McKay (t/a Mckay Law Solicitors And Advocates) v Centurion Credit Resources LLC

The claimant, Mr Simon McKay, carries on practice as a solicitor in Leeds in the name McKay Law Solicitors & Advocates. The defendant is an investment company incorporated in Delaware and carrying on business in New York City. On 19^th November 2009 the claimant and the defendant made a written agreement (“the Loan Agreement”). The purpose of the Loan Agreement was to provide to the claimant funds with which he would be able to pay disbursements, including the premiums due under policies of after-the-event (“ATE”) insurance, in respect of up to 6,000 claims in which he proposed to act, pursuant to conditional fee agreements (“CFAs”), for debtors under regulated consumer credit agreements against banks and other financial institutions.

In these proceedings, the claimant alleges that the defendant repudiated the Loan Agreement by refusing to make an advance when validly requested to do so and by subsequently evincing a clear intention not to perform the Loan Agreement according to its terms and that by reason of that repudiation, which he accepted, he has suffered substantial loss and damage, which the particulars of claim put at a figure in excess of £70m. The defendant denies that it was obliged to make an advance, on the ground either that the decision whether or not to do so was within its sole discretion or that conditions precedent to the claimant’s right to request an advance had not been satisfied, and it denies that either its actions or its correspondence amounted to a repudiation of the Loan Agreement. It disputes the alleged loss and damage, should that issue ever become relevant.

On 7^th April 2011 Mr Justice David Richards ordered that issues of liability be tried before issues of quantum of damage. This is my judgment upon the issues of liability.

I shall first set out some of the main terms of the Loan Agreement and identify the issues that arise for consideration. Then I shall summarise the relevant facts. Finally I shall turn to a discussion of the issues.

The Loan Agreement is a long and detailed document. It describes the defendant as Lender and the claimant as Borrower (in each case, with inconsistent use of the definite article). The following are among its relevant provisions.

Schedule 1.1 (a) to the Loan Agreement was a “Form of Request for Advance”. Part of the form read as follows:

The issues that arise for consideration in respect of liability are the following:

It may be that issue (1) (b) is logically prior to issue (1) (a). However, because of the way that the facts of the case unfolded it was convenient to deal with the issues in argument in the order set out above and I shall discuss them in that order.

In September 2008 the claimant entered into an Individual Voluntary Arrangement with his creditors. Accordingly at all times material to these proceedings he was in an insolvency procedure and required the consent of the supervisor of the IVA to the making of the Loan Agreement.

The claimant’s purpose in entering into the Loan Agreement was to obtain a facility by which he could take advantage of a business opportunity that presented itself in mid-2009. He had been introduced to Ratio Money Limited (“Ratio”), whose business consisted of the referral of consumer credit cases to solicitors in return for a referral fee. It was put to the claimant that Ratio could refer to him some 6,000 claims on behalf of individuals who sought to establish that the consumer credit agreements under which they were debtors were invalid or unenforceable. The proposed claimants under those claims would not be in a financial position to fund the litigation personally. Accordingly it was intended that the claimant would act under CFAs supported by ATE insurance policies. The result would be that the individual claimants would not have to fund the costs of the claims themselves and would not be exposed to the risk of paying the costs of the opposing parties: if a claim were successful, the costs of the individual claimant would be paid by the opposing party; if it were unsuccessful, the opposing party’s costs would be met by the ATE insurance policy, as would any disbursements, and by reason of the CFA the individual claimant would not be liable for any costs of his own.

There remained, however, some payments that would or might have to be made at the outset or from time to time as the case progressed. One was the referral fee, which was an expense of the claimant and not of his individual clients. Another might be the premium for the policy of ATE insurance, although most insurers would defer the payment until the end of the case, when it would either be paid by the unsuccessful opposing party or be covered by premium insurance provided under the ATE policy itself. There remained, however, disbursements such as court fees and payments to counsel. Because of the large number of cases that the claimant proposed to undertake, the total outlay in respect of those disbursements would be very substantial. The Loan Agreement was intended to enable the claimant to pay these disbursements as the need arose in each case.

By August 2009 the first tranche of some 200 cases had been referred to the claimant by Ratio but funding arrangements and ATE insurance were not yet in place. The claimant entered discussions with Maxima LLP (“Maxima”), which described itself as a broker of ATE insurance and funding options for litigation. His principal contacts at Maxima were Mr Mark Andrews and Mr John Laycock. Maxima entered into discussions with the defendant, which was represented by its managing director, Mr Brian Jedwab, and a senior investment analyst, Mr Ben Radinsky.

