twice in respect of the same investor and investors are reluctant for their investments to be used to pay intermediaries. By 1 October 2018, the engagement letter had only recently been agreed, and it provided for an extended tail period ending only twelve months after the end of the engagement term. By 1 October 2018, the engagement term only had about six weeks to run. If Silverstripe did not invest during that six week period, Zopa would not be obliged, under the engagement letter, to pay Kinled in relation to any further investment made by Silverstripe during the extended tail period. The 1 October meeting was the first meeting between Silverstripe and Zopa relating to investment in the first investment round. It was very possible that Silverstripe would not invest at all in the first investment round or, if it did, that it would invest outside the engagement term (so that any further investment in the extended tail period would not trigger a liability for Zopa to pay Kinled). (As it happens, Silverstripe only subscribed for shares in the first investment round on 31 October 2018 and only paid the first part of its first round on 13 November 2018 (the last day of the engagement term)). Zopa’s focus in October 2018 was very much on obtaining a retail banking licence, the process for which was generally time-limited, at the mobilisation stage, to twelve months. In October 2018, there was no reason to suppose that the mobilisation stage would be extended beyond twelve months or that an investment by Silverstripe in the second investment round would be made after the end of the extended tail period.

It is improbable therefore that, by the exchange of emails or the 2 October conversation, the parties agreed a twenty four month tail period.

Whether or not there was an agreement to extend the tail period by the exchange of the two emails depends on their proper (objective) construction; in particular, the proper construction of the Kramer 1 October email.

The plain reading of the Kramer 1 October email is that, by it, Mr Kramer was agreeable to a longer tail period, but that he was not agreeing the longer (twenty four month) tail period Mr Novis was proposing. Mr Kramer said, in terms, that he could (“we can”) agree “a” longer tail period. He did not say that he did (“we do”) agree “the” longer tail period Mr Novis had proposed. Indeed, that Mr Kramer could not agree the longer tail period Mr Novis had proposed is emphasised by his use of the word “though” to qualify his proposal for a longer tail period.

As it happens, it is probable that, contrary to his evidence, Mr Novis appreciated that, by the Kramer 1 October email, Mr Kramer had not agreed the twenty four month tail period Mr Novis had proposed because Mr Novis responded, by the Novis 2 October email, that he would “call regarding period of time”. He did not only say that he would speak to Mr Kramer about the length of the tail periods in the engagement letter, and, bearing in mind their use of email, clarification of the length of the tail periods in the engagement letter could easily have been provided by a short email. It is more likely that Mr Novis felt he needed to speak with Mr Kramer about something more substantial; that is, the length of the “longer tail” to which Zopa was apparently agreeable.

Only Mr Novis gives evidence that a twenty four month tail period was agreed during the 2 October conversation. I have already indicated that I will only accept his evidence if it is corroborated by contemporaneous documents or consistent with what otherwise probably happened. Mr Novis’ evidence about the 2 October conversation is not supported by any contemporaneous documents, and, as I have explained, an agreement of a twenty four month tail period is improbable.

The parties’ conduct after 2 October 2018 is inconsistent with a twenty four month tail period having been agreed on 1 or 2 October 2018:

Mr Novis repeatedly proposed an engagement letter for the second investment round, and repeatedly sent a draft of the engagement letter, under which the extended tail period in relation to an investment by Silverstripe would have been limited to twelve months from the end of the engagement term and under which Silverstripe was treated no differently to other introduced investors;

Mr Novis did not mention at all a twenty four month tail period between October 2018 and July 2020, even after 19 June 2019, when, on Mr Novis’ evidence, he felt that, to a degree, he was being excluded from involvement in the second investment round. He did not distinguish between Silverstripe and Lida in his 8 July 2019 email to Mr Kramer. He did not suggest to Mr Janardana, in the 30 October email, that a twenty four month tail period had been agreed. Indeed, he did not distinguish between Silverstripe and Lida and, although he forwarded the 21 January email at the same time, he did not forward the Novis 1 October email or the Kramer 1 October email. That is a notable omission because the 30 October email was sent not only to Mr Janardana but also to Mr van den Bergh, who Mr Novis was hoping, no doubt, to enlist to his cause;

by 9 September 2019, Mr Kramer, in an email to Mr Janardana and Mr Hulme, was recording his belief that Silverstripe, and equally Lida, had the benefit of a twelve month (not a twenty four month) tail period.

