Intense Investments Ltd v Development Ventures Ltd & Anor

INTRODUCTION

On 19 June 2005, I set aside the judgment in default in this case that the Claimant had entered against the Defendants. One of the reasons for that decision, reported at [2005] B.L.R. 478, was my view that there was a triable issue between the parties as to whether or not they had entered into a binding contract. I also expressed the view that this issue was straightforward and could be disposed of promptly by way of a preliminary issue.

Despite the delays by the parties in bringing this preliminary issue back to court, despite the eight files of documents which comprised the court bundles for the trial, despite the detailed exploration of the story which spread over five days of court time, and despite (amongst other things) the unsubstantiated and irrelevant allegations of criminal conduct made by witnesses on both sides, I remain firmly of the view that the essential issue, as to whether or not there was a binding contract between these parties, is indeed a simple matter to resolve.

At the root of this dispute is the acrimonious relationship between Mr Garry Bramley, the Claimant’s chief witness, and Mr Daniel Lafayeedney, the man behind both Defendant companies. The two men worked together for a period of at least 18 months, between July 2001 and January 2004, during which time Mr Bramley was a director of one of Mr Lafayeedney’s companies, Cleveland Developments Company Ltd (“CDCL”). CDCL would find suitable sites for development, buy them, obtain planning permission, and then sell them on at a profit.

It appears that, some time in 2003, the two men fell out badly and resolved to have nothing further to do with each other. However, later that year, an unforeseen chain of events brought them back into contact and they agreed to act together in respect of a proposed development at 116-122 Woodgrange Road, Forest Gate, London, E7 (“the site”). Given their history, it is perhaps unsurprising that their business relationship in respect of the site was marked by mutual hostility and suspicion, and has now resulted in this equally acrimonious litigation.

It is the Claimant’s case that there was an agreement in writing between the parties, pursuant to which the Claimant would loan to the First Defendant £350,000 in order to assist the Defendants with the payment of professional fees and the like, and that, in return, the Defendants would repay the loan, and also pay the Claimant 50% of the net profits from the sale. At first sight, the Claimant appears to have a strong case, given that a written contract containing these express provisions was executed by the Defendants on about 19 April 2004, and later executed by the Claimant company on 4 May 2004. In addition, the sum of £350,000 was indeed loaned by the Claimant to the Defendants thereafter. However, following the repayment of the £350,000 loan by the First Defendant, in April 2005, it maintained that there was no binding contract between the parties and that the Claimant was not entitled to any share of the profits.

The Second Defendant has been dissolved and has played no part in the trial. The First Defendant’s case is encapsulated in paragraph 22 of its Re-Amended Defence and Counterclaim, which reads:

“In all the premises, it is averred that no agreement was reached as to the terms on which [the Claimant] would lend the £350,000 and [the Claimant’s] sole claim is to repayment and/or restitution of that sum, which it has received.”

This stance was borne out by Mr Lafayeedney’s lengthy witness statement, which denied any agreement between the parties, and made no concession that the Claimant was entitled to anything other than the return of the £350,000.

The First Defendant’s bold position, to the effect that the Claimant was entitled to the £350,000 (and not a penny more and not a penny less), was maintained right up to the first day of the trial. However, at that point, Mr Pymont QC, who appeared on behalf of the First Defendant, opened his case by acknowledging that, although there was no contract in the form asserted by the Claimant, the First Defendant “had no difficulty with the conclusion” that the court might imply “some sort of contract” which would give the Claimant 50% of the net profits. This concession came as something of a surprise to both the Claimant and to me, because it was quite contrary to both the pleading and Mr Lafayeedney’s written evidence. It had not been foreshadowed in the solicitors’ correspondence. Mr Peacock, who appeared at the trial on behalf of the Claimant, correctly pointed out that this concession had not been made since the commencement of these proceedings over a year ago.

In my judgment, Mr Pymont QC’s concession recognised the commercial realities of the situation in a way which the First Defendant had not done hitherto. Indeed, I consider that both his concession, and Mr Lafayeedney’s oral admission that there was a “moral” entitlement on the part of the Claimant to 50% of the net profit, only served to highlight the unrealistic nature of the First Defendant’s stated position prior to this trial.

However, notwithstanding those observations, I note that the parties were still unable to agree any sort of mechanism by which a legal entitlement on the part of the Claimant to sums in addition to the £350,000 could be assessed and, if appropriate, paid out. In those circumstances, there is still no alternative but for me to deal with all the issues that were the subject of Counsel’s helpful opening and closing submissions. In particular I must decide whether or not the Claimant has any entitlement to a share of the profits (if any) as a result of the document of 19 April 2004, and, if so, how that entitlement is to be calculated.

I undertake the necessary analysis in this way. At Section B below, I set out the factual background. At Section C below, I consider whether or not there was a binding contract between the parties and, at Section D, I deal with the Claimant’s alternative argument that, if there was no binding contract, the First Defendant is estopped from denying that there was such a contract. At Section E, I consider the First Defendant’s case that, if there was a binding contract, it was terminated by agreement in July 2004 and never replaced with any other binding contract. At Section F, I deal with the competing arguments as to the terms of any contract that I find was in existence between these parties. Finally, Section G below sets out a short summary of my conclusions.

FACTUAL BACKGROUND

Judges often observe that, in civil litigation, the contents of contemporary notes and correspondence are likely to be of much greater evidential weight than the separate recollections of the witnesses. (Footnote: ¹) I consider that this general principle is applicable to the present case. There were about two dozen documents which, in my judgment, plainly indicated what was going on between the parties, and what each side understood, at any particular time. I have therefore placed particular emphasis on those documents, which are set out in greater detail in Section B2 below. However, I should also note that one or two of these documents contained obvious errors. Where these are relevant to the preliminary issues, I identify them below.

Most of the witnesses from whom I heard were busy commercial businessmen. Generally, therefore, it is right to assume that if they put things in writing it was because they regarded them as important; if they did not, it was because they did not consider them to be of significance. As a general point, I reject any attempt by either side to seek to establish matters of fact which are not discernable from, and in many instances are contradicted by, the contents of the contemporaneous documents.

In addition to Mr Bramley, to whose evidence I shall return below, the Claimant called oral evidence from Mr Woolstencroft, the architect who produced the scheme for the site on which planning permission was granted; Mr Homer, the managing director of Lincoln Trust Company (Jersey) Ltd (“Lincoln”) the trust company which managed the affairs of the Claimant and all the other companies associated with Mr Bramley; Mr Crawford, who at the relevant time was the deputy development director of Toynbee Housing Association (“Toynbee”) who eventually bought the site; and Mr Fishman, a solicitor who acted (in a number of different capacities) for both the Claimant and the Second Defendant, CPL.

I consider that each of these four men were honest witnesses who were endeavouring to help the court. Mr Homer was a little defensive at times and, on occasion, purported to give evidence about matters of which he had no personal knowledge, but I am satisfied that that was out of a desire to be of assistance to the court rather than anything else. I derived considerable assistance from the evidence of each of them.

As I have indicated, the Claimant’s principal witness was Mr Bramley. I regret to say that I found Mr Bramley to be a very unsatisfactory witness. He was evasive, argumentative and generally difficult. What is more, I consider that on certain matters, he was not telling the truth. Although I accept in part the Claimant’s submission, to the effect that many of the matters on which Mr Bramley was evasive were matters which were not directly relevant to the issues before me, my grave concerns about the whole tenor of his oral evidence must necessarily colour my approach to this case. In particular, there were times when I considered that Mr Bramley was being evasive, because he was concerned to distance himself personally from the relationship between the parties, when all the other evidence made plain his own direct and personal involvement in the matters in issue. Accordingly, where I have made a finding that was consistent with Mr Bramley’s evidence, it is because such a finding can be derived from the contemporaneous documents, or the evidence of the other witnesses called on behalf of the Claimant.

There were two witnesses relied on by the Defendants. The statement of Mr Lockwood, who dealt with tax issues, was not of any direct relevance to the preliminary issues. The other witness was Mr Lafayeedney himself.

Again with regret, I am bound to say that I derived as little assistance from Mr Lafayeedney’s oral evidence as I did from that of Mr Bramley. There were certain matters in respect of which I quite accept that Mr Lafayeedney cannot now recall the detail and where, although he could not provide a positive answer, he was doing his best to be helpful. But there were certain specific matters, identified in Section B2 below, where I am bound to conclude that Mr Lafayeedney was not telling me the truth. As will become apparent, much of the evidence from Mr Lafayeedney which I reject as untrue arose out of his attempts to argue one thing, when the contemporaneous documents plainly show that something quite different was happening. In addition, as we shall see, Mr Lafayeedney’s lack of credibility as a witness had a greater impact on my analysis of the evidence than the equal lack of credibility on the part of Mr Bramley, because it went to the root of many of the factual matters which were in issue before me.

In 2002, the site was owned by a company called Gillard Ltd. It appears that the site represented its principal asset. The site was identified by CDCL as a potential development site, at a time when Mr Bramley was still a director of CDCL.

From the evidence, it appears that CDCL’s usual methodology was as follows. They found a suitable site for development. Using Mr Bramley’s contacts with various Housing Associations, they would seek to interest a Housing Association in the proposed development of the site. The deal would then be structured in this way. The site would be purchased by CDCL, often in conjunction with another company controlled by Mr Bramley and Mr Lafayeedney. This second company would be an off-shore company. Once planning permission had been obtained, usually on the basis of schemes worked up by the architect Mr Woolstencroft, the site would then be sold on to the Housing Association. CDCL and/or the off-shore company made a profit because of the value added to the site by their obtaining of planning permission prior to the sale. However, it appears that the real profit was made from the complex inter-company arrangements, whereby it was the off-shore vehicle that sold the site to the Housing Association, thus sheltering the profit on the sale from any liability to Capital Gains Tax.

I should say in passing that it was a source of some surprise to me that Housing Associations, which perform such a vital role in the provision of low-cost housing across the country, particularly in London, were prepared to countenance any involvement with the opaque world of off-shore companies, ‘back-to-back agreements’, ‘finder’s fees’ and the like. My unease was not shared by the witnesses: none of them appeared to consider that it was unusual that the large profits that both parties expected to make out of this deal was public money coming from an organisation (the Housing Corporation) which was designed to provide social housing for those who cannot otherwise afford it. However, it appears that, during the period with which we are concerned, the Inland Revenue took a more enquiring view: as we shall see, their investigation into Mr Lafayeedney’s affairs in 2004, which apparently extended to at least one interview with the development director of Toynbee, forms an important element of this story.

It appears that Mr Lafayeedney and Mr Bramley fell out in early 2003. The reasons for that dispute were not explored in any great detail in the evidence and are not relevant to the issues before me. In my judgment, it was entirely in character that each man, during their oral evidence, made allegations or insinuations of criminal conduct on the part of the other. For example, Mr Bramley alleged that, at one meeting, Mr Lafayeedney explored with him the possibility of an innocent third party taking the consequences of the Inland Revenue investigation, whilst, for his part, Mr Lafayeedney said that Mr Bramley told him that he had not paid tax in 16 years and that, immediately following the announcement of the Inland Revenue investigation, Mr Bramley removed himself from the jurisdiction and became a resident in Jersey.