Mr Jedwab was immediately interested in the proposal, though neither he nor the defendant had any experience of funding litigation in the UK or any familiarity with the market for ATE insurance. On 27^th August 2009 Mr Jedwab sent to Mr Laycock an email setting out his “thoughts on an outline for the proposed transaction”. (Nearly all of the relevant written communications took place by email, and unless otherwise stated any reference in this judgment to a written communication is to an email.) The email contained the following passages:

The defendant then prepared and sent to the claimant a “Term Sheet”, which the claimant signed and returned by fax on 11^th September 2009. That document made clear that it was neither a contract nor an offer of a contract but simply a basis for discussion. Its terms reflected in more detail those of Mr Jedwab’s email of 27^th August 2009. Among its provisions were the following:

The claimant made the first payment under the “Term Sheet” on or about 11^th September 2009. Shortly afterwards Mr Jedwab and Mr Radinsky came to the UK to meet the claimant and discuss the proposal with him in more detail. The claimant explained to them that, in order to take on the number of cases envisaged, he would need immediate funding and would also have to expand his practice greatly by taking on additional staff and office premises. The meeting ended in a spirit of shared optimism that a lending agreement would be concluded in due course.

On 6^th October 2009 the finance manager of the claimant’s practice, Mr Lakhi Bual, sent to Mr Jedwab and Mr Radinsky a schedule setting out an estimated projection of movement on the loan account over a twelve-month period. The schedule was based on the commencement of 500 new cases each month, a success rate of 60% (though Mr Bual’s email said that the claims management company had a 100% success rate in the claims it had run) and profits of £4,000 on each case. It showed the full amount of the loan facility in the sum of £4,083,750 as drawn down in month nine; although further monthly drawings would be made, they would be more than offset by monthly repayments made by receipts from cases that had been concluded successfully. In evidence, Mr Bual said that the schedule was prepared on a “worst-case scenario”, taking the lowest realistic figure for profits and entirely omitting the success fees payable under the CFAs. The claimant said that he personally would not have been able to repay the loan, though his practice might have been able to service the interest on it, and that if no cases had been won by month nine the loan would have been fully drawn down and the ATE insurer would have been exposed. He accepted that the potential exposure might have been as high as £13m, which was his estimate as stated by Maxima to the defendant’s US lawyers in an email dated 19^th November 2009 and copied to the claimant, Mr Jedwab and Mr Radinsky. However, he pointed out that the large number of cases would be dealt with over a period of time, not all at once, that the CFAs provided opportunities to review the cases as they progressed and that the chances of the insurers being liable to the maximum extent of their potential exposure were small.

From the outset, the existence of suitable ATE insurance was an important element in the proposed transaction, as it would provide the major element of the defendant’s security, and its significance increased when Mr Jedwab learned, as he had not known from the outset, that the claimant was subject to an insolvency arrangement. Mr Jedwab’s evidence, which I accept, was that he was initially unaware that there was not a developed market for ATE insurance for “Financial Irregularities” litigation (which included the kind of consumer credit cases to be undertaken by the claimant) and that from an early stage he was given the understanding that there would not be any difficulty in obtaining suitable ATE insurance. This is reflected in his email to the claimant on 21^st April 2010:

The arrangements for the ATE insurance were dealt with by Maxima on the claimant’s behalf. A number of potential ATE insurers were considered. One of those insurers was Focus Insurance Company Limited (“Focus”), a company based in Gibraltar. Another was Kinetic Insurance Brokers Limited (“Kinetic”), a Lloyd’s of London broker, which was acting for Alpha Insurance, a Danish company with capital assets of £266m. By about 17^th November 2009 the decision had been taken to use Kinetic rather than Focus, for reasons explained by Mr Andrews on the morning of 19^th November 2009 in an email that he sent to the claimant, the defendant and the defendant’s US lawyers:

The Loan Agreement was executed on 19^th November 2009. At the same time Maxima entered into a Service Agreement with the claimant. The Service Agreement, which stated that neither party could terminate it without the defendant’s consent while any obligation of the claimant to the defendant remained outstanding, provided that Maxima would provide confirmation to the defendant of the existence and scope of ATE insurance cover in respect of claims intended to be prosecuted by the claimant.

