Case No: HC04C01072
Neutral Citation Number: [2006] EWHC 74 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 30/01/2006

Before :

MR JUSTICE LEWISON
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Between :

	(1) MERETZ INVESTMENTS NV 
(2) BRITEL CORPORATION NV		
	
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	(1) ACP LIMITED 
(2) FIRST PENTHOUSE LIMITED 
(3) HAKAN OLOV OLSSON
(4) ANNIKA SILJA OLSSON 
(5) FAHAD AL TAMIMI		
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MR PAUL MORGAN Q.C AND MR PASCAL BATES (instructed by GOLDKORN MATHIAS GENTLE) for the CLAIMANTS
MR TIM DUTTON AND MR CIARAN KELLER (instructed by BERWIN LEIGHTON PAISNER) for the FIRST TO FOURTH DEFENDANTS
MR MICHAEL PRYOR (instructed by BIRCHAM DYSON BELL) for the FIFTH DEFENDANT

Hearing dates: November 28th 29th 30th
December 1st 2nd 5th 6th 7th 8th 9th 12th 13th 14th 15th 16th 19th 20th 21st
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Judgment

Mr Justice Lewison:
Introduction
The witnesses
Mr Stern
Mr Olsson
Mr Hawkins
Mr Tamimi
Initial planning and negotiations
Planning
FP and the modular system
Initial negotiations
Expected timescale
Funding
Meretz
The initial agreements
The Preliminary Agreement
The Introduction Agreement
The FP Guarantee
The reason for two agreements
The lease and the first series of charges
The CHAPS declaration of trust
The development lease
The FP Charge
The Meretz Charge
The NUBBH Charge
Car parking and management
NUBBH raise the role of Meretz
The Deeds of Priority and alterations to the initial agreements
The April 1999 Deed of Priorities
The Heads of Terms
The sale of the freehold and the overriding lease
The May 2001 Deed of Priorities
Another funding crisis
Enter Mr Tamimi
Mr Tamimi
The relationship between Mr Tamimi and Mr Ware
Mr Stern is informed
The contingency plan develops
Worsening relations
Agreement to sell Penthouse A
The beginnings of the contingency plan
Mr Tamimi gets involved in financing construction
Mr Stern intervenes
The context of the Wrap Around Agreement
The Wrap Around Agreement
Mr Tamimi’s perception of the wrap around agreement
The immediate run up to the injunction
Transfer of mortgage
Exercise of power of sale
Exercise of Lease-Back Option
Mr Tamimi takes an assignment
Progress of the development
The actual progress of the development
Impediments to progress
Completion never taking place
The previous litigation
The debt claim
The injunction application
The assignment action
The forfeiture action
Lightman J’s judgment
The appeal to the Court of Appeal
The Issues
The transfer of the development lease to Mr Tamimi
Issues relating to the Lease-Back Option
Benefit of the agreements
The economic torts
Cause of action estoppel issue estoppel and abuse of process
The strike out application
The different kinds of estoppel
The scope of cause of action estoppel
The scope of issue estoppel
The scope of Henderson v. Henderson
Exceptions to the rules
Parties and privies
Different capacities
Public interest
The arguments under attack
Cause of action estoppel
The debt action
The injunction application
The assignment and forfeiture actions
Issue estoppel
The assignment and forfeiture actions
Abuse of process
The injunction action
A rush to court?
Exercise of power in bad faith
Damages for breach of contract
A different date?
The assignment action
Conclusion
The position of the parties and the state of the account in the summer of 2002
Who had interests in Albert Court?
The state of the account between ACP and Britel
The state of the account between ACP and Meretz
The state of the account between ACP and FP
Breaches of contract by ACP and FP
Failure to build on time
Failure to grant the lease-back
Liability to whom?
Mortgagee’s equitable duties
The general principles
To whom are the duties owed?
The content of the duty
The mortgagee’s motives
Protection of purchasers
The statutory provision
Limits to the protection
Knowledge of impropriety
Did FP have a power of sale to exercise?
Why did FP exercise its power of sale?
The case for Britel and Meretz
Financial pressures
Potential loss of security
The proof of the pudding
Conclusion
If FP exercised its power of sale for improper reasons, is Mr Tamimi affected?
The nature of the Lease-back Option
Security for Site Payments
Penalty
Void agreement to surrender
The effect of the transfer of the NUBBH charge
Does section 114 apply to a registered charge?
The economic torts: legal framework
Introduction
The relevant state of mind
Imputed intention?