For all these reasons, as I have said, I have concluded that there was no agreement to vary the engagement letter, to extend the tail period to twenty four months. Rather, probably Mr Kramer proposed, in the Kramer 1 October email, and Mr Novis and Mr Kramer agreed during the 2 October conversation, that the pre-condition for payment under the engagement letter for an investment by Silverstripe in the extended tail period – that is, that it must have made an initial investment during the engagement term – was waived, so that any investment by Silverstripe in the twelve months after the end of the engagement term would result in Zopa being liable to make a payment. As matters stood at the beginning of October 2018, this might have proved a very beneficial concession to Kinled. (Footnote: ¹⁰)

Before reaching my decision, I bore in mind Mr Janardana’s response to the Novis 1 October email, which was sent to Mr Kramer before Mr Kramer sent the Kramer 1 October email, and so is likely to have been in Mr Kramer’s mind when he wrote that email.

I have concluded that, whatever Mr Janardana meant by his email, Mr Kramer probably interpreted it as Mr Janardana’s agreement to the alterations Mr Novis was proposing to the draft non-disclosure agreement, taking into account the background to the receipt of the Novis 1 October email, which I have already set out, and for the following further reasons:

the Novis 1 October email asked for confirmation that Zopa agreed to extend the tail period to twenty four months but asked if Zopa was “ok” to sign the draft amended non-disclosure agreement;

the request for Zopa to confirm that it was “ok” to sign the draft amended non-disclosure agreement was towards the end of the Novis 1 October email;

Mr Janardana responded very quickly (eleven minutes later) to the Novis 1 October email. He responded that he was “ok” “with that”. If he had read the email briefly and was responding urgently, it is likely that he had Mr Novis’ latter request (in relation to the non-disclosure agreement) in mind, particularly because he mirrored the language Mr Novis had used in the Novis 1 October email;

obtaining a signed non-disclosure agreement was more pressing than agreeing a variation of the engagement letter and was, as Mr Janardana explained uncontroversially, a sensitive matter;

as I have already explained, on a plain reading of the Kramer 1 October email, Mr Kramer did not agree an extension of the tail period to twenty four months.

Mr O’Doherty suggested that Zopa would suffer no disadvantage by agreeing to a twenty four month tail period. He said that “it was no skin off Zopa’s nose” to agree an extension to the tail period. The fact that Zopa may not have been disadvantaged by agreeing that extension does not mean that it probably did agree the extension. In fact, agreeing that extension could be to Zopa’s disadvantage because it would put Zopa at risk of having to pay Kinled for a longer period than the agreed period in the engagement letter. Even if agreeing that extension did not disadvantage Zopa (because it did not trigger a payment which would not otherwise have been due), as matters stood in October 2018 agreeing an extension was not commercially sensible, as Mr Janardana pointed out (and was improbable as I have found).

Mr O’Doherty also suggested that Kinled (Mr Novis) needed to be incentivised in October 2018, so there was a commercial rationale for Zopa agreeing an extension of the tail period to twenty four months. I do not accept that Kinled did need to be incentivised then, for the following reasons:

the engagement letter had only been agreed recently;

the parties’ focus was on the investment rounds;

Silverstripe was already a potential investor;

under the engagement letter, if Kinled introduced investors to fully complete the first investment round, it could receive 3% of possibly £20 million (£600,000);

under the engagement letter, Kinled could benefit from investments made up to twelve months after the end of the engagement term, which Mr Novis believed ended after the mobilisation stage was likely to have been completed;

if Kinled provided a good service to Zopa, there was every possibility that it could be called on in the future, for a fee;

any further incentive needed was provided by the agreement which I have found was made during the 2 October conversation.