No sooner had the Loan Agreement been executed than a problem arose over the identity of the ATE insurer. As appears from the email timed at 17:40 on 20^th November 2009 from the claimant to Mr Laycock and the email timed at 18:27 on 21^st November from Mr Bual to Mr Laycock, Kinetic was requiring payment of the premium on each ATE policy upon inception; given the large number of claims and policies involved, this represented a large expenditure. The claimant wrote:

Despite the terms of his email on 20^th November 2009, the claimant made a request for a first drawdown under the Loan Agreement on 23^rd November 2009. There was some communication on the same day concerning the fact that that request had not been made in the manner prescribed by the Loan Agreement and regarding the defendant’s request for, among other things, evidence that ATE policies were in place. On 24^th November Mr Bual wrote to Mr Radinsky:

Matters appeared to be going well. On 8^th December 2009 Mr Radinsky wrote to the claimant:

On 20^th January 2010 Mr Radinsky replied to Mr Laycock:

On 27^th January 2010 Mr Andrews wrote twice to Mr Laycock. The first email raised the possibility that, as an alternative to IAICL, Focus and Elite might once more be available as insurers. Regarding reinsurance it continued as follows:

On 1^st February 2010 Mr Laycock forwarded to Mr Radinsky a letter from IAICL confirming that there would be a regulatory requirement of suitable reinsurance protection if the ATE business were approved by its underwriting committee and that efforts were being made to identify suitable reinsurance. Mr Laycock explained that IAICL’s existing reinsurance with Everest Re did not extend to ATE policies for Financial Irregularity claims and that IAICL were looking to reinsure that business either with Everest Re or with another A-rated reinsurer. Mr Laycock expressed the view that, as it was likely to be 3 – 6 months before any claims would be seen against the ATE policies, it was unnecessary to have reinsurance in place at the outset. Mr Laycock also sent to the defendant a copy of IAICL’s financial statements to 30^th September 2008, which, after a trading loss of £542k for the year, showed a balance sheet of £620k. It is clear that these figures, and in particular IAICL’s small asset base, considerably disturbed the defendant.

The claimant was becoming increasingly frustrated at the delays in finalising the financial side of the business, as he had accepted files for 1,000 clients but was unable to pursue their claims. On 2^nd February 2010 he mooted with Mr Jedwab the possibility of putting in place cover with one of the insurers who had previously been approved and informed him that 200 of his cases were likely to settle, if only they could be issued. Mr Jedwab replied, “So let’s get coverage in place with a real insurer and start with these 200.” However, that did not happen. Discussions took place between the defendant and Maxima, in the course of which the defendant made plain its concerns over IAICL and its insistence that reinsurance be in place from the outset. On 4^th February Mr Laycock wrote to Mr Radinsky to confirm that IAICL was willing to reinsure from the outset with Everest Re or some other A-rated reinsurer but that, before it committed to the substantial reinsurance premium that would be required, it wanted the comfort of an assurance that, subject to the claimant’s compliance with the Loan Agreement, it was still the defendant’s intention to fund the number of cases proposed by him, namely 6,000. The email was forwarded to Mr Jedwab, who replied as follows:

On 10^th February 2010 the claimant, concerned that matters appeared to have stalled and that the defendant appeared to have lost confidence in him, proposed a telephone conversation with Mr Jedwab. The conversation took place on 11^th February 2010. The only near-contemporaneous record of it is the email that the claimant sent to Mr Jedwab and Mr Radinsky that afternoon. It reads in part as follows:

On Friday 12^th February 2010 Aviva Life Services UK Limited issued an offer of life insurance, open for acceptance until 11^th May 2010. It is likely, though not certain, that the claimant received the offer on Monday 15^th February, which was also the date on which he was notified by his insurance brokers by email that an offer had been made and that a letter would be received shortly.

On 16^th February 2010 Mr Radinsky wrote to ask when the defendant could expect to receive the “deliverables”, namely the outstanding matters mentioned in the claimant’s email of 11^th February. The claimant replied:

On 17^th February 2010 the claimant wrote to Mr Jedwab and Mr Radinsky, expressing the hope that he could request drawdown in respect of the 225 cases on Friday 19^th February. The email dealt in turn with the six outstanding items mentioned in his email on 11^th February and included the following:

On 18^th February 2010, having received no further substantive response to his email of the previous day, beyond some brief exchanges concerning the ATE policies, the claimant sent to the defendant his signed agreement with IAICL. He also forwarded to the defendant an email he had received from administrators acting on behalf of IAICL, which indicated that IAICL was in the process of obtaining reinsurance from Everest Re and hoped to have finalised the matter by 5^th March, and that the 225 ATE policies had been signed off and would be issued the following day. The claimant told the defendant that he had complied with its requirements regarding the CFAs so far as was possible and continued:

On the morning of 19^th February 2010 the claimant sent to the defendant a formal request for an advance of $130,000. The request was accompanied by evidence of the ATE insurance but not of the reinsurance. Later that day, Mr Radinsky replied to the effect that he was reviewing the documents and that he believed there were three outstanding matters, one of which (in fact, the only one of relevance) was evidence of reinsurance. The claimant replied, referring Mr Radinsky to the earlier statement from IAICL’s and saying, “In a nutshell it is being processed and evidence that it is in place will be available on 5 March.”