I need hardly say that there was no evidence to support any of these, and other, allegations of criminal or questionable conduct made by the two main witnesses. It was not explained to me how and why this evidence had any relevance to the matters before me. Such baseless allegations do, however, go some way to explaining why I take an equally dim view of the evidence of both men.

Following his departure from CDCL, Mr Bramley was still keen to pursue the Woodgrange Road project. To that end, he received legal advice from Mr Fishman in the summer of 2003, which identified the tax difficulties that might arise if the site was purchased by a UK company. Sinclairs, who were registered auditors, also gave advice to Mr Bramley in similar terms. However, it seemed that it was possible to get round these potential tax liabilities if the eventual vendor was an off-shore company. This explains why, by 21 August 2003, Mr Bramley had made an offer for the site and was telling Lincoln that “there is a lot of money to be made in this deal”.

The proposed deal was that the share capital of Gillard would be bought by Malombre Properties Ltd, an off-shore company controlled by Lincoln. Malombre would then sell the property on to another Lincoln company, Tiffany Assets Ltd. Both companies were, without doubt, connected closely to Mr Bramley, but he declined to explain the nature of that connection during his cross-examination. Once planning permission had been obtained, it was proposed that Tiffany Assets would sell the property to Toynbee. That Mr Bramley was right, and there was the potential for a large amount of money to be made by these off-shore companies, was beyond doubt. It appears that this proposal envisaged that Malombre would pay Gillard Ltd £5,500,000 and sell on to Tiffany for £6,500,000. Tiffany would in turn sell the site to Toynbee for £7,500,000. Accordingly, pursuant to this proposed deal, the two companies controlled by Lincoln would each make a gross profit of £1 million.

However, this proposed arrangement never materialised. In the autumn of 2003 it became apparent to Mr Bramley that there was another potential purchaser of the site who was also planning to sell it on with planning permission, but who was prepared to offer more to buy Gillard. Inevitably, it turned out that that rival purchaser was none other than Mr Lafayeedney, acting through CDCL, who had also sought and obtained similar tax advice, this time from Mr Lockwood’s firm, Smith and Williamson. An off-shore company, later identified as CPL, would again be involved. The whole scheme was, as he accepted, very similar to the sorts of deals that he had done with Mr Bramley when they were working together at CDCL. This was, however, the first time Mr Lafayeedney had proposed such a deal on his own.

Mr Bramley did not want to lose this development opportunity. He made an increased offer to Gillard, but it was rejected. He tried another approach. On 23 October 2003 he wrote to Mr Lafayeedney at CDCL, endeavouring to put him off the whole project, saying that he did not want to see Mr Lafayeedney “caught out”. Although Mr Bramley purported to deny that the purpose of his letter was to scare off his rival, it is plain from the text that that was his sole intention. Unfortunately for him, Mr Lafayeedney was not dissuaded from pursuing this promising business opportunity.

Although Gillard were attracted by Mr Lafayeedney’s higher offer, Mr Lafayeedney still had to find a suitable Housing Association to buy the site once planning permission had been obtained. He dealt with, and believed that he had an agreement in principle with, the Boleyn and Forest Housing Association (“Boleyn”). However, it appears that, when Toynbee discovered that Boleyn were endeavouring to take the site, they invoked an informal agreement between East London Housing Associations that one Housing Association would not bid for a site earmarked for another. Boleyn bowed out of the story.

This meant that Mr Lafayeedney had a problem. By his own admission, he had a “hostile” relationship with Mr Kudirka, then the development director of Toynbee. It appears that Mr Kudirka only really wanted to work with Mr Bramley. Therefore, in order for CDCL to make the proposed deal happen, Mr Lafayeedney needed to involve Mr Bramley in some way; without him, Toynbee would not buy the site. The partnership, which both men thought was at an end, would need to be revived.

The two men, together with Mr Woolstencroft, the architect, met in November 2003, at the Basil Hotel, Knightsbridge, to consider the position. There was a good deal of inconsequential dispute as to how the meeting had come about, where precisely it took place, and how long it lasted. For the avoidance of doubt I find that it took place because Mr Lafayeedney wanted to discuss the situation with Mr Bramley, to see what, if anything, the two men could agree to salvage the proposed deal.

It appears that the meeting was quite short, but that was because, possibly to the surprise of both men, they were quickly able to agree a deal in principle. What they agreed was that Mr Bramley would be involved in the project and would make a loan of £300,000 to £400,000 to Mr Lafayeedney. In return, it was agreed that Mr Bramley would be entitled to the repayment of the loan and 50% of the net profit. That was, according to the oral evidence of Mr Bramley, Mr Lafayeedney and Mr Woolstencroft, the undisputed result of that meeting.

There was a meeting on 25 November 2003 at which Mr Lafayeedney and Mr Bramley met with representatives of Toynbee. On 4 December 2003, through CDCL, Mr Lafayeedney wrote to Toynbee setting out the basic elements of the proposed sale that had been discussed. Amongst other things, the letter indicated that there would be two contracts between Toynbee and the companies controlled by Mr Lafayeedney. The letter said that the first contract would be between the Second Defendant, Cleveland Properties Ltd (“CPL”), and Toynbee pursuant to which Toynbee would pay CPL £1,501,500 for introducing the site to Toynbee and for providing project management services (“the introduction contract”). The second contract would be between the First Defendant, Development Ventures Ltd (“DVL”), and Toynbee, pursuant to which Toynbee would buy the freehold for a price to be determined, less the £1,501,500 referred to above.

It is worth noting that, in his oral evidence, Mr Lafayeedney said that his letter was incorrect and that the introduction contract should have been between DVL and Toynbee, and the remaining contract between CPL and Toynbee. He also said, when pressed on the same topic, that it was “impossible to divorce one company from the other”. In my judgment, this passing remark demonstrates the artificiality of endeavouring to differentiate too rigorously in this case between the different companies on either side. I was left with the overwhelming impression that both Mr Bramley and Mr Lafayeedney used different companies when it suited them, but were always quick to blur their separate identities if they thought that it was in their best interests to do so.

For reasons which are not clear, Mr Bramley/Lincoln decided that they would use a new company for their side of the deal with Mr Lafayeedney. That company was the Claimant. On 5 March 2004 the Claimant wrote to Mr Fishman, and asked him to act for them “in relation to the purchase of the above mentioned property”. Mr Fishman was also engaged by CPL in respect of the conveyancing of the site. Although I originally thought that this was a little odd, I accept Mr Fishman’s explanation that he, and everybody else, was working on the basis of an “open-book” arrangement, so that there was, therefore, no problem with him acting on both sides of the transaction. At the same time, Mr Lafayeedney wrote, on CDCL notepaper, to Mr Woolstencroft asking him to arrange for a simple draft contract to be prepared. It is apparent from later letters that, in April, Mr Lafayeedney reached a separate agreement with Mr Woolstencroft, pursuant to which he was engaged by CPL to act as the architect. It also appears that, in the eventual deal that was done with Toynbee, at least some of Mr Woolstencroft’s professional fees were in fact paid by Toynbee.

On 6 April 2004, the Claimant sent to Mr Lafayeedney at CDCL a draft loan agreement. The terms of that agreement were that it would be between the Claimant and CDCL and that, in exchange for a loan of £300,000, the Claimant would recover not only the repaid loan but “a capital return of £750,000 and 50% of the profits made on the development and/or sale …” The evidence suggested, and I find, that the £750,000 was not a figure plucked out of the air, but was half the sum payable by Toynbee pursuant to the proposed introduction contract referred to at paragraph 31 above. In other words, the proposal made by the Claimant on 6 April 2004 was, in this respect, entirely consistent with the proposals being made by Mr Lafayeedney to Toynbee.

I should note in passing that neither this draft agreement, nor any of the later drafts prepared by the Claimant from July 2004 onwards, accurately summarised what Mr Bramley wanted and believed that he had agreed. It is clear that he intended to seek £750,000 as a minimum return, together with 50% of any profit made in excess of £1.5 million. He did not want (because no-one could have agreed to give him) £750,000 and 50% of the profit, because that would have meant that, if the profit on the sale was £1.5 million, the Claimant would have got it all (the £750,000 minimum plus 50% of £1.5 million). This obvious drafting error was never picked up by either side. I find that that was because, despite Mr Bramley’s inability to draft the written proposal properly, both sides knew that what he wanted was a minimum of £750,000 (half the introduction contract monies) and 50% of any profit beyond that.

The draft agreement was considered by Mr Lafayeedney and, by the end of that same day, the 6^th April 2004, he had made amendments to it. Those amendments included the removal of CDCL from the agreement, and its replacement by two of Mr Lafayeedney’s other companies, DVL and CPL, the Defendants in these proceedings. I have no reason to believe that, prior to this date, the Claimant knew, or had any reason to know, that these were the two company vehicles that Mr Lafayeedney was going to use for the proposed deal with Toynbee.

More importantly, Mr Lafayeedney’s re-draft altered the terms of the proposed repayment to the Claimant. It provided that the loan would be repaid “together with a capital return equal to 50% of the profit from the sale of the site”, less various costs. The only reference now to the £750,000 was in the last sentence of Clause 2 of the draft, which stated that “it is anticipated that the return on capital will be no less than £750,000 (seven hundred and fifty thousand pounds).” The re-draft ensured that Mr Lafayeedney was not at risk for more than 50% of the actual profits made: on this basis, there was no minimum entitlement on the part of the Claimant.

It is not clear that very much happened with Mr Lafayeedney’s re-draft of 6 April. On 15 April 2004, Mr Woolstencroft sent to Mr Fishman a copy of a loan agreement for his consideration. Two points should be made about this event. First, Mr Bramley denied that he had given Mr Woolstencroft instructions to do this, but it is plain from Mr Woolstencroft’s covering fax, and his oral evidence, that he did just that. This was a good example of Mr Bramley’s overwhelming desire to distance himself personally from what was going on, despite the plain evidence to the contrary.

Secondly, it is apparent that the document that was sent to Mr Woolstencroft was actually a hybrid, containing some parts of the agreement sent by the Claimant on 6 April and some parts of Mr Lafayeedney’s re-draft of the same date. I do not, however, consider that there was anything sinister or mysterious about the fact that Mr Woolstencroft sent Mr Fishman a hybrid document. There would have been no reason for him to have deliberately decided to do so and no such reason was identified. Not for the last time in this case, it seems to me that the sending of an incomplete document, this time to Mr Fishman, was a simple mistake.

Mr Fishman responded to that request on 29 April 2004. Not unreasonably, he pointed out that there were “some anomalies” in the version that he had been sent. He also gave other advice, in particular noting that it might be better for the structure of the deal to be finalised before the loan agreement was completed. As we shall see, although that was probably good advice, it was being overtaken by events.

On 19 April, CPL sent the Claimant, from an address in Geneva, three executed loan agreements. These agreements were in very similar terms to the agreement that Mr Lafayeedney had redrafted late on 6 April (paragraphs 36 and 37 above). The repayment provisions were precisely the same, as was the identity of the parties. The only change of any note was the increase of the amount of the loan to £350,000. The letter which enclosed the three executed agreements also identified the bank account into which, if the agreement was accepted by the Claimant, the loan was to be paid.