It is necessary to understand what services Kinled claims it was proposing to provide as consideration for what it claims was Zopa’s agreement (promise) to pay it a fee during a twenty four month tail period. The Amended Particulars of Claim refer to those services as “strategic…services”. What Kinled means by that becomes clearer by reference to the following:

the engagement letter, which sets out the services Kinled promised to provide with respect to a potential investment by Silverstripe in Zopa;

the Novis 1 October email, in which Mr Novis distinguished between investment and strategic transactions and referred to strategic transactions with other companies in the Silverstripe stable;

Mr Novis’ 5 December 2018 email to Mr Kramer and Mr Cuppage, in which Mr Novis mentioned two strategic transactions – price comparison domination and a credit card white label proposition – between Zopa and other companies in the Silverstripe stable;

Mr Novis’ evidence, that the quid pro quo for an extended twenty four month tail period was his introduction of other companies in the Silverstripe stable to Zopa, and in which he distinguished between Silverstripe’s investment in the investment rounds and “a longer term strategic relationship” between Silverstripe and Zopa.

Professor Cartwright explains as follows how the doctrine of consideration operates, including in the context of agreements to vary contracts, in paras.8-15 and 8-16 of Formation and Variation of Contracts:

The point can be made that Mr Kramer was not cross-examined about any quid pro quo which was proposed, or which Zopa requested, for Zopa’s agreement to an extended twenty four month tail period. Kinled’s case on consideration was not put to the one Zopa witness who might have been able to respond to it. It is difficult to see, therefore, how Kinled can maintain a case that any agreement to extend the tail period was supported by consideration.

In any event, I have concluded that the quid pro quo claimed to have been proposed by Kinled, or requested by Zopa, for Zopa’s agreement to extend the tail period was an after-the-event construct advanced to support Kinled’s claim of a contractual variation, and that any agreement to vary the engagement letter was not supported by consideration. Indeed, I have concluded that Mr Kramer never knew that Kinled was proposing any quid pro quo for Zopa’s agreement to extend the tail period, so that a claim that Zopa requested such a quid pro quo cannot be maintained. I have reached the conclusions for the following reasons:

Mr Novis did not apparently propose, during the 1 October meeting, that Kinled might provide strategic services;

the Novis 1 October email did not expressly propose any quid pro quo for Zopa’s agreement to extend the tail period (and, contrary to Mr Novis’ suggestion, I simply do not see how any proposal of a quid pro quo can be inferred from the email). Mr Kramer had no reason to think, from the Novis 1 October email, that Kinled might be proposing any quid pro quo. It is unreal to suppose that he requested such a quid pro quo following receipt of the Novis 1 October email. The Kramer 1 October email makes no mention of strategic services. It is likely to have done so if Mr Kramer understood that there was to, or might, be any quid pro quo for any agreement to extend the tail period;

there is no evidence of any discussion, during the 2 October conversation, about the provision of strategic services;

there is no evidence that Zopa expressly requested a quid pro quo for its agreement to vary the engagement letter;

it was not suggested, and there is no evidence, that Kinled provided any, or any meaningful, strategic services, even though their provision would have been expected if there had been a quid pro quo for Zopa’s agreement to extend the tail period;

even if Kinled did provide strategic services, in the light of the experts’ agreement (and Mr Novis’ own evidence when cross-examined about that agreement), it is not probable that Zopa (or any other market participant) would have concluded that they were being provided as a quid pro quo for any agreement to extend the tail period;

at no point after October 2018 did Mr Novis ever suggest that Kinled had promised to provide strategic services. To the contrary, whenever Mr Novis commented that an investment by Silverstripe in the second investment round was already covered by the engagement letter, or on the occasions Mr Novis discussed a draft engagement letter for the second investment round and sent a draft engagement letter, there was no suggestion that Kinled had agreed to provide strategic services;

Mr Novis said, in his 5 December 2018 email to Mr Kramer and Mr Cuppage, that he was “happy to contribute and add value” in connection with the two strategic transactions he identified. If any quid pro quo for Zopa’s agreement to extend the tail period had been proposed or requested in October 2018, Mr Novis’ offer to contribute would not have been so tentative. Rather, it would have been a given and would not have had to be repeated in December 2018.

That Mr Kramer had no expectation, on 1 or 2 October 2018, that Kinled might provide services outside the ambit of the engagement letter means that it is less likely that he would have agreed to vary the engagement letter, to extend the tail period to twenty four months, and reinforces the conclusions I reached in the previous section of this judgment.

When considering Kinled’s quantum meruit claim, it is important to have in mind that the services for which it claims payment are not strategic services, but services relating to Silverstripe in the second investment round.