Some days were spent resolving an issue between Maxima and the claimant, which is not relevant to these proceedings. Then on 1^st March 2010 Mr Radinsky wrote to Maxima, copying the claimant into the email, saying that Maxima “must sign off on all aspects of the proposed structure”, including six specified items, one of which was “ATE, the initial policy and supporting reinsurance”. Although the claimant says that he was concerned that the defendant’s requirements were largely meaningless and went beyond what was required by the Loan Agreement, the only matter he raised in response on 2^nd March was the point, which he described as uncontroversial, that funding was required immediately before the expenditure was incurred and not afterwards.

On 3^rd March 2010 Mr Bual asked Mr Andrews whether he had all the information that he needed. In a reply copied to Mr Jedwab and Mr Radinsky, Mr Andrews said that he awaited details of the reinsurance and asked the defendant to confirm whether it was willing to proceed before the reinsurance was formalised. Mr Jedwab replied:

However, on 5^th March 2010 there was still no reinsurance in place. On 8^th March Mr Andrews wrote to all parties, observing that a promise of reinsurance was not the same as actual reinsurance, that it had always been the case that reinsurance had to be in place for drawdown, and that other options should be considered if IAICL was experiencing difficulty in reinsuring. IAICL was indeed experiencing difficulty, which it was unable to surmount. On 19^th March it was confirmed that Everest Re had declined to provide reinsurance. An email from the administrator who had been attempting to conclude the deal with IAICL explained the position as follows:

That concluded the efforts to deal with the matter by the provision of reinsurance. On 15^th April 2010 Mr Laycock forwarded to Mr Jedwab and Mr Radinsky an email from the claimant. That email presented two alternatives: either the parties could accept that reinsurance acceptable to the defendant was not likely to be obtainable, in which case the Loan Agreement was to be considered as frustrated and there should be an attempt to agree a “schedule of compensation”; or the claimant could provide a guarantee for £5m from Royal Luxembourg SOPARFI SA (“Royal Lux”), for which the cost would be between £500k and £750k—a cost that the claimant said he intended to persuade IAICL to pay. On 16^th April Mr Jedwab made a succinct response:

On 26^th April 2010 Troutman Sanders LLP wrote to Ms Egarr:

Proceedings were issued on 4^th August 2010. In the context of the foregoing summary of the facts, I shall address the issues identified in paragraph 7 above, summarising counsel’s submissions very briefly before setting out my conclusions.

For the defendant, Mr Quest relied on the sentence in clause 1.1 (a): “Lender’s obligation to make any Advance hereunder shall be in the Lender’s sole discretion.” He submitted that the Loan Agreement provided for a two-stage process: first, the claimant was entitled to request an advance pursuant to clause 1.7 (b) when the conditions precedent to such a request had been satisfied; second, the defendant would then consider the request and had a discretion whether or not to make any advance. The terms of clause 1.1 (a) are clear. There is nothing in the circumstances in which the Loan Agreement was made or in its commercial purpose that permits any limitation upon the defendant’s discretion, beyond that which the general law imposes, namely that the discretion must not be exercised capriciously, arbitrarily, perversely or irrationally. The decision taken by the defendant was simply a decision not to make an advance when requested to do so in February 2010; it was not a decision never to make an advance in any circumstances. Particularly when viewed in the light of the history of the matter since November 2009, that decision cannot be considered irrational or capricious, and it is not for the court to substitute its own view as to what decision ought to have been made.

For the claimant, Mr Tomlinson Q.C. submitted that the mention of discretion in clause 1.1 (a) should be understood as a reference to the words “in the Lender’s discretion” in clause 1.7 (a) and (b). The discretion in clause 1.7 must be understood as a power of judgement in respect of the satisfaction of the conditions precedent: in paragraph (a), rather strangely, the conditions precedent to the defendant’s obligation to execute the Loan Agreement; in paragraph (b), the conditions precedent to the claimant’s entitlement to request an advance. To construe clause 1.1 (a) as conferring a distinct discretion would give rise to a number of problems. First, it would mean that discretion was used in two different senses within clause 1: in the sense of “choice” in clause 1.1, and in the sense of “power of judgement” in clause 1.7. Second, it would create a conflict between the use of mandatory language (“shall”) and the existence of an unfettered discretion. Third, it would sit uneasily with the contractual scheme, which included detailed provisions designed to ensure that the defendant’s position was adequately secured and protected. Fourth, it did not reflect the commercial realities of the situation, where the defendant well knew that the claimant must commit himself to considerable expenditure in the expansion of his business and must be able to rely on the obligations of the defendant to provide the necessary funding.