It appears that the Claimant considered this agreement at a board meeting in Jersey on 4 May and agreed to execute it. The evidence from Mr Homer was that the agreement was then executed by himself, and Ms Hogetoorn, on behalf of the Corporate Director and the Corporate Secretary respectively. Although it was suggested by the Defendants that the agreement may have been executed at a later date, I can find no evidence to support such an assertion. I therefore accept the evidence of Mr Homer that the agreement of 19 April was executed by the Claimant on 4 May. It was not, however, sent back to CPL or to Mr Lafayeedney. In my judgment, that was a simple oversight: for the reasons explored below, I reject any more sinister explanation.

On 5 May 2004, Lincoln arranged for the payment of £300,000 to DVL. The money was sent to the bank account that had been expressly identified for the purpose by CPL in their letter of 19 April. There was no complaint from Mr Lafayeedney that the payment was £50,000 too little, and no chaser for this remaining 1/7^th of the amount identified in the agreement.

There was a letter in the bundle, apparently coming from the Claimant, dated 6 May, and addressed to CPL. The letter purported to enclose a loan agreement to CDCL. No copy of the letter, or any attached loan agreement, was found in the First Defendant’s list of documents. To the extent that it was argued that this was of no significance, because CPL had been dissolved and had not kept any documents anyway, I reject it: the evidence from Mr Lafayeedney was that CPL’s principal, Dr Vila, carefully kept the relevant records of CPL at his flat. If the letter and any attachment had been sent to CPL, it was more likely than not that the First Defendant would have been provided with a copy. Its absence from the First Defendant’s documents was therefore a strong indication that the letter was never sent and/or never received by either of the Defendants.

In any event, the letter was in precisely the same form as the letter of 6 April 2004; thus the agreement apparently being referred to was the old agreement which had been superseded by Mr Lafayeedney’s two drafts, the second of which, that of 19 April, having been executed by both sides. That again suggests that this letter, with its apparent reference to an entirely irrelevant agreement, was not sent or, if it was, was sent by mistake. Since neither this letter (nor the later reference to it in the letter of 5 July) was ever acted upon by Mr Lafayeedney or the Defendants in any event, it seems to me to be wholly irrelevant.

On 11 May 2004, Mr Fishman, who was by then acting not only for the Claimant but for CPL in relation to the purchase of the site, was sent a copy of the agreement of 19 April, in the form executed by the Claimant on 4 May. The letter was sent by Tiffany Assets who, by this time, had no continuing involvement in the project. Contrary to Mr Pymont QC’s imaginative submissions, I do not believe that there was any significance in the fact that the agreement was set by Tiffany Assets, rather than the Claimant. I am sure that that was just a further example of the somewhat cavalier approach to inter-company affairs adopted by both sides. In my judgment, much more important was the fact that, throughout this litigation, the First Defendant denied that the loan agreement executed by the Claimant on 4 May had actually been sent with this letter. However it was clear from Mr Fishman’s disclosure that the executed loan agreement was indeed sent with the letter of 11 May. Accordingly, I find as a fact that the executed agreement was sent to a solicitor who was, amongst other things, acting for CPL in respect of the purchase of the site. I return to the significance of that event at paragraph 84 below.

Between May and July 2004, there were considerable discussions between the parties to the sale of the site (and its proposed development) and their respective lawyers. It appears that, by late June, the Inland Revenue investigation into Mr Lafayeedney’s affairs, which had begun in March, was causing a degree of nervousness all round. In an email from Mr Fishman to Mr Lafayeedney at CDCL on 23 June, there is a reference to the need to give Mr Kudirka “considerable reassurance about the facts of the proposed arrangement before he is prepared to acquiesce in principle”. This can only have been a reference to the use of an off-shore vehicle as part of the proposed arrangement, since that was the only potentially complicated or unusual part of the transaction. It appears that, again because of the Inland Revenue investigation, Mr Fishman concluded in his email that “all parties are super sensitive at this time”. On 8 July, there was a meeting at which Mr Lafayeedney discussed the structure of the deal with some of the lawyers involved. The Claimant was not present at this meeting.

What is clear beyond doubt from the documents is that, by 13 July 2004, Mr Lafayeedney had restructured the deal, replacing his off-shore company, CPL, with a new vehicle, Woodgrange Road LLP (“WGLLP”). This was not an off-shore company, but a UK legal entity. A major issue arises as to why this change was made and when the Claimant knew about it. For the reasons set out below, I am in no doubt that this change was made by Mr Lafayeedney, probably as a result of the concerns triggered by the Inland Revenue investigation, and was not communicated to the Claimant until shortly before the completion of the sale to Toynbee in March 2005.

It was clear from Mr Lafayeedney’s witness statement that he was originally saying that the change from the off-shore company (CPL) to the UK entity (WGLLP) arose because Toynbee told him that they would not contract with an off-shore company. That is what paragraph 41 of his statement says in unequivocal terms. However the difficulty for Mr Lafayeedney was that there was not only no evidence to support that contention, but it was also contrary to the evidence of Mr Crawford, then the deputy development director at Toynbee, who refuted in robust terms the suggestion that Toynbee were not prepared to contract with an off-shore company.

Accordingly, in his oral evidence, Mr Lafayeedney changed tack. He maintained that his witness statement was wrong, and that he had decided to make the change from CPL to WGLLP because Mr Bramley had told him that Toynbee would not contract with an off-shore company. He had never suggested this before. He said that nobody else told him about Toynbee’s change of heart: not Mr Fishman, not any of the other lawyers involved in the transaction, and not anyone at Toynbee. He said it was just something that Mr Bramley had mentioned to him. It appears from his evidence that he did not think to check this potentially significant information with anybody at Toynbee; according to Mr Lafayeedney, he went ahead and made the change to the structure of the proposed deal on the basis of this one conversation with Mr Bramley.

I reject as completely untrue Mr Lafayeedney’s new allegation that the change from CPL to WGLLP arose as a result of Mr Bramley’s intervention. First, there is nothing in writing upon which any such assertion could be based. If such an important development had been mentioned by Mr Bramley, Mr Lafayeedney would have confirmed it in a letter or email. He did not do so. Secondly, since Mr Lafayeedney accepted that he never mentioned this development to Mr Fishman or to Toynbee, it means that Mr Lafayeedney is expecting the court to accept that this major change in the structure of the proposed deal came about without reference to anybody else, not even the proposed purchaser who had had the alleged change of heart in the first place. I cannot accept such an explanation as even remotely plausible.

On the evidence presented to me, it is far more likely that the change came about because of Mr Lafayeedney’s own concerns about the Inland Revenue investigation. That was put to him in cross examination. The only reason that he offered in denying the allegation was because, he said, the investigation had been notified in March, whilst the change from CPL to WGLLP did not happen until July. However, that is simply not an answer to the point. The investigation might have commenced in March but it would be unrealistic to conclude that Mr Lafayeedney had thought through, within a few days of its announcement, all of its potential consequences. I am sure that it would have taken some time for Mr Lafayeedney to realise the possible effects of the investigation; it was therefore entirely consistent with the fact of that investigation that, three months or so after it had started, but while it was still very much ongoing, Mr Lafayeedney concluded that it was a good idea not to use an off-shore company on this proposed deal. That would also be consistent with what I was told about Mr Kudirka’s sensitivities about the proposal to use an off-shore company.

It is also clear from the evidence that the Claimant did not discover the existence and role of WGLLP until the following year. That was the evidence of Mr Homer. In this he was supported by Mr Woolstencroft, and the contemporaneous documents. For example, there was a letter from Lincoln of 24 March 2005, which was plainly written on the basis that Lincoln had just discovered that a UK LLP was being used to sell the site on to Toynbee, rather than an off-shore company. It was not suggested that the letter was falsely seeking to create the impression that this was a new discovery. Furthermore, as Mr Lafayeedney had to accept, he never wrote back in answer to this letter to point out that, in fact, Lincoln had known for months about the use of WGLLP. I regard his explanation as to why he did not – effectively that he “could not be bothered” – as completely implausible.

Accordingly, I find that the decision to replace CPL with WGLLP was made by Mr Lafayeedney alone. It was not a change that emanated from Mr Bramley in any way. The most likely reason for the change was the Inland Revenue investigation into Mr Lafayeedney’s affairs. I also find as a fact that the Claimant did not know of the change until about a week before completion in March 2005.

I accept the evidence of Mr Homer that, in July 2004, and probably for the same reasons, Mr Lafayeedney wanted to replace the agreement of 19 April with a new agreement which made no mention of the off-shore company CPL. For the reasons stated above, I reject the First Defendant’s case that everybody was prepared to consider the possibility of a new agreement because everyone knew that CPL was being replaced by WGLLP. Mr Lafayeedney made no mention of WGLLP in any document between July 2004 and March 2005, and none of the draft revised agreements prepared by the Claimant make any reference to WGLLP either. It is difficult not to conclude that Mr Lafayeedney deliberately kept the change from Mr Bramley because he guessed the hostile reaction that it would cause. Mr Lafayeedney could easily have re-drafted the agreement with an express reference to WGLLP, and sent it to the Claimant for Mr Bramley’s comments. He did nothing of the sort.

However, I also find that, because he knew that Mr Lafayeedney wanted a revised contract, Mr Bramley thought that it might be possible for any new loan agreement to reflect the more generous remuneration identified in the Claimant’s original draft of 6 April (in other words, the minimum entitlement of £750,000 plus 50% of the excess profit). Mr Bramley was therefore happy to agree to a new loan agreement, to replace that of 19 April, with CPL removed but also with the remuneration package amended in his favour.

There was an attendance note of 14 July 2004, prepared by the Claimant’s administrative assistant Samantha Hill, which seemed to indicate this possibility that a new agreement might replace the existing agreement. I consider that this comtemporaneous note clearly demonstrated that, on the Claimant’s side at least, those involved considered that there was an existing agreement, although they were prepared to consider entering into a new arrangement which would supersede it.

Accordingly, on 21 July 2004, two copies of a revised loan agreement between the Claimant and CDCL were sent out by the Claimant to Mr Lafayeedney. It referred to the existing Loan Agreement “that has now been superseded”. The document that was sent was, effectively, in the same terms as the proposed agreement originally sent out by the Claimant to CDCL on 6 April.

No revised loan agreement was ever signed. For that reason, the Claimant relies in these proceedings on the executed agreement of 19 April. I understand it to be the First Defendant’s case that the letter of 21 July terminated the executed agreement (if that agreement was binding in law) and there was never anything that took its place. I deal with that argument in greater detail at Section E below.

It would be unnecessarily wearisome to set out all of the correspondence, largely from the Claimant to Mr Lafayeedney, during the period from August 2004 to May 2005. In general terms, what was happening was that the Claimant was sending Mr Lafayeedney further copies of the proposed loan agreement of 21 July and/or chasing him to sign up to it. Although he did not sign it, he did not write back to complain about the chasing correspondence; indeed on 26 October, Mr Lafayeedney wrote to say that he would revert with an agreement for signature. He never in fact signed the new agreement. Notwithstanding this, in September, the remaining £50,000 on the loan was paid by the Claimant to the Defendants, into the same bank account as before.