Mistaken appreciation of law
Conspiracy to injure by unlawful means
Unlawful means
Interfering with contractual relations
Justification
Consent and the voluntary assumption of risk
Economic torts: application to the facts
Knowledge of the contracts
Consequence of exercising the power of sale
The state of mind of FP and ACP
Mr Tamimi’s state of mind
The breaches of contract and unlawful acts relied on
Justification and consent
Causation of loss
Conclusion
Liability of directors in tort
General principles
Conspiracy cases
Corporate governance of ACP and FP
FP
ACP
Board meetings
Mrs Olsson
Conclusion
Result on liability
Loss to Meretz and Britel
Alternatives
How to choose?
Meretz’ claimed loss
Britel’s loss
Result on damages

Introduction
1.	This case principally concerns the effectiveness and legal consequences of a purported sale by a mortgagee of a long lease of a partially completed penthouse development on the roof of a block of flats at Albert Court, Prince Consort Road, London SW7. The two claimants, Britel Corporation NV (“Britel”) and Meretz Investments NV (“Meretz”) are each subsidiaries of a common parent called Lingo Corporation NV, which in turn is owned by a Liechtenstein trust. The ultimate ownership of the two companies is a partnership. Until May 2000 Britel was the freehold owner of Albert Court. Albert Court consisted of some 85 flats, sold off on long leases, and a basement garage. Meretz was the leaseholder of flat 6. Mr William Stern is the London agent for both companies; and he reports to Mr Neumann in New York. The second Defendant, First Penthouse Ltd (“FP”), was the mortgagee in question. It held a first charge over the lease and was the transferee of a second charge over the same lease. The first Defendant, ACP Ltd (“ACP”), was the leaseholder, and, at the material time, was the wholly owned subsidiary of FP.  Mr Olsson is the managing director of both ACP and FP. Mrs Olsson is his wife; and for some of the time was also a director of ACP and FP. They are the third and fourth Defendants. The fifth Defendant, Mr Tamimi, was the purchaser of the lease.
2.	Mr Paul Morgan QC and Mr Pascal Bates appeared for Britel and Meretz; Mr Timothy Dutton and Mr Ciaran Keller appeared for ACP, FP and Mr and Mrs Olsson; and Mr Michael Pryor appeared for Mr Tamimi.
The witnesses
Mr Stern
3.	Mr Stern is highly experienced in the world of property; and is no stranger to litigation. It was he who was responsible for introducing Britel and Meretz to Albert Court. He was intimately involved in the commercial deals that form the subject of this action; although he was not (or not heavily) involved in drawing up the documentation to give effect to those deals. He is highly articulate and has a thorough and detailed knowledge of the trial papers. He also has a strong and genuinely held view that Mr Olsson is dishonest; that Mr Olsson and Mr Tamimi have defrauded Meretz and Britel; and that they are the worst kind of conspirators. His evidence was at times passionately given. He was loath to accept that it was inappropriate for him to give “evidence” which was no more than the conclusions and inferences that he (with the benefit of hindsight) drew from documents revealed on disclosure. He was free with allegations of dishonesty, corruption and impropriety. While I do not doubt that Mr Stern’s opinions are genuinely held, the very strength of those opinions has, in my judgment, coloured his evidence to such an extent that I consider it unsafe to rely on it. 
Mr Olsson
4.	Mr Olsson is an engineer by training. He is the managing director of both FP and ACP. He has less of a grasp of the trial papers than Mr Stern; and took time during his cross-examination to read documents put to him. I do not consider that he did so as a stalling tactic. He was, in my judgment, an honest witness. However, although he gave his evidence carefully, I consider that some of it was reconstruction rather than real recollection. There is, I think, some force in Mr Morgan’s submission that, knowing what the important issues in the case are, Mr Olsson has convinced himself that his state of mind at the relevant time was precisely what the law would have required it to be. Nevertheless I consider that I can rely on his evidence, albeit with caution where it appears to conflict with contemporaneous internal documents. I should mention that ACP and FP waived privilege over communications of the legal advice they received, so that there is a good picture of what was going on behind the scenes at the relevant time. Where Mr Olsson’s evidence is consistent with that picture, I consider that it is safe to rely on.
Mr Hawkins
5.	Mr Hawkins was the solicitor who advised FP in the run up to the exercise of the power of sale.  He described the case as a “minefield”; and his task, as he saw it, was to steer FP safely through the minefield. He accepted responsibility for the steps in the scheme that evolved; and was clearly upset that the result of the implementation of the scheme was a major High Court trial with its attendant costs. Notwithstanding his acceptance of responsibility for the scheme, I consider that he did his best to give dispassionate and balanced evidence. In my judgment he was an honest witness.