The principles applicable to the construction of commercial contracts are clear. The aim is to determine what the parties meant by the language that they used. However, the court is not concerned with the subjective intentions of the parties but with the meaning that the language used would have conveyed to a reasonable person who had all the background knowledge that would reasonably have been available to all of the parties to the contract, and that background knowledge must be considered in all cases, not merely in cases of linguistic ambiguity. The relevant background information does not, however, include the pre-contractual negotiations, which are inadmissible as an aid to construction. If the language of the contract, when read against the relevant background, leads clearly to the conclusion that one particular construction is the correct one, the court must give effect to it. But if there is more than one possible construction, the court is entitled to prefer the construction that best accords with commercial common sense, even though another construction would not produce an absurd or irrational result. See Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F-913G, Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, paras 21-26, Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770, paras 16 – 23, and Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50, paras 15 - 30.

If the principles of construction are clear, the result of the application of those principles often is not. This is evidenced by the frequency with which judges of the appellate courts disagree among themselves, and with judges of first instance, as to the construction of contracts. The law is committed to the view that any contract can have only one “true” interpretation; cf. Egan v Static Control Components (Europe) Ltd [2004] EWCA Civ 392, [2004] 2 Lloyd’s Rep. 429, per Arden LJ at [27]. But what is true as a matter of legal dogma is not necessarily true in any other sense. I shall come back to this point.

Turning to the provisions of the Loan Agreement, I consider first the wording of the critical sentence in clause 1.1 (a)—“Lender’s obligation to make any Advance hereunder shall be in the Lender’s sole discretion.”—which I shall call the Discretionary Sentence. Contrary to Mr Quest’s submission, the meaning of that sentence seems to me to be far from clear. Its wording is rather peculiar and some work is required to make it accord with either of the interpretations that have been advanced before me. To begin with the defendant’s proposed construction: it is an odd locution to say that A’s obligation to do X is in A’s sole discretion. If what is meant is that A has a choice whether or not to do X, the language of obligation adds nothing: one might as well say that the decision whether to do X is in A’s sole discretion. Indeed, to speak of obligation in those circumstances is inapt, as the making of a loan will be a matter of choice and not of obligation. One might properly speak of a discretionary obligation if one meant a discretion to assume an obligation—if, for example, the defendant had a choice whether or not to execute some further document that would itself create an obligation. However, the Loan Agreement contains no provision for the creation of an obligation to lend, other than by the making by the claimant of a request for an advance upon satisfaction of conditions precedent. On the other hand, the claimant’s interpretation of the Discretionary Sentence requires not merely that “discretion” be used in the sense of “judgement” but that the object of the judgement be understood in some such sense as “[the question whether or not there has arisen any] Lender’s obligation” or “[the fact of there having arisen an] obligation”. Although a possible reading, that is not an immediately obvious one. In short, each of the alternative constructions advanced before me requires some glossing of the words of the Discretionary Sentence.

One sentence of the Loan Agreement cannot be read in isolation; the contract must be read as a whole. There are passages that suggest that the defendant was indeed under an obligation to advance moneys. The recital might reflect that financial accommodations in the form of commitment to lend had already been granted. More importantly, clause 1.1 (a) the sentence immediately preceding the Discretionary Sentence uses mandatory language: “shall advance”. Against this, the Loan Agreement repeatedly emphasizes the control to be retained by the Lender. Thus the language of discretion is used in clause 1.7 (a) and, less redundantly, in (b), where what is meant is not that the Lender has a choice whether to satisfy the conditions but rather, I think, that it is for the Lender to judge whether the conditions have been satisfied. The fact that provisions relating to the conditions precedent give an element of control to the Lender does not mean that this control must survive the satisfaction of the conditions. However, it does reflect the concern of the Loan Agreement as a whole with the protection of the Lender. Further, the claimant’s construction of the contract would mean that the Discretionary Sentence was nothing more than another way of saying the same thing as the opening words of clause 1.7 (b). That conclusion might be correct, but it is more natural to understand the two provisions to deal with different things, particularly when, as mentioned above, the Discretionary Sentence has to be heavily glossed before it can be read as a statement regarding the satisfaction of the conditions precedent.