In MSM Consulting, Christopher Clarke J explained, at [170]-[171]:

It is perhaps instructive to note that, in MSM Consulting, a reason for the Judge’s rejection of part of the claim was that the claimant had provided services in the hope that it would be awarded a contract it might, or might not, receive. The terms it proposed were never accepted, but were rejected, and the defendant sent revised terms. The Judge held that the claimant was not entitled “to assume that it would get a contract. It was trying…to commend itself to [the defendant] so as to secure that it did. But it was at risk of failing in that endeavour.” In rejecting a second part of the claim, the Judge took into account that the defendant did not return a signed written agreement after the claimant had indicated that it would not continue to provide services if a signed agreement was not returned.

More recently, in Moorgate HH Judge Keyser QC drew attention to what Goff J had said in British Steel Corpn. v. Cleveland Bridge and Engineering Co. Ltd. [1984] 1 All ER 504. Judge Keyser said, at [89]:

Mr Novis’ written and oral evidence was to the effect that the services he provided relating to Silverstripe in the second investment round were to be remunerated under the engagement letter and that it was only for administrative convenience (i.e. so that all remuneration terms were contained in one document) that Silverstripe was to be mentioned (“carried forward”) in any new engagement letter for the second investment round. The contemporaneous documents corroborate this evidence (and, in any event, that is what Mr Kramer believed (see his 11 June 2019 email to Mr Hulme and the 9 September email)). Indeed, it is not disputed that Kinled would have been entitled, under the engagement letter, to payment if Silverstripe’s investment in the second investment round had been made during the extended tail period.

In light of the fact that any services Kinled provided relating to Silverstripe in the second investment round were provided by Kinled (Mr Novis) in the belief (of both parties) that those services would be remunerated under the engagement letter, Kinled (Mr Novis) ought to have appreciated, and it took the risk, that, if Silverstripe’s investment in the second investment round was made too late to trigger a payment under the engagement letter (as turned out to be the case), Kinled’s services would, or might, be unremunerated. I cannot see, therefore, how any benefit Zopa has enjoyed from the provision of those services has been unjust even if Kinled is unremunerated.

Even if it is wrong to conclude that whether or not Kinled should be remunerated should turn on the provisions of the engagement letter, Kinled’s claim does not become stronger, as I now explain.

Repeating a point I have already made, as the experts’ agreement makes clear, the market expectation is that any services Kinled provided relating to Silverstripe in the second investment round would be provided on a speculative basis, and for free, in the absence of a concluded contract, with the Kinled taking the risk that a contract will not eventuate. To similar effect is Mr Novis’ evidence in cross-examination that Kinled could have had its own reasons for providing services in the second investment round without expecting to be remunerated.

Zopa never assured Kinled that it would enter into a further contract for the second investment round. To the contrary, on Mr Novis’ own oral evidence, Zopa made no commitment to a new contract at the breakfast meeting, after which Mr Novis sent the draft engagement letter to Zopa as “a proposal”, and, after that, Zopa’s consistent position was that it would not agree to any engagement letter for the second investment round before a lead investor had been identified. Mr Novis was told, and appreciated, that at the 21 January 2019 meeting (see, for example, the 30 October email and Mr Novis’ oral evidence). Zopa’s position was reinforced by its failure to sign the draft engagement letter on any of the occasions when Mr Novis sent it to Zopa. (Mr Novis is likely to have had Zopa’s position in mind when he wrote his 19 March 2019 email to a US contact, in which he says only, somewhat tentatively, that he anticipated being engaged once a lead investor had been found.)

In the circumstances, any services Kinled provided in the second investment round were provided speculatively, at a time when a lead investor had not been identified and key terms of any engagement letter, such as the amount of remuneration, had not been agreed. Indeed, Mr Novis admitted, in cross-examination, that, when he sent the draft engagement letter to Ms Matthews after the 21 January 2019 meeting, he only “hoped” that it would be signed following the identification of a lead investor.

There was no reason therefore for Zopa to assume that Kinled would expect to be remunerated otherwise than under a concluded contract, and the evidence does not support the conclusion that both Kinled and Zopa “confidently expected a formal contract to eventuate” and no fault can be attributed to Zopa for the fact that a contract was not made.

For all these reasons, as I have already indicated, Kinled ought to bear the risk of remaining unremunerated and any enrichment from which Zopa benefited by Kinled’s services relating to Silverstripe in the second investment round has not been unjust.