On 23 September 2004, Mr Lafayeedney terminated the engagement of Mr Fishman, making a number of complaints about his non-performance in a letter. In his written and oral evidence, Mr Fishman explained that he had found Mr Lafayeedney very difficult to work for because of his repeated changes of mind.

In March 2005, the sale of the site went through from WGLLP to Toynbee. It appears that Mr Lafayeedney asked for the relevant bank account details of the Claimant and those were sent to him on 21 March. The following day, DVL paid £350,000 into that account. On 7 April 2005, Mr Lafayeedney, on DVL notepaper, informed Ms Hogetoorn of Lincoln that it was DVL and WGLLP who were directly involved in the purchase and sale of the property. As noted above, I find that this was the first time that Mr Lafayeedney had formally provided this information to the Claimant.

There were still further requests by the Claimant for Mr Lafayeedney to sign the new agreement first proposed on 21 July 2004. He did not do so although, on 11 April, in an otherwise bad-tempered letter referring to “mischief” and “fraud” on the part of the Claimant, Mr Lafayeedney said that he would consider signing the new loan agreement “once we have taken proper tax advice”.

On 14 April 2005, the Claimant made their claim in writing for 50% of the profit realised on the sale of the site to Toynbee. That letter was based entirely upon the agreement of 19 April 2004 which had been executed by the Claimant on 4 May 2004. Mr Lafayeedney did not bother to respond to the letter, wrongly telling me in evidence that the letter was seeking his agreement to pay the Claimant £750,000 plus 50% of the profit. It was not. There was then further correspondence between the solicitors, and, in May 2005, these proceedings were commenced.

WAS THERE A BINDING CONTRACT BETWEEN THE PARTIES?

The principal issue between the parties is whether or not there was ever, at any stage, a binding contract between them. This dispute breaks down into a number of sub-issues as follows:

I deal with each of those issues below, identifying in each case any relevant principles, before going on to apply those principles to the facts that I have found.

It was the Claimant’s primary case in opening that the document that Mr Lafayeedney sent to the Claimant on 19 April 2004 did nothing more than record a pre-existing agreement between them. The Claimant therefore invited me to find that there was a binding contract between the parties, reached orally prior to 19 April 2004, which was simply confirmed in writing by the document sent out that day by Mr Lafayeedney.

I have found that, in November 2003, Mr Lafayeedney and Mr Bramley reached a broad understanding of the way in which they would work together on this project. They talked about a loan from a company controlled by Mr Bramley of £300,000 - £400,000, and they talked about a 50/50 share of the net profit. However, it is clear that both men anticipated that, at some stage, the agreement that they had reached on these broad principles would need to be formalised. Accordingly, whilst the discussion at the meeting in November 2003 was an important first step in the agreement reached between the parties, it could not be categorised as a binding contract. For one thing, I could not find that, at that stage, there was any intention on either side to create legal relations in November 2003.

In any event, as at November 2003, there were at least two important matters which had not yet been finalised. One was the amount of the loan: the two men had talked in general terms of a sum between £300,000 and £400,000. But, in order for there to be an enforceable agreement, there had to be an agreement as to a specific sum. The amount of the loan remained unclear for some time. In the first document sent out by the Claimant on 6 April 2004, the amount identified was £300,000. It was not until the agreement of 19 April 2004 that the higher sum of £350,000 was identified. On that ground alone it seems to me impossible to say that the agreement of 19 April 2004 reflected an agreement already reached.

The other difficulty, of course, was the identification of the relevant parties to the agreement. Whilst Mr Bramley and Mr Lafayeedney were both somewhat cavalier as to which company vehicles they used and for what purposes, neither man could say that, at the meeting in November 2003, they had identified the companies that they were going to use for this proposal. Accordingly, as at November 2003, there could not be any agreement between the relevant parties, because those relevant parties, which were going to be the company vehicles on both sides, had not even been identified. The first time that the relevant companies were identified was in March/early April 2004. There could therefore be no agreement prior to that time.

There was no evidence of any discussions or telephone conversations between Mr Lafayeedney and Mr Bramley between November 2003 and April 2004. Accordingly, if – as was clearly the case - there was no binding agreement between the parties in November 2003, there was equally no binding agreement between them at the start of April 2004. Thereafter, the negotiations were effectively conducted on the documents. The Claimant made its first offer on 6 April 2004 by sending the first draft. Mr Lafayeedney made a counter offer later that same day in the terms of his redraft. By 19 April 2004 neither side had accepted the other’s draft proposals. On that day, Mr Lafayeedney sent a new proposal which, although very similar to the one that he had sent at the end of 6 April 2004, this time identified the figure of £350,000. He then waited to see if that offer was acceptable.

Accordingly, on the analysis set out above, it seems to me clear that there was no binding agreement between the parties prior to 19 April 2004. Equally, it must follow that the proposed draft sent out by Mr Lafayeedney on 19 April 2004 remained just that: a proposal, which the Claimant could either accept or reject. It was not a record of a pre-existing agreement. All that said, it does seem to me to be relevant that, from November 2003 onwards, the parties had reached a broad understanding of what each was promising to do. They were keen to contract with one another. It seems to me that I must bear that in mind when considering the later arguments as to the alleged absence of an intention to create legal relations.

An offer of a unilateral contract is made when one party promises to pay the other a sum of money, or do something or to forbear from doing something, if the other party will do, or forbear from doing, something else, but without making any promise to that effect. The classic example of such a contract is where A promised to pay B £100 if B will walk from London to York: see Rogers v Snow [1573] Dalison 94. Another authority often cited in this context is Great Northern Railway v Witham [1873] L.R. 9 C.P. 16. The contract in these cases was described as unilateral because B had not made any counter-promise to perform the stipulated act or forbearance.

If a contract is a unilateral contract, the offer can be accepted by fully performing the required act or forbearance: see, for example, Harvela Investments Ltd v Royal Trust of Canada (CI) Ltd [1986] AC 207. In addition, there is no need to give advance notice of any such acceptance to the offeror: see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. Furthermore, in the case of a unilateral contract, it is probable that an offer can only be accepted by performance, and not by a counter-promise: see Chitty on Contracts, 29^th Edition, Volume 1, para 2-076.

It is difficult not to conclude that Mr Peacock was arguing for a unilateral contract in the present case because there was a dispute as to whether or not the Claimant’s acceptance of the offer was ever communicated to the Defendants, and a unilateral contract provided the Claimant with a way round that particular difficulty. Perhaps that view has led me to be unduly sceptical of this argument, but I doubt that this was a true unilateral contract. It seems to me that the offer set out in the documents of 19 April 2004 was a relatively standard loan agreement by which the Claimant was going to loan the First Defendant money and, in return, the Defendants were going to repay both the loan and other monies, namely 50% of the net profits. There were, therefore, promises and obligations on both sides. I do not consider that, on my analysis of the events and the document of 19 April 2004, it could easily be said that this was a unilateral contract.

Furthermore, I consider that the document of 19 April 2004 was an offer by Mr Lafayeedney, on behalf of CPL and DVL, which expressly sought a response. That, again, makes it more akin to an offer in a bilateral contract than a unilateral contract. There is also the potential difficulty, which only arises if this was intended to be a unilateral, rather than a bilateral, contract, that there was only part-performance, because not all the £350,000 was paid at the outset.

For those reasons, therefore, I do not accept Mr Peacock’s submission that this was a unilateral contract. However, this conclusion might be regarded as academic, because I accept the Claimant’s case that there was a binding bilateral contract (Section C4 below) and/or a contract concluded by performance (Section C6 below).

The general rule is that an acceptance of an offer has no legal effect until it is communicated to the offeror: see, for example, Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 155. There are a number of authorities in which it has been held that no binding contract came into existence because the acceptance was never communicated or was communicated only to the acceptor’s own agent: Kennedy v Thomassen [1929] 1 Ch. 426. The main reason for the rule is obvious: it could cause hardship to the offeror to be bound by the terms of his offer if he did not know that that offer had been accepted. Because of this rule, it therefore follows that, provided the offeror learns of the acceptance, there will be a contract, even though it was not the offeree who informed him of the acceptance: see, for example, Bloxham’s Case [1864] 33 Beav. 529.

Communication of the acceptance will usually involve bringing the fact of the acceptance to the offeror’s attention. However, communication of the acceptance may be satisfied even in circumstances where the acceptance has not actually come to the notice of the offeror: see, for example, the discussion in Minories Finance Ltd v Afribank Nigeria Ltd [1995] 1 Lloyd’s Rep 134.

I am in no doubt that the Claimant’s acceptance of the Defendants’ offer, encapsulated in the document of 19 April 2004, was communicated to and well understood by Mr Lafayeedney and the two Defendant companies. My reasons for that view are set out below.

The principal reason for my conclusion that the acceptance of the offer was communicated to Mr Lafayeedney was the simple fact that on 5 May 2004, the Claimant company paid the sum of £300,000 into the bank account of DVL, which had been identified for that very purpose in the letter from CPL to the Claimant of 19 April 2004. In other words, the Claimant company had done precisely what CPL and DVL had asked them to do if they accepted the offer of 19 April 2004: they had paid the money into the designated account. Thus the payment of the £300,000 constituted the clearest possible communication to the Defendants that their offer of 19 April had been accepted. Furthermore, I consider that communication of the acceptance in this form was confirmed by the oral evidence of Mr Lafayeedney himself: see paragraph 105 below.

It is worth considering the consequences of the First Defendant’s submission that the actual payment of this money was irrelevant to the contractual position between the parties. It would mean ignoring the evidence of Mr Lafayeedney, who linked his 19 April proposal to “the next thing we knew”, namely the payment of the £300,000: see paragraph 105 below. It would mean accepting the proposition that the Defendants were entitled to receive and use the £300,000 without at any time asking themselves whether it meant that their offer of 19 April 2004 had been accepted. And it would also mean accepting the argument that the Defendants were justified in assuming that a substantial sum had been paid out (through a trust company like Lincoln) without there being any sort of agreement in place as to the terms of its repayment. I am bound to say that I consider such propositions to be entirely unrealistic. The money was paid by the Claimant in the way that had been requested by DVL and CPL if their offer of 19 April was accepted by the Claimant. The only credible inference to be drawn is that, by making this payment, the Claimant company was communicating to the Defendants, in the most practical way possible, its acceptance of the offer of 19 April 2004. I also find that that was exactly how the payment of this money was treated by Mr Lafayeedney.

The point was taken by Mr Pymont QC that it was only £300,000, and not £350,000, that was originally paid in May. It was therefore suggested that this was not a valid communication of an acceptance of the offer of 19 April, since that had sought £350,000. I do not accept the proposition that, because the sum of £50,000 remained to be paid, that had an effect on the validity of the communication of the Claimant’s acceptance of the offer: the payment of a substantial proportion of the loan was, in my judgment, sufficient to comprise valid communication of the Claimant’s acceptance of the offer. In any event, if there had been any doubt on the part of the Defendants as to whether or not their offer of 19 April had been accepted, they could have immediately raised the question of the missing £50,000. They did not do so. Furthermore, had there been any remaining doubt about it, any such doubt would have been removed by September 2004, when the remaining £50,000 was paid. Therefore there is nothing whatsoever in the point that, because the £350,000 was paid in two stages, such payment was not a communication of acceptance.