One provision that is in my view of some relevance, though it was not referred to in argument, is clause 1.1 (i):

Regarding the commercial framework and purpose of the Loan Agreement, I do not accept Mr Tomlinson’s suggestion that the relationship created by the Loan Agreement was more that of a joint venture than that of lender and borrower. The express statement by the parties that they had created only the relationship of lender and borrower—see clause 7.16—would not of course determine the matter: see, for example, Pawsey v Armstrong (1881) 18 Ch.D. 698, Street v Mountford [1985] A.C. 809, and Agnew v Commissioner of Inland Revenue [2001] 2 A.C. 710, per Lord Millett at 725-6, para [32]. Even so, the parties have in my view correctly characterised their relationship. The business of the consumer credit legislation was to be carried on by the claimant, not by the defendant, and there was no provision for profit-sharing. The fact that the Loan Agreement displays a detailed concern on the part of the defendant with the business of the claimant relating to consumer credit litigation is to be explained not by joint venture but by the defendant’s wish to ensure that it had proper security and was not lending to a failing business.

Mr Tomlinson accepted that, as Mr Quest had submitted, it is by no means uncommon for a loan agreement to confer on the lender an ultimate discretion whether or not to make a loan. However, he submitted that such a discretion would be contrary to the commercial reality of the arrangement between the parties. The detailed provisions of the Loan Agreement, and in particular of clause 1.7 (a) and (b), had the result of giving to the defendant a high degree of comfort, as well as of control over the claimant’s business model, before the stage was ever reached at which the claimant could make a request for an advance. In those circumstances, Mr Tomlinson submitted that it was less likely that the agreement would properly be construed as making no provision at all for an obligation to lend. Further, the claimant was seeking funding to enable him to exploit a new seam of business, and it was within the contemplation of the parties that, to do so, he would have to expend substantial moneys and time in setting up the infrastructure necessary for the new business. Although there is nothing in principle to preclude the conclusion that all of the steps taken by the claimant would be entirely at his own risk, it is, submits Mr Tomlinson, more commercially sensible to suppose that, once he had complied with all of the defendant’s detailed requirements regarding his business and made a request for an advance after satisfaction of all conditions precedent, he should be entitled to a loan in accordance with the Loan Agreement.

Although Mr Tomlinson’s submissions in this regard were attractive, I am not persuaded that considerations of commercial common sense can bear quite the reliance that he placed on them. From the claimant’s perspective, it was obviously important that his efforts vis-à-vis the defendant should be with a realistic view to obtaining finance and that he was not simply being “messed about”. On the other hand, from the defendant’s point of view it could equally be seen as important that it retained the ability to assess the merits of the loan right up until the moment at which it parted with the money. Both parties had expended a considerable amount of time and effort on the relationship, and it is not to be forgotten that the defendant, as a company that made its money by making loans, had its own commercial reasons for looking for the opportunity to advance money—it is unnecessary to import contractual obligations to give reality to that consideration.

Having regard to the various considerations put forward by counsel and mentioned above, I am of the opinion that the correct construction of the Discretionary Sentence is essentially that advanced by the defendant. It does not mean that (as the claimant maintains) it is for the defendant to decide whether or not the conditions precedent to the existence of an obligation to lend (namely, the conditions precedent to the making of a valid request for an advance) have been satisfied. It is nearer to the truth to say that it is a matter for the defendant whether or not it makes an advance. I shall explain more precisely how I understand the Discretionary Sentence and set out shortly my reasoning.

The defendant decided not to make an advance in response to the claimant’s request dated 19^th February 2010 because it was not satisfied with the ATE insurance that was being offered. It required that the insurer either have a substantial capital base or have reinsurance of its exposure. If the defendant’s discretion were entirely free, unconstrained and unreviewable, that would be an end of the matter. However, on my preferred construction of the Loan Agreement, the question arises whether that decision was a valid exercise of the discretion in clause 1.1 (a). On behalf of the claimant, objection was taken that, having regard to the amount involved, the low degree of risk and the apparent soundness of the ATE insurer, the level of exposure in respect of the requested advance of $130,000 dollars was so low that it was irrational and capricious to require reinsurance. In my view, that is precisely the kind of assessment that is properly to be made by the lender and not by the court, particularly having regard to the history that I have set out at length in this judgment. The claimant was insolvent, was clearly unable to obtain finance from mainstream UK lenders and was branching out into an unfamiliar area of business. The defendant had shown itself very cautious about proceeding with the loan; its approach was characterised by belt and braces, and it was entitled to feel disquieted by the course of events in the preceding couple of months. I am satisfied that the defendant’s decision not to make an advance pursuant to the request was made on commercial grounds, and I do not consider that it is appropriate for me to tell it, as a commercial lender, that its refusal to make the advance sought was irrational in the circumstances. This is not in my judgment an appropriate case for a court to substitute its own view for that of the defendant.