I do not need to answer this question. It is convenient sometimes for a trial judge to determine issues which do not in fact require determination to assist the parties, and the appeal court if an appeal is heard. In this case, however, it is not appropriate to answer this question, and lengthen this judgment significantly, for the reasons I now set out.

It is helpful to understand how Kinled’s services ought to be valued. In Benedetti v. Sawiris [2013] UKSC 50, Lord Clarke explained:

Silverstripe was introduced as an investor in Zopa in the first investment round. In reality, what Zopa was paying for, under the engagement letter, in the first investment round and what it was keen to have in the first investment round was, as more the one witness put it, access to Mr Novis’ rolodex. Silverstripe did not need to be re-introduced in the second investment round. It was already, in a sense, a captive investor to the extent of its investment in the first investment round.

Any services which Kinled provided relating to Silverstripe in the second investment round were intermediary services. There is a dispute between the parties about what intermediary services Kinled actually provided relating to Silverstripe in the second investment round. Much more significantly, whether or not those services benefited Zopa meaningfully, or, indeed, at all, is controversial, because there is no dispute that the immediate cause of Silverstripe’s investment in the second investment round was the presentation about Zopa’s credit card business at the 19 June meeting in which Mr Novis played no part, and because I have rejected Mr Novis’ version of the 4 June conversation which he said was the “preface” to the presentation. So, before valuing Kinled’s services, I would have to determine what those services were and whether they benefited Zopa.

Even if Kinled’s services did benefit Zopa, what their market value is and the extent to which that can properly be subject to subjective devaluation is very difficult to determine.

The engagement letter does not help to determine this issue, because (i) as I have explained, what Zopa was paying for, in reality, under the engagement letter in relation to the first investment round, was Kinled’s introductory, rather than intermediary, services, (ii) the services Kinled actually provided relating to Silverstripe in the second investment round were different to, and more limited than, those it provided in the first investment round, more limited than those the parties had contemplated in relation to the first investment round and more limited than the engagement letter provided and (iii) (to the extent that this can be taken into account) Zopa never agreed any engagement letter for the second investment round.

Nor is the expert evidence helpful about any market for intermediary, non-introductory, services. In fact, the experts’ conclusions about the value of Kinled’s services in the second investment round are significantly flawed (probably because their instructions were not detailed and accurate enough) and of no assistance.

I have set out above the three ways Mr Abbas justified his valuation.

The first justification is that a valuation can only be made as a percentage of Silverstripe’s investment. He puts forward no sound basis for that opinion and, to the extent that he has taken into account what was agreed by the parties in the engagement letter, I have already explained why the engagement letter is no guide to the value of the services Kinled actually provided. A similar flaw was made by the expert for the unsuccessful claimant in Moorgate. In that case, the expert valued the claimant’s services by reference to a contract which the parties did not in fact make. Indeed, in that case the hypothetical contract the expert commented on would have covered a broader range of services than were actually provided, as the draft engagement letter does in this case. In that case, reliance by the expert on the hypothetical contract was subject to sustained criticism by Judge Keyser QC at [106] at [114], for similar reasons to those which have led me to conclude that the first justification for Mr Abbas’ opinion is flawed.

The second justification for Mr Abbas’ valuation is said to be his market experience but, as I have already noted, this justification is unreasoned.

The third justification for Mr Abbas’ valuation is that Kinled “deserves to be paid”, but he cannot sustain this assertion, and it should not have been advanced by him acting as an expert. It is not for him to make any moral (or, indeed, legal) assessment about whether or not Kinled deserves to be paid.

Mr Hughes’ valuation assumes that Zopa would have no obligation to make any payment to Kinled for the services it provided in the second investment round, so that any payment would be in the nature of an ex gratia payment. That is wrong. If Zopa was held liable to make a payment to Kinled on a restitutionary basis, Zopa would be legally obliged to make such a payment (having been held liable to do so) and the amount of the payment would be determined objectively (subject to any permissible subjective devaluation). It would not be determined, as the amount of an ex gratia payment is, solely by reference to the payer’s self-interest.

Even if I had reached a decision about the value of Kinled’s services on a restitutionary basis, I would then have had to resolve the difficult question about whether Zopa has an illegality defence to any payment, because Kinled is (and was) not authorised to provide FSMA-regulated activities.