In addition to the payment of the £300,000 on 5 May 2004, there were other events that I consider made it plain that the Claimant had accepted the offer of 19 April 2004. For example, the executed loan agreement was sent on 11 May to Mr Fishman, who was acting for CPL in respect of the purchase of the property. Mr Lafayeedney complained that Mr Fishman was not acting for CPL in respect of the loan arrangements and that therefore this did not constitute a communication with his agent. The Claimant accepts that Mr Fishman was not CPL’s agent for this specific purpose and that this could not, on its own, amount to proper communication. However I do accept Mr Peacock’s point that if, as the First Defendant maintains, the Claimant was deliberately keeping secret its execution of the 19 April document, the sending of it in its executed form to someone who was, amongst other things, an agent of CPL, was wholly inconsistent with such a scheme. Accordingly, I consider that, even if it did not constitute communication of acceptance as a matter of law, the letter to Mr Fishman of 11 May constituted clear evidence that the Claimant had accepted the offer and was acting openly on the basis of such an acceptance.

Two months later, in July 2004, there were attempts on both sides to renegotiate. I deal with those attempts in detail in Section E below. However, for present purposes, the important point to note is that, when the letter of 21 July talked about the possibility of revising the loan agreement, it referred to “the Loan Agreement that has now been superseded”. I accept Mr Peacock’s submission that that was plainly a reference to the existing Loan Agreement, which in turn could only mean the document of 19 April, executed by the Claimant on 4 May 2004. Again, therefore, it seems to me that (if it was necessary) this letter also constituted communication of the Claimant’s acceptance of that offer.

On behalf of the First Defendant, Mr Pymont QC argued that the Claimant actively withheld the information that it had executed the agreement of 19 April, and publicly indicated that it did not accept such terms. In support of this argument, he relied on the 6 May letter and its chaser of 5 July (paragraphs 44 and 45 above) and the attendance note of 14 July and the subsequent letter of 21 July (paragraphs 57, 58 and 85 above).

I do not consider that any of these documents support the proposition that the Claimant either rejected the terms of the document of 19 April, or withheld the fact that they had executed that document. For the reasons which I have already explained, the letter of 6 May was either not sent or not received by the Defendants, and was in any event drafted in error. Even if it was received by CPL, it made no difference to the Defendants at all, who did not act on it or even bother to reply. In addition, I consider that the July documents are only consistent with the Claimant’s clear acceptance of the document of 19 April.

For all these reasons, therefore, it seems to me that the Claimant’s acceptance of the document of 19 April 2004 was communicated to the Defendants. Thus, subject to any point about a lack of intention on the part of the Claimant to create legal relations, it is clear that there was a contract between the parties in the terms of the document sent on 19 April, and executed by the Claimant on 4 May 2004.

Principles

It appears that at least part of the First Defendant’s case comprises an argument that the Claimant deliberately withheld the executed version of the loan agreement in May 2004, because the Claimant did not intend to create legal relations in the form of 19 April document. It is of course trite law that, in order for there to be a binding contract between two parties, there needs to be an intention on both sides to create legal relations: see Edwards v Skyways Ltd [1964] 1 W.L.R. 349. In cases where there is a written agreement, there is a clear presumption that both sides did indeed intend to create a legal relationship.

Application To The Present Case

I reject the submission that, on the evidence, the Claimant did not intend to create legal relations in the form of the 19 April 2004 document. Indeed, I believe that all the evidence is contrary to such a submission. First, there was always a general intention in this case to create a legal relationship: see paragraph 72 above. Secondly, the Claimant company executed the relevant document on 4 May 2004. Thirdly, they sent a copy of that executed document to Mr Fishman, a solicitor who was acting on behalf of the Second Defendant, CPL. It would have been absurd, if the Claimant really was working to some agenda of its own, pursuant to which they wanted to keep their execution of the document secret so that they could negotiate a different agreement, for the Claimant to send a copy of that executed contract to an agent of the Defendants.

Perhaps most telling of all, on 5 May 2004, the day after the Claimant executed the contract, the Claimant sent £300,000 to DVL’s bank account. It seems to me that was the clearest possible evidence that the Claimant both intended to create, and had created, legal relations with the Defendants by executing the document of 19 April 2004, and paying a substantial sum into the bank account designated by the Defendants. No other explanation of the payment makes any sense.

I do accept Mr Pymont QC’s submission that, thereafter, there came a time when Mr Bramley was endeavouring to renegotiate the terms on which the loan had been made, and was thereby seeking to improve the Claimant’s commercial position. I deal with that in greater detail in Section E below. However, it seems plain to me that those events all occurred against the backdrop of an existing and binding legal agreement in the form of the document of 19 April. The desire (on both sides) to renegotiate did not mean that the contract which had been agreed, and pursuant to which the loan had been made, was somehow not binding in law. On the contrary, it seems to me that it was binding and remained so unless and until it was varied by agreement.

For those reasons, therefore, I conclude that there was an intention on the part of the Claimant to create legal relations when on 4 May 2004 it executed its copies of the document of 19 April.

Principles

On behalf of the Claimant, Mr Peacock adopts an alternative case, to the effect that, since the £350,000 was advanced by the Claimant, the contract was performed and it would therefore now be absurd for the First Defendant to argue that there was no contract. In support of that case Mr Peacock relies on two authorities, one for the general principle and one which he says is of particular applicability.

The general principle was that outlined by the Court of Appeal in G Percy Trentham Ltd v Archital Luxfer Ltd and Others [1993] Lloyd’s LR 25. In that case, there was an argument about whether or not there was a binding sub-contract, despite the fact that the work in question had all been performed. Steyn LJ, as he then was, held that there was a binding sub-contract. He identified four principles of English law concerned with contract formation. The first emphasised the objective theory of contract formation, and the fact that, in a case like this, the governing criteria were the reasonable expectations of sensible businessmen. The second was that, whilst the coincidence of offer and acceptance will usually represent the mechanism of contract formation, it was not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance.

The third principle referred to by Steyn LJ, much cited in the text books, concerned the impact of the fact that the transaction was executed rather than executory. He said:

“The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often be difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty or, alternatively, it may make it possible to treat a matter not finalised as inessential.”

Steyn LJ’s fourth and final point was to the affect that, where a contract comes into existence as a result of performance, it will frequently be possible to hold that the contract impliedly and retrospectively covered pre-contractual performance.

The other authority relied on by Mr Peacock was itself referred to in the judgment of Steyn LJ. It is the Victorian case of Brogden v Metropolitan Railway Company [1877] 2 App Cas 666. In that case, the parties wished to make a contract relating to the supply of coal. A draft contract was supplied by the railway company to the supplier once the important details were agreed. The draft was returned to the railway company by the supplier with some minor additions and the proposed name of an arbitrator. The coal was then supplied and paid for on the basis set out in that draft contract but the railway company omitted to complete the necessary formalities and the draft stayed (uncompleted) in a drawer at their offices.

The Lord Chancellor, Lord Cairns, analysed these facts carefully and asked himself how the later conduct of the parties – in which the coal was supplied and paid for at the prices agreed in the draft contract – could be accounted for. He concluded:

“But, my Lords, over and above that, I must say that having read with great care the whole of this correspondence, there appears to me clearly to be pervading the whole of it the expression of a feeling on the one side and on the other that those who were ordering the coals were ordering them, and those who were supplying the coals was supplying them, under some course of dealing which created on the one side a right to give the order, and on the other an obligation to comply with the order.”

Accordingly, he concluded, like Steyn LJ over a century later, that there was a contract between the parties and the rights and obligations of the parties had to be considered as if the unexecuted draft had been completed.

Application To The Present Case

As a result of these authorities, Mr Peacock argued on behalf of the Claimant that if, contrary to my conclusions set out in paragraphs 80 – 88 above, the Claimant’s acceptance of the Defendants’ proposals of 19 April 2004 had not been communicated to the Defendants, then I should find that a contract with the same terms should be implied as a result of the Claimant’s performance of it. He submitted that, since the Claimant performed its obligations pursuant to the agreement of 19 April 2004 and loaned the £350,000, it would be contrary to business common sense now to conclude that there was no contract in those terms. In answer to that, Mr Pymont QC submitted that this was not an implied contract case; that Trentham and Brogden were not similar to the present case, because, on his analysis, we are here concerned with a specific proposal which was never agreed and never became a contract.

I accept the submission that this is a slightly different case to Trentham, because we are here concerned with a specific agreement which (on the facts assumed for this alternate case) was not formally concluded. However, it seems to me that that then makes the present case very similar to Brogden, which was also a case about a very specific agreement, in accordance with which the parties performed their respective obligations, even though that agreement was never formally executed. It seems to me that there is no difference in principle between the situation in Brogden, where a draft existed but had not been formally completed by the railway company, and the present case, where the agreement had been executed by all sides but where, if this alternative argument is correct, its acceptance by the Claimant had not been communicated to the Defendants.

On the basis of Trentham and Brogden, therefore, I have no hesitation in concluding that, if I am wrong in finding that the Claimant’s acceptance of the April documents was communicated to the Defendants in May or thereafter, it ultimately makes no difference, and that an implied contract (in the same terms as the executed version) existed in this case, in the terms of the 19 April proposal. That is because the contract, in the form of the 19 April 2004 document, was performed and the £350,000 was loaned by the Claimant to the First Defendant.

Mr Pymont QC sought to distinguish both Trentham and Brogden on the grounds that, in those cases, the parties acted in accordance with the alleged agreement, whilst in this case, he said, the Claimant had actually rejected the 19 April document. I have dealt with that argument at paragraphs 86 and 87 above. In my judgment, the Claimant accepted the 19 April document. They did not reject it. If (contrary to my view) that acceptance was not communicated to the Defendants, the parties nontheless acted in accordance with the 19 April document, and a contract should be implied in accordance with the principles set out in Trentham and Brogden.

Furthermore, there is another, separate reason why I have no hesitation in finding that there was a contract between the parties in the form of the 19 April 2004 document. That is because, at the trial, that was the effect of both parties’ evidence. It was obviously the Claimant’s case: it is what they had always maintained in these proceedings. But it was also Mr Lafayeedney’s evidence too.

Early on in his cross-examination on 8 June 2006, Mr Lafayeedney said:

“The agreement was that they would pay £350,000 and they would get 50% of the net profits of the transaction. We sent off the agreement signed and the next thing we knew was that £300,000 was transferred to DVL’s account.”

As I have already found (paragraphs 81 and 82 above), this was a clear admission that the payment was treated by the Defendants as an acceptance of their offer of 19 April. But in any event, it is evidence that supports the contention that a contract should be implied, because it was performed. Later on in his cross-examination, on the morning of 9 June 2006, Mr Lafayeedney said:

“As far as we were concerned, Intense were entitled to 50 % of the net profit ... they were entitled to get back their money and 50% of the net profits.”