If I had accepted Mr Tomlinson’s proposed construction of the Discretionary Sentence, I would ultimately have come to the same conclusion, though for different reasons, which I may summarise as follows.

In the light of my decision as to Issue (1) (a), the answer to Issue (1) is in my judgment that the defendant was entitled to decline to make the first advance under the Loan Agreement when requested to do so by the claimant. Nonetheless, I shall also consider Issue (1) (b).

The claimant was entitled to request an advance under the Loan Agreement only when the conditions in clause 1.7 (b) had been satisfied. It follows from my conclusions in paragraph 51 above that, regardless of questions of discretion, the claimant had not satisfied the condition precedent in clause 1.7 (b) (x) when it made the request for an advance on 19^th February 2010. See in particular paragraph 51 (6).

Further, it is common ground that condition in clause 1.7 (b) (ii) was not satisfied when the claimant requested an advance on 19^th February 2010, because he had not delivered evidence that he had taken out a policy of Key Man insurance and had, indeed, not taken out such a policy. The claimant (who, of course, denies that he had failed to satisfy the condition in clause 1.7 (b) (x)) contends that the defendant had waived the requirement of satisfaction of the condition in clause 1.7 (b) (ii) and so was obliged to make an advance.

Waiver, at least is in this context, is a form of estoppel. Although it is not necessary to prove consideration to support the waiver, the waiver “requires an unequivocal representation by one party that he will not insist upon his legal rights against the other party, and such reliance by the representee as will render it inequitable for the representor to go back on his representation”: see Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd's Rep 391, per Lord Goff of Chieveley at 398 – 399; also Kammins Ballrooms Co Ltd v. Zenith Investments (Torquay) Ltd [1971] AC 850, per Lord Diplock at 882 – 883.

Clause 1.1 (l) of the Loan Agreement purports to restrict the ability of the parties to effect informal waiver of their rights and remedies: see paragraph 5 above. The decided cases do not clearly resolve the question whether or not a contractual term can effectively prevent the parties from waiving compliance with the provisions of the contract, including that particular term: compare World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ 413 and United Bank Ltd v Asif (unreported, CA, 2000). Both parties were content to accept as correct the preliminary view of H.H. Judge Mackie QC in Spring Finance Ltd v Hs Real Company LLC [2011] EWHC 57 (Comm) where, in respect of the question whether an oral variation could have been effective in the face of a requirement in the contract that variations could only be in writing, he said at [53] that his first impression was:

The claimant’s case is that there was discussion of the Key Man insurance in the telephone conversation on 11^th February 2010. In paragraph 60 of his witness statement he said this:

I reject the claimant’s contention that there was a waiver of the requirement that he deliver evidence that the Key Man insurance had been entered into.

Mr Tomlinson observed that clause 4.15 of the Loan Agreement required that the Key Man insurance be taken out within forty-five days of the date of the Loan Agreement, that is by 4^th January 2010, and that the defendant had clearly waived compliance with that timetable, as it knew by 11^th February that there was no such insurance in place. That is true, but it does not establish a waiver of sufficient scope to avail the claimant; its force is rather evidential, possibly tending to indicate a willingness by the defendant to accept a substantial compliance that was sufficient for its purposes rather than an insistence on strict compliance. Even evidentially, however, the point has limited force. Clause 4.15 required the Borrower to maintain, and to deliver evidence of the maintenance of, Key Man insurance. Clause 1.7 (b) (ii) provided that the obligation in respect of Key Man insurance should be deemed satisfied during a forty-five-day period of grace after the making of the Loan Agreement. If an advance had been made during that grace period and no evidence of Key Man insurance had been delivered at the end of it, the Borrower would be in default and liable to repay the advances. On the other hand, if, as was in fact the case, no advance had been made within the grace period, the Lender would be sufficiently protected by the ability to insist on delivery of evidence of insurance, waiving only the—by now, largely irrelevant—stipulation as to the earlier date when the insurance ought to have been effected. (In this regard, I note that, when on 28^th December 2009 the defendant’s US lawyers wrote to remind the claimant that the Key Man insurance was due to be in place on 4^th January 2010, he replied: “I’m afraid it hasn’t yet been put in place but I will chase in January. There has been no draw down, so I assume it’s not a major problem at this stage.”) In short, the fact that the defendant was not concerned with the failure to effect Key Man insurance by 4^th January 2010 neither amounts to an implied waiver of the requirement that evidence of such insurance be provided no later than the making of the request for an advance nor provides any real indication that the defendant is likely to have waived the requirement of proof of insurance at the date of a request for an advance.