I have already set out the three questions I need to answer in relation to Zopa’s FSMA counterclaim.

The first question I need to answer is: Did Kinled make arrangements for Silverstripe or Lida to acquire shares in Zopa in the first investment round, or make arrangements in which Silverstripe or Lida participated with a view to them acquiring shares in Zopa in the first investment round?

As I have indicated, Zopa’s primary case is that, in answering this question, I should take into account the services set out in the engagement letter. I did not hear any detailed submissions about FSMA’s purpose or about how it (or the 2001 Order) should be construed. I do not need to determine whether, as a matter of statutory construction, in judging whether arrangements were made, I should take into account the services set out in the engagement letter, or the services Kinled actually provided (i.e. Zopa’s alternative case) and, because of the parties’ limited submissions, I do not do so.

There is a dispute between the parties about precisely what services Kinled actually provided, which is not assisted by the fact that, in Mr Kramer’s cross-examination, Kinled’s case may have been that it provided a broader range of services than Mr O’Doherty accepted, in closing, it did provide. However, precisely what services Kinled provided does not need to be determined. Most favourably to Kinled, I proceed on the basis that it provided the services which Mr O’Doherty accepted it provided, to the extent he accepted it provided them.

In FCA v. Avacade Ltd. [2021] EWCA Civ 1206, Popplewell LJ explained as follows, at [47]-[48], about art.25 of the 2001 Order:

Kinled’s (Mr Novis’) aim in providing the services which were provided was that Silverstripe and Lida would acquire shares in Zopa. Its goal was to bring about a situation in which such transactions could take place. Silverstripe and Lida (and Zopa) participated in those services. Taking into account the breadth of art.25(2) of the 2001 Order, and against the background of the limited submissions which were made, I have concluded that Kinled did make arrangements in which Silverstripe or Lida (and Zopa) participated with a view to Silverstripe and Lida acquiring shares in Zopa in the first investment round.

The second question I need to answer is: was the engagement letter made in the course of Kinled carrying on regulated activities?

As I have noted, Mr Barden suggested that, even though the engagement letter was made before Kinled actually provided services in the first investment round, by reference to s.26(3) of FSMA the engagement letter was made in the course of Kinled providing those services (i.e. carrying on a regulated activity). As I have also noted, Mr O’Doherty did not dissent from that suggestion. On the limited submissions made, I accept Mr Barden’s submission and hold that the engagement letter was made in the course of Kinled carrying on regulated activities. S.26(3) of FSMA defines a relevant agreement as including an agreement “the making or performance of which constitutes…the regulated activity in question…” As a matter of plain English, if the making of an agreement itself can be the regulated activity, an agreement made at the outset of regulated activities must be capable of being an agreement made in the course of carrying on a regulated activity. Even more so, if the performance of an agreement can constitute the regulated activity, it must follow, as a matter of plain English, that the agreement can be made in the course of a person carrying on a regulated activity even if it precedes the carrying on of any regulated activities.

It follows that the engagement letter made in the course of Kinled carrying on regulated activities, and is unenforceable against Zopa and s.26 of FSMA is engaged.

I turn now to consider the third question I need to answer, which is: is it just and equitable to allow Kinled to retain the £345,000 fee?

Mr Barden suggested that, in deciding whether it is just and equitable for money transferred under an agreement to be retained, the court should actually ask which party, the service provider or customer, should bear the risk of the service provider’s activities being regulated activities. I do not think that there is any need to re-frame the question which arises from s.28(3) of FSMA. In any event, there would be a danger, in doing so, that too much attention would be given to the activities themselves and what the parties knew, did, or should have known or done, before the service provider performed those activities and that insufficient attention would be paid to what may be other relevant matters, including the parties’ positions after the activities had been carried out.

The parties referred me to two cases on the operation of s.28 of FSMA, which necessarily turn on their particular facts, but do provide some assistance.