Accordingly, by the time he came to give evidence (if not before) Mr Lafayeedney’s position had changed from the uncompromising stance set out in his pleadings, and in his written witness statement. In cross-examination, he apparently accepted that the Claimant was entitled to the repayment of the loan and 50% of the net profits. The only basis for such an entitlement in law can be the executed agreement of 19 April 2004. Accordingly, if, contrary to my finding, there was some technical reason why there was no contract between the parties (because, for instance, the acceptance was not communicated to the Defendants) I find that, as a result of the performance of the obligation, and all of the evidence that I heard, there can be no doubt that there was a binding agreement between these parties, pursuant to which the Claimant would loan £350,000 to the First Defendant, and the Defendants (and/or WGLLP: see below) would repay that loan and also pay 50% of the net profit on the sale of the site to Toynbee in 2005.

As part of his opening submissions, Mr Peacock maintained that, if I found that there was no binding contract between the parties (because, for example, there was no communication of an acceptance by the Claimant to the Defendants) then, in the alternative, the First Defendant was estopped from disputing the existence of the binding contract. Of course, it follows that, because I have found that there was a binding contract, it is not strictly necessary for me to deal with this issue at all. In any event, in closing, Mr Peacock appeared rather less enthusiastic about his estoppel argument. However, given that it was the subject of some argument by both sides, it seems to me appropriate to set out my brief views on this subject below.

I should also say that, in his opening submissions, Mr Peacock was careful to put the estoppel argument by way of an estoppel by representation. I note that those authorities that deal with this area are, in the main, concerned with estoppel by convention. I therefore deal with both of these potential ways in which it might be said that the estoppel arises.

As far as I can tell, there are two reported authorities, both construction cases, in which the court indicated that an estoppel by convention had been established in circumstances such as these. However, in Mitsui Babcock Energy Ltd v John Brown Engineering Ltd [1996] 51 Con. L.R. 129 the relevant remarks by His Honour Judge Esyr Lewis QC were entirely obiter, since the learned Judge had already found that a binding contract had been made between the parties. In the other case, Russell Brothers (Paddington) Ltd v John Lelliott Management Ltd [1995] 11 Const. L.J. 377, His Honour James Fox-Andrews QC decided that the point was irrelevant because a cause of action could not be founded upon an estoppel by convention.

With respect to both of these decisions, I am bound to say that I struggle to understand an argument which is based on the premise that there was no agreed contract between the parties, and yet maintains that, notwithstanding that, one party should be estopped from denying that there was such an agreement. In this regard, I respectfully agree with the judgment of Mance LJ in Baird Textile Holdings Ltd v Marks and Spencer Plc [2001] EWCA Civ 274 in which, at paragraph 94, he said:

“As I have already said, the fact that there was never any agreement to reach or even to set out the essential principles which might govern any legally binding long-term relationship indicates that neither party can here objectively be taken to have intended to make any legally binding commitment of a long-term nature, and the law should not be ready to seek to fetter business relationships with its own view of what might represent appropriate business conduct, when parties have not chosen, or have not been willing or able, to do so in any identifiable legal terms themselves. These considerations, in my judgment, also make it wrong to afford relief based on estoppel, including relief limited to reliance loss, in the present context.”

Perhaps the case closest to the present dispute on estoppel is the decision of His Honour Judge Richard Seymour QC in Tesco Stores Ltd v Costain Construction Ltd and Others (Footnote: ²) [2003] EWHC 1487 (TCC). In that case, the Judge concluded that there was no contract between Tesco and Costain because, although the parties intended formally to execute such a contract, that essential step was never taken. Costain sought to argue, in the alternative, an estoppel case. At paragraph 191 of his judgment, Judge Seymour said:

“…there is, as it seems to me, an obvious conceptual problem to be faced in relation to a submission that a party is estopped by convention from denying the existence of a contract which a fortiori has not actually been made. That is that it is plain from the authorities to which I have been referred that the essence of an estoppel by convention, if it is to exist, is an agreement between the relevant parties as to the state of affairs upon the assumption as to which they will conduct their dealings. At the same time it is fundamental to the making of a contract in English law that the parties to it should have reached agreement, quite apart from the necessity for other elements, such as consideration, in a binding contract. If the parties are actually agreed that there exists a binding contract between them, then the correct conclusion as a matter of law would seem to be that they have made the contract which they are agreed that they have made. If, for whatever reason, the correct conclusion in a particular case is the parties have not made a binding contract - and unless that is the conclusion the issue of whether there was an estoppel by convention in relation to a contract cannot arise - then it is logically impossible to see how there could nonetheless be agreement between them sufficient to give rise to an estoppel by convention that they have made the contract which actually they have not made.”

As noted above, Mr Peacock puts his estoppel argument as an estoppel by representation. He relies on the Court of Appeal decision in Spiro v Lintern [1973] 1 W.L.R. 1002. The dispute in that case concerned the sale of a property by the Defendant’s wife in circumstances where the property was owned entirely by the Defendant himself. The purchaser later sought specific performance of the contract. The Court of Appeal concluded that, because the Defendant knew that the purchaser was acting in the mistaken belief that his wife had his authority to sell the house, the Defendant was under a duty to disclose to the purchaser that this was not the case and his failure to do so amounted to a representation by conduct that his wife had his authority. Buckley LJ said:

“On similar grounds, in our judgment, if A sees B acting in the mistaken belief that A is under some binding obligation to him and in a manner consistent only with the existence of such an obligation, which would be to B’s disadvantage if A were thereafter to deny the obligation, A is under a duty to B to disclose the non-existence of the supposed obligation... to found an estoppel it is not necessary that the representation relied on should be false to the knowledge of the representor, provided that the representor acts in such a way that a reasonable man would take the representation to be true and believe that he was intended to act upon it.”

To the extent that the Claimant’s estoppel argument in the present case is put by reference to an estoppel by convention, I reject it for the reasons set out in paragraphs 110 - 111 above. It sees to me that if – contrary to my conclusion - there was no binding contract between the parties, then it was because, for whatever reason, the parties had not intended to create legal relations or had not taken all the necessary steps in order for a contract to come into existence between them. It seem to me that, following the line of reasoning in Baird, and Tesco, if there was no agreement between the parties in order to found a contract, there was also no agreement in order to found an estoppel by convention. I therefore reject the case on estoppel by convention.

As to the submission of estoppel by representation, I have concluded that, although the position is perhaps less clear-cut as a matter of principle, such an estoppel by representation probably did not arise on the facts of the present case. First, I do not consider that there was here any clear representation, of the sort that was found to exist in Spiro, which could lead to such a conclusion, and it is likewise difficult to identify any specific reliance. Thirdly, to the extent that this estoppel argument relies on the fact that £350,000 was loaned by the Claimant to the First Defendant without demur or objection by the Defendants, it seems to me that this aspect of the factual evidence is much more supportive of the argument (which I have found to be correct) that there was a contract in the present case because it was performed, rather than an argument of estoppel. I suspect that, by the end of the trial, Mr Peacock had reached the same view.

For these reasons, I do not accept that this is a case where an estoppel could be said to have arisen. However, given my conclusion that, on two separate bases, there was a binding contract between the parties, my rejection of the Claimant’s alternative case on estoppel is of no real account.

The First Defendant maintained that if, which I have found, there was a binding contract between the parties, that contract was terminated by agreement on 21 July 2004. The First Defendant maintained that no new agreement ever replaced the (terminated) agreement of 19 April 2004 and that, in consequence, there was no binding agreement between the parties. It was clear that this argument was based entirely upon the letter of 21 July 2004 from the Claimant to the Mr Lafayeedney. I ought therefore to set that letter in full. It read as follows:

“LOAN AGREEMENT

Please find enclosed herewith two revised Loan Agreements in respect of the Company’s proposed Loan to Cleveland Development Company Limited in the sum of £300,000 (three hundred thousand pounds sterling only) to assist with the acquisition of 116/122 Woodgrange Road, Forest Gate, London, E7.

We also attach the signatory page of the Loan Agreement that has now been superseded, for your file.

We should be grateful if you kindly review the Terms of the Loan and arrange for the Agreement to be execute(d) on behalf of Cleveland Development Company Ltd and forward it back to this office for our further execution.

We look forward to hearing from you.”

As a matter of principle, of course, a contract can be rescinded by agreement between the parties: see Chitty on Contracts, 29^th Edition, Volume 1, para 22-025. However, as the authorities cited there make clear, rescission in such circumstances depends upon the consent of both parties, to be gathered from their words or conduct, and not upon the intimation by one of them that he does not intend to be bound by the agreement in question: see, for example, Rose & Frank Co v JR Crompton & Bros Ltd [1925] A.C. 445.

Mr Pymont QC argued that, because the letter of 21 July enclosed two revised Loan Agreements, which the Claimant wanted Mr Lafayeedney to review and to execute of behalf of CDCL, and because it referred to the Loan Agreement “that has now been superseded” it was clear that, even if the contract of 19 April 2004 had been agreed, it was terminated as a result of this letter.

I do not accept that submission. In my judgment, it is based on an overly-literal interpretation of the words used in the letter. This was a letter written by a company secretary; it was not a will or a lease. Furthermore, from a straightforward commercial perspective, I consider that the meaning of the letter was quite clear. The Claimant was making a proposal along the lines of its original offer of 6 April, which gave it a minimum entitlement of £750,000 plus a share of the profits. The letter of 21 July enclosed a further copy of that 6 April document. It was also clear from the letter that, on the assumption that Mr Lafayeedney entered into a new contract on the basis of this offer, the existing loan agreement of 19 April 2004, executed on 4 May, had been superseded. But I consider that it is impossible to read the second paragraph of that letter as reflecting a position whereby the existing loan agreement of 19 April had already been superseded, whether or not a new agreement was reached in the terms of the draft proposal. There are two particular reasons for my conclusion.

First, I do not believe that that is a sensible interpretation of the words used. The first paragraph is making a new proposal. The third paragraph is asking Mr Lafayeedney to review and accept that new proposal. The middle paragraph is referring to the existing loan agreement on the basis that it has been superseded. I find that that obviously meant that, on the assumption that the new offer was accepted, the existing agreement was thereby superseded. It does not, I believe, mean that the existing agreement had been superseded, whether or not a new agreement was put in its place.

Secondly, I consider that the interpretation contended for by the Firsrt Defendant makes no commercial sense whatsoever. It would mean, in effect, that the Claimant was quite happy to loan £300,000 on the basis of a clear and binding legal agreement, and then agree to terminate that contract in exchange for the mere possibility that the Defendants might accept an agreement on different terms. What is more, the First Defendant’s interpretation means that, not only would the Claimant have been prepared to give up a binding document for the prospect of mere negotiation in the future, but such an unlikely course would have been taken at a time when the £300,000 had already been loaned. It seems to me to be absurd to suggest that the Claimant had agreed to abandon the certainty of the terms on which it had loaned the £300,000, in the hope that some different terms might be agreed in the future.