Mr Tamimi
6.	Mr Tamimi is a Saudi Arabian businessman. He operates on a grand scale. His principal areas of interest are in large scale engineering projects and shipping. He said that during the course of the events examined during the trial he was principally interested in “headline” issues; and left the details to his advisers. Mr Tamimi gave his evidence very fluently in good and idiomatic English, although it is not his first language. I am satisfied that Mr Tamimi’s command of English is more than adequate for him to be able to understand both conversational English and business English. However, at times he found difficulty in understanding more technical legal matters, and the way in which the lawyers expressed themselves. I am satisfied that his difficulty was genuine. His evidence was honest, open and straightforward. Although his recall of specific dates and meetings was sometimes imperfect, I consider that his evidence about the overall shape of the transactions in which he was involved, and his motivation for entering into them, is reliable.
Initial planning and negotiations
Planning
7.	The obtaining of planning permission for the rooftop development was a hard fought battle against the objections of the residents of Albert Court. Planning permission was granted on appeal on 5 June 1992. It was granted subject to conditions; of which condition 7 was that before the residential units were occupied “one floor level parking space within the basement of Albert Court shall be allocated to each of these units.”
FP and the modular system
8.	FP came on to the scene in early 1995. FP had developed a building system that seemed ideal for the construction of penthouses on the roof of an occupied building. Almost all the construction could be carried out off site in a factory. The process begins with a detailed survey of the existing roof and the production of detailed and extremely precise drawings. Once these have been done, the detailed design of the penthouse can begin. Each penthouse is divided into modules about 4 metres wide and up to 13 metres long. Each module is steel framed and carries a timber floor; a timber slated mansard and a timber frame felted roof structure. Internal walls are built of timber or steel studs with chip board or plasterboard coverings. Each module is fully finished. In the case of kitchens and bathrooms, all the fixtures, plumbing, electrics, ventilation and air conditioning is installed in the factory. Once a module is completed it is transported from the factory to the site and hoisted into place by a crane. When all the modules are in position, the modules can be joined together and decorated; and final coverings put in place. The whole process on site should take no more than 3 to 4 weeks. Thus the disturbance to residents by building works is greatly minimised.
Initial negotiations
9.	The initial contact with FP was Mr Richard Shaw. Mr Shaw was a consultant engaged by Tudeca Estates Ltd (“Tudeca”). Tudeca was in turn the agent for Britel. Tudeca was effectively controlled by Mr Stern. Mr Stern went to inspect some penthouses that FP had constructed on the roof of a block of flats in St John’s Wood; and he was plainly impressed by what he saw. He became (and for a long time remained) an ardent fan of FP’s method of construction for occupied blocks of flats. The proposal from FP was that there would be some form of profit share between FP and Britel. This was acceptable to Mr Stern in principle. However he was not prepared to accept the particular shares on offer. 
10.	At the time of these negotiations, the freehold of Albert Court had been charged by Britel to NUBBH Ltd (“NUBBH”) to secure debts owed by Britel and by Mr Stern personally. The indebtedness was in excess of £2 million. On 4 August 1995 NUBBH wrote to Mr Stern. They said that they understood that Britel was in negotiations with FP for the grant of a 999 year lease of the roof. The letter records that Mr Stern had told NUBBH that Britel expected to receive a premium of £1 million. NUBBH said that in consideration of the receipt of £1 million, they would consent to Britel carving out a 999 year lease in favour of FP; and would transfer its security to that lease. 
11.	In early September 1995 FP produced heads of terms. These set out the payments that FP was prepared to make to Britel. It also envisaged that if the development were carried out by a single purpose vehicle, FP would be prepared to guarantee its obligations.
12.	Simultaneously with these negotiations, and on into the autumn of 1995, others were showing interest in the roof space. An Irish builder (a Mr Doherty) offered £1 million; but his interest later waned. Another prospective developer (Palace Securities Ltd) also offered £1 million; but no final agreement was ever reached.
13.	Although NUBBH were under the impression that Britel would receive a premium of £1 million from FP this was never the deal; at least if “premium” is understood in its conventional meaning as a payment made on the grant of a lease. The proposed deal with FP (in contrast to some of the other proposals) was always for a profit share. Apart from anything else, FP was unlikely to be able to find £1 million to pay on the grant of the lease; and the profit share arrangement would make it easier to fund the development; not least because the surplus proceeds from the first penthouse to be sold could be used to fund the building of the next one, and so on.