Regarding the particular facts of the case, I find that there was no clear and unequivocal assurance or representation by the defendant that it would not require delivery of proof of insurance before a valid request was made.

I reject the claimant’s evidence of what was said in the telephone conversation of 11^th February 2010 regarding Key Man insurance.

In the circumstances outlined above, I find that neither on 11^th February nor at any time thereafter until the request was made on the morning of 19^th February did the defendant give an unequivocal assurance that it would not require delivery of proof of insurance before a valid request was made.

The claimant relies also on Mr Radinsky’s email on 19^th February (see paragraph 32 above), in which he identified only three matters that appeared to be outstanding after the submission of the request for a loan, none of which was proof of Key Man insurance. Mr Tomlinson submits that the terms of that email amount to an acceptance that the offer of insurance which the claimant had in place satisfied the requirement under the Loan Agreement. I reject that submission. The email of 19^th February falls well short of an unequivocal assurance that the offer of insurance satisfied the requirements of the Loan Agreement. No such assurance had been given previously. The email does not state any such assurance. Mr Radinsky had only recently received the request and accompanying documents and said expressly that he was still reviewing them. In those circumstances, he expressed a belief that there were three outstanding matters; he did not commit either himself or the defendant to an acceptance that no issue arose in respect of any matter to which he did not refer. Moreover, the matter has to be considered in context. The claimant had led the defendant to believe that he had accepted an offer of insurance and that a policy would be forthcoming within ten days.

After 19^th February 2010, the parties did not return to the matter of Key Man insurance, because their attentions were diverted to the question of reinsurance, which was an unresolved problem that prevented them from moving forward; next to that, all other matters were of subsidiary importance.

If it were necessary, I should also find that the claimant had not relied on any such assurance so as to make it inequitable for the defendant to resile from it. The assurance, whether said to have been given expressly on 11^th February or impliedly thereafter, is not said to have been supported by consideration and so could avail only in equity. The communications to which I have referred show that in the days leading up to 19^th February the claimant was purporting to have accepted the offer of insurance and to be merely awaiting the policy. In those circumstances, I cannot see why it should be inequitable for the defendant to choose to await the policy or at the very least documentary proof of the acceptance of the offer of insurance—proof that, as a matter of fact, the claimant could not give, because he had not accepted the offer of insurance. If the claimant’s present evidence were to be accepted (as I do not accept it), the basis on which the assurance had been given, namely that the claimant would not commit to insurance until he received confirmation that an advance would be forthcoming, no longer obtained so far as the defendant was concerned. Further, so far as concerns the position when the request was made, the claimant had sought from the defendant confirmation that it was satisfied with the steps taken prior to the making of a request and had gone ahead and made the request before receiving any such confirmation. If (contrary to my view) any assurance were to be implied from Mr Radinsky’s email of 19^th February, that could only be an assurance that the acceptance of Aviva’s offer (not, as Mr Tomlinson would have it, the offer itself) was sufficient compliance with the conditions. The claimant could not complain that he had relied on the assurance by not then accepting the offer of insurance, because it was he who had misled the defendant into believing that he had already done so. In all these circumstances I see no reason of equity why the claimant should be held to have been permitted to act in reliance either on what had been said in a conversation eight days previously or on any insurance that could possibly be implied from subsequent communications.

In conclusion, I would hold that, quite apart from any question of discretion, the defendant was entitled to refuse to make an advance pursuant to the request of 19^th February 2010 on the ground that the conditions precedent in clause 1.7 (b) (ii) and (x) had not been satisfied.

The claimant’s case on repudiation is set out in the particulars of claim as follows:

In this area, contractual terminology varies. Among several uses of the concept of repudiation, two are relevant in the context of this case. First, it can be used to refer to a breach of a condition or to a serious breach of an intermediate term, such as gives rise to a right in the innocent party to terminate the contract. Second, it can be used to refer to a renunciation, whereby one party evinces an intention not to perform the contract in accordance with its terms. A repudiation in the latter sense can occur when a party refuses to comply with its obligations unless the other party complies with conditions for which the contract does not provide. Although the former sense may be encompassed by paragraph 14 of the particulars of claim, it is the latter sense that predominates, having regard also to paragraphs 15 and 16.

If the defendant had been contractually obliged to make an advance pursuant to the request of 19^th February 2010 but (a) had wrongfully refused to do so and (b) had wrongfully made it clear that it would not do so in future, unless the claimant complied with conditions with which in fact the claimant was not obliged to comply, it would thereby in my judgment have renounced or repudiated the Loan Agreement. In the light of my decision on Issue (1), I hold that the defendant did not renounce or repudiate the Loan Agreement.

In the event, the claim fails and will be dismissed.