I should make three further points about the alleged termination argument, all of which confirm my view that the agreement was not terminated. First, any termination/rescission of this kind cannot be unilateral: it must be by agreement. Yet, even on the First Defendant’s case, there was no evidence of any such agreement. There was no evidence that Mr Lafayeedney and Mr Bramley even discussed the possibility of termination, let alone reached an agreement to that effect. Even if the First Defendant was right about its interpretation of the letter of 21 July, the most it could be in law was an offer by the Claimant to terminate the existing contract. There was no evidence whatsoever that Mr Lafayeedney accepted any such offer. Accordingly, I am entirely satisfied that there was no rescission in the present case, because there was no agreement to rescind.

Secondly, Mr Pymont QC relied on the attendance note of 14 July as indicating that the executed agreement had already been superseded. In fact, for the reasons set out at paragraph 57 above, I consider that the attendance note demonstrated that the Claimant was prepared to agree to a revised agreement, but that the existing agreement remained in force until the revised agreement was accepted.

Thirdly, Mr Pymont QC argued that the decision only to send the signatory page of the executed agreement with the letter of 21 July was deliberate, and demonstrated that the Claimant wanted to keep secret the remainder of the document. I am bound to say that I did not understand that submission. In any event, the argument that the Claimant wanted to keep secret the fact that it had executed the document of 19 April foundered completely on the incontrovertible evidence that a copy of it had been sent to Mr Fishman on 11 May: see paragraphs 84 and 90 above.

For those reasons, I reject the submission that the letter of 21 July 2004 evidenced the termination of the contract made between the parties in the terms drafted by Mr Lafayeedney, sent on 19 April 2004, and executed by the Claimant on 4 May 2004. As I have said, the First Defendant’s case on termination centred upon the letter of 21 July. There was nothing in the evidence to suggest that the alleged termination had been discussed orally between the parties, let alone agreed. Thus my conclusions on the letter of 21 July 2004 are essentially the end of the termination case. However, given the detailed exploration of certain other matters in the evidence, relating to these events, it is right that I set out my views on that evidence below.

The question arose repeatedly: why was the Claimant even suggesting replacing the existing agreement with a different agreement in different terms? A subsidiary issue concerned the conduct of Mr Lafayeedney. Was he happy with the agreement of 19 April or did he too for his own reasons, want the terms to be changed?

In my judgment, on the evidence, it is plain that by July 2004, both sides had their own reasons for wanting to change the terms of the agreement that they had previously reached. For the reasons which I have explained, I find that, by June/July 2004, Mr Lafayeedney was concerned about the Inland Revenue investigation into his affairs. I accept the evidence that, as a result of that, the proposed deal with Toynbee was regarded by all as “super-sensitive” and that this caused Mr Lafayeedney to review the proposed structure of the deal and, eventually, to cut out the involvement of his off-shore company. As a result he asked the Claimant to agree to change the terms of the existing agreement so that there was no longer any involvement of CPL. Mr Bramley was not happy to deal solely with DVL and therefore wanted the agreement to be with the company for whom he used to work, CDCL. That explains the changes to the company name in the draft agreement sent on 21 July 2004, which was sent on further occasions thereafter. I find that at no time were WGLLP even mentioned to Mr Bramley or the Claimant: see paragraph 55 above.

However, I also accept Mr Lafayeedney’s evidence that, by July 2004, Mr Bramley took advantage of this position to endeavour to renegotiate the terms of the loan and, in particular, the basis of the Claimant’s remuneration. That is borne out by the documents. It seems to me plain that, once Mr Lafayeedney had indicated that he wanted to change the agreement to cut out the references to CPL, Mr Bramley spotted the opportunity of improving the deal from the Claimant’s perspective. Mr Bramley had always considered that this project was “his”. He had always hoped to recover at least £750,000 out of the deal, which was half the money due under the introduction contract referred to by Mr Lafayeedney in his letter to Toynbee of 4 December 2003. The fact that Mr Lafayeedney wanted to agree different terms provided Mr Bramley with a perfect opportunity of renegotiating, from a position of strength, the financial basis of the Claimant’s involvement.

Accordingly, I find that, to try and take advantage of Mr Lafayeedney’s desire for a new agreement, from July 2004 onwards, Mr Bramley lost no opportunity to persuade Mr Lafayeedney to agree that the Claimant should get a capital return of at least £750,000, and 50% of the profits beyond that. That was the key term in each and every one of the drafts sent to Mr Lafayeedney over the next few months, although, like the first of the Claimant’s efforts of 6 April, it was very poorly drafted (see paragraph 35 above). Although on at least one occasion in October 2004, Mr Lafayeedney appeared to be willing to agree to such terms, a new agreement was never in fact signed. In the end, it was clear to me that Mr Lafayeedney believed that he could get out of the difficulties that he might otherwise be in by simply repaying the loan on completion of the sale to Toynbee. That is what happened in March 2005.

Accordingly, I find that the agreement of 19 April 2004 remained unaffected by the correspondence from 21 July 2004 onwards. It was not terminated by agreement; nor was it (or could it be) terminated unilaterally by the letter from the Claimant of that date. I find that both parties had different reasons for wanting to put in place a new agreement if they could, but they never reached an agreement on the terms of a replacement contract.

To the extent that it is part of the First Defendant’s case, I reject the suggestion that, because Mr Bramley was prepared to consider (and was even enthusiastic about) taking part in a renegotiation of the contract terms, it meant that the existing agreement was somehow rendered invalid or was terminated in some way. It is very common for businessmen to agree a contract on one set of terms and then, as the situation develops, suggest or request variations to the terms of that agreement. Sometimes those variations can be agreed. However, if, as here, the proposed variations to a contract are not agreed, that does not mean that the validity of the underlying contract has been affected in any way.

For all those reasons, therefore, I conclude that the binding agreement reached between the parties on the terms of the document sent out by Mr Lafayeedney on 19 April 2004, and executed by the Claimant on 4 May 2004, was not terminated by the letter of 21 July 2004. Nor was it terminated as a result of the ultimately fruitless attempts to renegotiate the terms of that agreement between the parties. The agreement remained in force from early May 2004 onwards. It is that agreement that contains the relevant rights and obligations of the parties. Those are the subject of a separate dispute, to which I now turn.

I have found that the agreement between the parties was in the form sent out by Mr Lafayeedney on 19 April 2004, executed by the Claimant on 4 May 2004, a copy of which was sent to Mr Fishman on 11 May 2004. The express terms of the contract between the parties are therefore the terms set out in that document.

I should set out in full Clause 2 of that agreement, because two points now arise in connection with it. Clause 2 read as follows:

“REPAYMENT

Subject as provided in this Agreement the Borrower [DVL] and CPL shall repay the Loan on the completed sale of the site to the said Toynbee Housing Association together with a capital return, equal to fifty percent (50%) of the profit from the sale of the site to the said Toynbee Housing Association: the profit will be determined by the price paid by Toynbee Housing Association to the Borrower and CPL less monies due to The Royal Bank of Scotland, all transaction costs which shall include all professional fees including lawyers, architects, surveyors, site finder fees, project managers fees and outlays reasonably and properly incurred by the Borrower and CPL. It is anticipated that the return on the capital will be no less than £750,000 (seven hundred and fifty thousand pounds).”

The two issues that now arise on this provision are as follows. First, it is a fact that the profit from the sale of the site was not made by CPL. At least some of the profit was made by WGLLP, although it appears from the evidence that DVL also made some profit as well. The precise details are unclear because of the Defendants’ failure to provide any sort of account relating to the sale transaction. The Claimant is concerned that, on one reading of Clause 2, they would not be entitled to any part of the profit because there is no reference there to WGLLP. Secondly, there is a major dispute about tax. Although tax is not referred to expressly in Clause 2, the Claimant concedes that “outlays reasonably and properly incurred” would ordinarily include tax. However, the Claimant maintained that, given that the whole deal was intended to go through an off-shore company, if Mr Lafayeedney changed the structure and incurred a CGT liability as a result, then such tax should not be deducted before the calculation of the 50% due to the Claimant. I deal with each of those arguments below.

At paragraph 26(1) of the Amended Defence and Counterclaim, the First Defendant contends that no profit whatsoever has arisen under Clause 2 because no price was paid by Toynbee to DVL or CPL. The argument is that, since Mr Lafayeedney chose to use WGLLP instead, no sum by way of profit fell due to DVL or CPL and therefore the Claimants have no entitlement.

On the facts, this plea does not appear to be right, given that Mr Lafayeedney accepted in evidence that DVL had made at least some profit from the sale. But, as a matter of principle, I do not have any difficulty in rejecting this argument completely. Not only is it wholly without merit, but it is quite contrary to commercial common sense. It would be a nonsense to conclude that, pursuant to this agreement, Mr Lafayeedney could avoid his liabilities to the Claimant by choosing a different company to those identified here to sell the site to Toynbee. As a matter of law, there are two particular reasons why I reject such a contention.

First, it seems to me that the First Defendant’s pleaded case does not pay sufficient attention to the words of Clause 2. Clause 2 merely says that the Defendants will pay a capital return to the Claimant “equal to 50% of the profit from the sale of the site to the said Toynbee Housing Association ...” It does not say in terms that such profit had to be made by DVL or CPL. The express reference to DVL and CPL only arises in connection with how the amount payable was to be calculated, which is a very different thing. Therefore, on one view, the Claimant is entitled to the profit from DVL and CPL, whatever the identity of the company who actually sold to Toynbee.

However, it seems to me that, in order to give commercial clarity to Clause 2, and in order to prevent Mr Lafayeedney from skipping away from all of his liabilities under the agreement by using a different company vehicle to sell the site, the law would imply a term into the agreement such that, in Clause 2, the reference to “the Borrower [DVL] and CPL” should be read as including the words: “or any other entity as shall receive any of the price paid by Toynbee.” Such a term is plainly necessary to make the contract work; otherwise, for the reasons that I have given, Mr Lafayeedney could avoid (or at least seek to avoid) his obligations under the agreement by using a different company vehicle. That would be contrary to commercial common sense. The implication of this term, in accordance with the Claimant’s submissions, therefore meets the high test required to imply a term into a contract set out in Trollope & Colls Ltd v NW Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 609.

Accordingly, I consider that, in order to give business efficacy to the agreement, so as to make it work in the factual circumstances that have arisen, there was an implied term of the contact that the reference to “the Borrower and CPL” should be read as including “any other entity as shall receive any of the price paid by Toynbee”. That is the second reason why I reject the argument advanced at para 26(1) of the Amended Defence and Counterclaim.

As indicated above, this dispute is relatively straightforward, although I apprehend that it may be, ultimately, where the money lies in this case. The First Defendant submits that either “transaction costs” or “outlays reasonably and properly incurred” must include any tax liability incurred by DVL or CPL or, based on my finding above, WGLLP. Thus the First Defendant says that such tax liability needs to be deducted before any net profit can be calculated. The Claimant apparently accepts that “outlays reasonably and properly incurred” would ordinarily include tax. However, it appears that the Claimant maintains that, in this case, such outlays would not include any tax liability that may have been incurred. At paragraph 48 of his opening submissions, Mr Peacock put it in this way:

“In those circumstances, the share of profit to which Intense is entitled under Clause 2 is to be calculated only after deduction of such (if any) liability to tax as would have arisen on the transaction had the Defendants complied with their obligation [to] implement the transaction in such a manner as would eliminate or mitigate as much as possible any tax, and in particular any UK capital gains tax.”