14.	The decision was taken to do the deal with FP.   ACP was incorporated on 17 November 1995 as a single purpose company: that purpose being the development of the roof of Albert Court. It ultimately became a wholly owned subsidiary of FP. Shortly before the initial agreements were executed, on 27 February NUBBH required FP to guarantee the obligations of ACP under the preliminary agreement and the development lease. This requirement was passed on to FP; and FP agreed to give the guarantee. It had in fact been contemplated by the heads of terms prepared by FP at the outset of the negotiations.
15.	There are three particular matters that arose in the course of the negotiations leading up to the making of the initial agreements which I should mention. The first was the timescale needed for the development. The second was FP’s ability to finance the development through to completion. The third was the split of payments between Britel and Meretz.
Expected timescale
16.	During the course of the negotiations FP prepared bar charts and cash flows showing its expectations about the time that would be needed to plan and carry out the development. These bar charts and cash flows all showed that the construction of an individual penthouse was expected to take about five months; and that they would be built in a partially overlapping sequence taking some 21 to 28 months in all. Mr Olsson confirmed in his evidence that these were perceived as realistic estimates at the time. The details of the bar charts and cash flows may or may not have been shown to Mr Stern himself. But it is clear that Britel was told that the overall timescale required for the development was of the order of 21 to 28 months.
Funding
17.	Mr Stern was concerned (as Mr Olsson acknowledged) that FP should be adequately funded to allow it to carry the development through to a successful conclusion. NUBBH, as Britel’s mortgagee, had similar concerns. Part of the purpose of carrying out the development in phases was to allow the proceeds of sale of one phase to finance the carrying out of the next one. So the crux of the concern was that FP should be sufficiently funded to enable it to carry out the preliminary design work and to construct the first penthouse. Mr Stern was ultimately content to ensure, so far as he could, that FP had access to finance that would enable it to reach that stage; and to rely on the proceeds of sale to finance the remainder. At the time, as I have mentioned, FP had carried out a development of penthouses in St John’s Wood. One (or perhaps two) of these were bought by a Mr Davies, who was a director of American Swiss Holdings Ltd (ASH). Like Mr Stern he was impressed with the building system and ASH agreed to be a joint venture partner with FP. They were to hold one share each in ACP. ASH had access to funding via the Standard Bank of Jersey. The bank prepared a letter which was sent to Mr Stern in which it confirmed that it would make £1.5 million available to ASH to be secured on the development lease. The production of this letter persuaded Mr Stern that ACP would be properly funded at least to take the development as far as the construction of the first penthouse. Funds were in fact made available to ACP via the Bank, to extent of some £300,000. However, ASH later became dissatisfied and pulled out of the joint venture, at which point the money had to be repaid; and ACP became a wholly owned subsidiary of FP.
Meretz
18.	The idea of a split of the payments between two companies was first raised by Mr Stern in a conversation with FP’s solicitor in late September 1995. The name of the second company was not mentioned at that time. As far as FP were concerned it was a matter of indifference how the payments were split; and they agreed to the suggestion that a split should take place. The overall payments remained the same. Mr Olsson was, therefore, wrong in suggesting in his witness statement that the idea of a split was introduced at a late stage in the negotiations, and wrong in giving the impression that Mr Stern was seeking to improve the overall financial position to the detriment of FP.
The initial agreements
19.	Three agreements were made on 7 March 1996. They have been called “the Preliminary Agreement”, the “Introduction Agreement” and the “FP Guarantee”.
The Preliminary Agreement
20.	The parties to the Preliminary Agreement were ACP and Britel. Britel was called “the Freeholder”. The first four clauses of the Preliminary Agreement described the proposed development, its expected financial returns and the planning position. Clause 5 provided for the grant by Britel to ACP of a long lease of the roof of the property at a premium of £1 and at a rent of £1 per annum. Clause 5.2 provided that the form of the long lease to be granted should be such as:   
 “will enable ACP (if it needs or desires so to do) to execute a first legal mortgage . . . in favour of any commercial lender in respect of a capital amount of up to One Million Five Hundred Thousand Pounds and to grant standard occupational leases in terms acceptable to banks, building societies and other commercial lenders so as to ensure that the same are regarded as satisfactory security and mortgageable by the purchaser of each penthouse (once the same has been constructed and is ready to be sold).”  