In Helden v. Strathmore [2010] EWHC 2012 (Ch), Newey J noted that, in Re Whiteley Insurance Consultants [2009] Bus LR 418, David Richards J observed, at [37], that the fact that a service provider knew, ought to know, or should have known that it was acting in breach of the general prohibition (or, to put it another way, the fact that a service provider did not have a reasonable belief that they were not contravening the general prohibition) was “a weighty factor against the grant of relief”. However, in Helden, the Judge granted relief under s.28 of FSMA, amongst other reasons because:

the customer had made full use of, and obtained full benefit from, the funds which had been advanced under the agreement in question;

the property which the customer had bought with the funds advanced had increased substantially in value;

the customer had not been taken advantage of;

the customer had not explained how he might have benefited had the service provider been an authorised person;

the service provider had not realised that the general prohibition might apply and it was reasonable for them not to believe that it did apply.

More recently, in Jackson v. Ayles [2021] EWHC 995 (Ch), Chief ICC Judge Briggs drew attention to the fact that, in Helden, in the Court of Appeal, Lord Neuberger MR said, obiter, that “people who carry on regulated activity and are ignorant of the law, even if reasonably so, should be more at risk because they are more of a danger to the public”.

In this case, Kinled has not established that it reasonably believed that it was not contravening the general prohibition. Mr Novis did not consider, at the time, whether Kinled was carrying on regulated activities. He cannot have reasonably believed that regulated activities (in contravention of the general prohibition) were not being carried on. In any event, on the evidence, what Kinled believed turns on what Mr Aisher believed. Although Mr Aisher apparently believed that Kinled was not carrying on regulated activities (and I have no reason to doubt that that was an honest belief), Mr Novis could not tell me why Mr Aisher had that belief, so Kinled cannot establish that Mr Aisher’s belief was reasonable.

That Kinled has not established that it reasonably believed that it was not contravening the general prohibition (by carrying on regulated activities) weighs heavily against it being permitted to retain the £345,000 fee. However, as I have indicated, I have concluded, in what are likely to be the unusual circumstances of this case, that it is just and equitable for Kinled to retain that fee for the following reasons, which outweigh factors tipping the balance the other way.

Zopa was a sophisticated customer; as a bank, perhaps the most sophisticated customer a service provider is likely to have. In reality, as I have said, what it was paying for and what it was keen to have was access to Mr Novis’ rolodex. It was paying for introductions to potential investors who Mr Novis might know but Zopa might not. It is fanciful to suppose that Zopa was ever at risk of being harmed by the mere fact of an introduction by Mr Novis to it of a potential investor. Any due diligence which was appropriate was never, in practice, expected to be carried out by Kinled. Such due diligence was always expected to be carried out by Zopa. Mr Novis never provided financial advice to Zopa and Zopa never expected him to do so. By all accounts, Zopa has benefited significantly from investments in the first investment round, whether directly (because of the price per share paid by Silverstripe), or indirectly, because of where those initial investments, in particular Silverstripe’s investment, eventually led, and Zopa has taken full advantage of the introduction of Silverstripe in the first investment round. No-one has suggested how Zopa might have benefited if Kinled had been authorised to carry on regulated activities. Finally, in relation to the first investment round, Kinled was never a danger to the public.

Mr Barden submitted that, on Mr Novis’ evidence, taking into account (i) his knowledge of the regulatory regime and the attendant regulatory burdens, (ii) that Kinled never sought advice about whether its introductory services required it to be authorised and (iii) that whether Kinled required authorisation is “a very grey area”, Kinled was reckless about whether it required authorisation, and that, if a reckless service provider is permitted to retain money paid under an unenforceable agreement, there would be no incentive for others to be authorised and incur the burden of being so. In short, Mr Barden effectively submitted that, to permit Kinled to retain the £345,000 fee would open the floodgates, to service providers, who are a danger to the public, operating unregulated. I bore in mind Mr Barden’s submission, so far as it goes, before reaching my decision. Too much can be made of the submission, for the following three reasons. First, as I have indicated, it is likely that the circumstances of this case are unusual. Secondly, my decision has been reached on the particular facts of this case. Thirdly, in any event, I have decided that the services Kinled provided are regulated activities, so that, if this decision is publicised, service providers (particularly those in what Mr Novis described as the small family office world) will be more aware of the possibility that they require authorisation and will be less able to rely on s.28 of FSMA.

As I indicated at the outset of this judgment, for the reasons I have given I dismiss both the claim and the counterclaim.

I will hear further from counsel about the form of order to give effect to this decision and on all costs and consequential matters.