In his closing submissions, he put the point rather more succinctly. He said that the question became whether any CGT liability could form part of the transaction costs, or had been “reasonably and properly incurred”, in circumstances where such a liability was precisely what both parties had been seeking to avoid. Thus the issue became whether, as a matter of the construction of the executed contract, any, or all, of the tax liabilities of the Defendants/WGLLP fell to be deducted as part of the calculation of the profit share due to the Claimant.

As a matter of construction of the express words of the contract, it is difficult to see how any tax liabilities, incurred by those companies controlled by Mr Lafayeedney involved in the purchase and sale of the site, would not be caught by the words “transaction costs” or “outlays reasonably and properly incurred”. After all, if tax was found due to the Inland Revenue, it would ordinarily be impossible to say that it was not “reasonably and properly incurred”.

There is also the difficulty of the identity of the company that actually sold the site and thus made the profit. I have accepted the Claimant’s case that, for the avoidance of doubt, there should be an implied term of this contract, pursuant to which the references to DVL and CPL should be augmented with the words “or such other entity as shall receive any of the price paid by Toynbee”. Such an entity would include WGLLP. Thus if WGLLP had to pay tax on that profit, then, again, it seems difficult to say that such tax was not “reasonably and properly incurred” by WGLLP and therefore an item of expenditure which fell to be deducted from the gross profit.

Stripping out the verbiage, the essence of this dispute is simple. Mr Bramley and Mr Lafayeedney had done many projects before whereby, through the use of off-shore vehicles, they had avoided paying CGT. Mr Lafayeedney had not done any such projects without Mr Bramley: this was his first. Mr Bramley understood that Mr Lafayeedney would be using an off-shore vehicle; that was the basis of the tax advice that both sides had received in 2003. Up until the summer of 2004, it appears that that was indeed Mr Lafayeedney’s intention. I have found that, probably as a result of the Inland Revenue investigation into Mr Lafayeedney’s affairs, that position changed, but that Mr Bramley was not aware of the change. In the event, an off-shore company was not used and, prima facie, there may be a liability to CGT which would not have arisen if an off-shore company had been used as originally intended. In such circumstances, the question becomes whether Mr Bramley is protected, by the agreement that he entered into, against the risk that the company that actually sold the site to Toynbee would not be an off-shore company, and would have a prima facie liability to pay CGT.

In my judgment, the answer to that question is plainly No. The agreement of 19 April, executed on 4 May 2004, contained no binding agreement between the parties that the site would actually be sold (or the profit actually made) by CPL, or any other off-shore company controlled by Mr Lafayeedney. The recital to the agreement says that DVL and CPL “intend to enter into a contract for the sale of the site”, but it is not put higher than a simple intention. There was no express promise, let alone any sort of guarantee, that the sale of the site would actually take place through these companies, or any other off-shore vehicle, such that CGT would be avoided. Indeed, the agreement does not even say that the sale was intended to be by CPL alone: the intention covers both CPL and DVL and DVL was not, of course, an off-shore vehicle.

In addition, it seems to me that the difficulties for the Claimant on this issue are compounded by the Claimant’s own case on the WGLLP issue, with which I have dealt in Section F2 above. I have expressly accepted the Claimant’s contention that, for the avoidance of doubt, the agreement should be read as including not only DVL and CPL, but any other company that might make a profit from the sale of the site to Toynbee. The Claimant does not say, and could not seriously contend, that this implied term should rule out all but off-shore entities. Thus WGLLP (and any tax liabilities that it incurred) would be caught by the implied term for which the Claimant itself argued. I simply do not understand how the Claimant can argue that, on the one hand, Clause 2 should be subject to an implied term that would include WGLLP, but on the other hand contend that any tax liability incurred by WGLLP should lie outside the rubric of “outlays reasonably and properly incurred.”

If the Claimant had wanted to ensure that the company (controlled by Mr Lafayeedney) who made the profit on the sale was an off-shore company, so that there was no CGT liability, then it could have included such a provision in any of the myriad draft agreements sent out with the correspondence before, and particularly after, the agreement in late April/early May 2004. At no time did the Claimant take such a course. I do not believe that it is now appropriate for the Claimant to contend that some sort of term should be implied into the contract preventing any CGT liability from being taken into account in the calculation of the net profit. Mr Bramley may have assumed or expected that the sale would go through an off-shore company, but there was no legal basis for that assumption/expectation.

Mr Pymont QC submitted that the Claimant could seek to argue that “transaction costs” and/or “outlays reasonably and properly incurred” excluded any CGT liability only by reference to what he called “the background to the agreement”, rather than the words of the agreement itself. Although Mr Peacock disputed that, he was unable to point to any part of the agreement which entitled the Claimant to have its profit share calculated without any reference to CGT, or on the basis that the ultimate vendor would be an off-shore company. For the reasons which I have already explained, the agreement contained no such provision; indeed, because it said that it was only “intended” that CPL would enter into the sale to Toynbee, the words of the agreement were actually unhelpful to the Claimant’s submission.

I have concluded, therefore, that Mr Pymont QC was right: Mr Peacock was relying solely on the background material in support of his proposition. He had to argue that any CGT liability was not “reasonably and properly incurred” because the sale should have been through an off-shore company; and he had to say that it should have been through an off-shore company because that feature was somehow at the heart of the whole transaction. As I have said, I can accept that Mr Bramley expected that an off-shore company would be used. But, in the absence of any words in the executed agreement to that effect, that prior expectation cannot amount to, or suddenly become, a binding legal entitlement. Mr Bramley/the Claimant were in receipt of no enforceable promise that an off-shore company would in fact make the sale. Ultimately, the identity of the company to act as the vendor to Toynbee was Mr Lafayeedney’s decision. This merely serves to highlight one reality that Mr Bramley persistently failed to appreciate: that this was not his deal. He was not in control of this key element of the proposed transaction.

Accordingly, I have concluded that there was nothing in the contract (considered against the background facts as I have found them) which protected the Claimant from the risk that, for his own reasons, Mr Lafayeedney would organise the sale through a UK entity, and thereby make it more likely that it would incur a CGT liability. The Claimant cannot contend, as a matter of principle, that any tax liabilities incurred by WGLLP (even those which would not or might not have been incurred by an off-shore company) amount to outlays that were not reasonably or properly incurred. Prima facie, any tax liability incurred by WGLLP, or DVL, was a liability which was properly incurred and/or formed part of the transaction costs.

I should also say that there were probably always insurmountable difficulties with the Claimant’s case that CGT should be left out of account in calculating the profit due. In his closing submissions, Mr Peacock accepted that, right from the outset, there were no guarantees that CGT would be saved, even if an off-shore company was used. I agree. As Mr Pymont QC correctly pointed out, in the light of this concession, the Claimant was accepting that any tax liability which was incurred had to be deducted, whether or not an off-shore company was used. This only serves to emphasise my view that the only guarantee that would have assisted Mr Bramley was the inclusion of a clear promise by the Defendants, in the agreement that the Claimant executed on 4 May, that the sale would be by an off-shore company and that any CGT liability would be excluded from the calculation of the Claimant’s share of the profit. There were no such promises.

In the light of these (related) findings on the WGLLP and tax issues respectively, it is, I think, unnecessary for me to deal with the First Defendant’s alternative case, which involved an alleged estoppel by convention, beyond saying that – for the reasons set out above – I do not accept the First Defendant’s alleged convention that the only reason the parties were considering a revised agreement from July onwards was because of the known involvement of WGLLP. The (different) reasons why both parties were prepared to consider a new agreement are set out in paragraphs 126 – 129 above.

Of course, I quite accept that the Claimant is entitled to a proper and certified statement of account from the First Defendant (the Second Defendant having been dissolved) relating to the sale of the site. It has been a source of real surprise to me that the First Defendant has not provided such an account thus far. It was wholly inadequate for the First Defendant to maintain that no profit had been made, without providing some detailed substantiation of this assertion. Of course I accept that, even a year on from the sale, certain liabilities may not yet be known, but that is no excuse for not providing a statement of accounts on the basis of the information presently available. I shall order that such a statement is to be provided to the Claimant in 14 days. If, thereafter, there are any specific points about the statement of account that is provided, and in particular about whether or not the “outlays” have been properly incurred, then those would need to be identified by the Claimant, and responded to by the First Defendant. If there remains a dispute about whether a particular item (whether it is a ‘transaction cost’ or an ‘outlay’) was reasonably incurred, then I would determine that issue.

For the reasons set out in Section C above, I have concluded that there was a binding contract between the parties in the terms of the draft sent by Mr Lafayeedney to the Claimant on 19 April 2004 and executed by the Claimant on 4 May 2004. I have concluded that the Claimant’s acceptance of this offer was communicated to the Defendant companies. In the alternative, I have concluded that there was an agreement in these terms because the relevant contractual obligations were performed.

For the reasons set out in Section D above, I have concluded that the Claimant’s alternative argument on estoppel should be rejected. The facts and matters relied on in relation to estoppel are more properly to be regarded as evidence in support of the contention that, because the contract was executed rather than executory, it should be enforced.

For the reasons set out at Section E above, I have concluded that the binding contract was not terminated by the letter of 21 July 2004. There was no agreement between the parties that the contract should be terminated. The contract remained in force, notwithstanding the attempts by both parties to renegotiate the terms. Such renegotiations were unsuccessful and no agreement was ever reached on them. Thus the underlying agreement executed by the Claimant on 4 May remained binding.

For the reasons set out in Section F1 above, the relevant terms of the contract were those set out in the document of 19 April 2004, and executed by the Claimant on 4 May.

For the reasons set out in Section F2 above, I have concluded that the Defendants are liable to pay the Claimant 50% of the net profit made on the sale to Toynbee, whether such profit was made by either of the Defendant companies or WGLLP, or indeed any other company controlled by Mr Lafayeedney.

For the reasons set out in Section F3 above, I have concluded that any tax liabilities incurred by the Defendant companies (or WGLLP or any other company controlled by Mr Lafayeedney) in the sale of the site to Toynbee are, prima facie, caught by the words “transaction costs” or “outlays reasonably and properly incurred”. They therefore fall to be deducted in the calculation of any net profits. I do not consider that there was either an express or an implied term of the agreement to the effect that the tax risk inherent in the completion of the sale through an entity other than an off-shore company was one that was agreed to be borne solely by Mr Lafayeedney (or the companies that he controlled). It seems to me that this was a risk (albeit one that Mr Bramley never thought about) which was to be shared by both parties. If that risk was to be avoided by the Claimant, the agreement had expressly to say so. It did not.

Also for the reasons set out in Section F3 above, I order that the First Defendant provide to the Claimant within 14 days an up-to-date and certified statement of account of the present transaction position as between Mr Lafayeedney’s companies and Toynbee, providing as much information as possible about every item of deduction being made from the sale price.

I will deal separately with any issues as to costs.