21.	Clause 7.1 provided that:  
 “It is intended that the penthouses (the development of which may take place on a phased basis) shall be placed on the market for sale on long lease (in accordance with paragraph 5.2), through reputable Residential Property Agents (to be appointed by ACP with the approval of the Freeholder such approval not to be unreasonably withheld or delayed). ACP will use all reasonable endeavours to dispose of such penthouses at prices which they consider to represent the then open market value of the same (taking into account the recommendations of such Residential Property Agents). ACP shall be at liberty to dispose of all or any of the penthouses by way of presale or at any stage of the Project.”  
22.	Clause 9 provided for the making by ACP to Britel of what was described as a “site payment”:  
 “equivalent to 22.5% of the aggregate net sale proceeds of such penthouses up to (but not beyond) a maximum figure of £5,400,000”.  
23.	 Sub-clauses 9.1 and 9.2 said:  
 “9.1 In calculating the net sale proceeds the following payments/liabilities shall be deducted from the gross sale prices namely the costs and expenses incurred by ACP in legal costs (subject to a maximum of 1% of such sale prices plus Value Added Tax and proper disbursements) agents commission (subject to a maximum of 3% of such sale prices plus Value Added Tax and proper disbursements) marketing expenses, the costs of providing furniture/chattels in any “showflat” or included in the sale of any penthouse (over and above the fixtures and fittings referred to in the Specification) and/or any additional deduction or incentive offered or costs incurred in relation to achieving the sales of the penthouses.  
9.2 As the penthouses are sold off on a phased basis or over a period of time then payments on account in respect of the Site Payment (subject to the same not exceeding a total of £1,215,000) shall be paid as below (within 7 days of completion of each transaction):  
9.2.1 From the sale of the first penthouse 0% of the net sale proceeds thereof.  
9.2.2 From the sale of the second penthouse 11% of the net sale proceeds thereof.  
9.2.3 From the sale of the third penthouse 35% of the net sale proceeds thereof.  
9.2.4 From the sale of the fourth penthouse 40% of the net sale proceeds thereof.  
24.	Clause 9.5 entitled the Freeholder to require a second charge over the development lease as security for the site payments. It also provided that once a disposal of a penthouse had taken place, either the Freeholder or ACP could require a surrender of the development lease as regards that penthouse.
25.	Clause 12 laid down the time scale over which ACP was to complete various activities. In particular, Clause 12.2 provided, that:  
Consequent upon the commencement of the development ACP shall use all reasonable endeavours to progress such development in accordance with the time scale described below subject to any variations to be proposed by ACP and approved by the Freeholder (such approval not to be unreasonably withheld or delayed) . . .  
12.2.4	Site works and the provision of the penthouse modules supplied in situ on the roofspace of the Property within 28 months from now.  
12.2.5	Conclusion of all works in respect of the Project (except any outstanding snagging items), as may be evidenced by the issue of a Certificate (or Certificates) or [sic] Practical Completion by ACP’s Project Managers or Architects, by no later than 54 months from now.”  
26.	Clause 12.3 provided for mandatory extensions of time of these time limits as a result of delays arising due to circumstances outside ACP’s control. 
27.	Clause 12.4 provided (so far as material): 
“. . .. in the event of ACP being in breach of its obligations in respect of the provisions of para 12.2.5 then: . . .. 
12.4.1 The Freeholder may at its sole discretion grant an extension of time to ACP for such further period as it may consider to be reasonable … but if at the expiration of such further period ACP are still in breach of such obligations then the terms set out below shall apply…
12.4.2 The Freeholder shall have the right to serve a written notice upon ACP calling for and requiring a development sub-lease to be granted back to the Freeholder in respect of such part of the roofspace of the Property which has not been developed by ACP (excluding the areas covered by the modules in respect of any penthouse or penthouses then actually constructed by ACP and in situ and/or any associated roof terracing or roof garden intended to be used by the owner or occupier of such penthouse or penthouses).”
28.	The clause then went on to provide for the terms of that sublease, including the nominal consideration and rent. It ended with the requirement that “ACP shall procure that any necessary consent in this regard is granted by any first mortgagee in respect of the development lease”. It is common ground that this clause created an estate contract. I shall call this clause the Lease-Back Option.
29.	Clause 12.4.3 provided that consequent upon the service of a notice calling for the grant of a development sub-lease, there would be a deemed disposal at the end of twelve months of any penthouse actually constructed by ACP but not actually disposed of. The terms of the deemed disposal were those set out in clause 7 (i.e. at open market value). ACP would then be liable to pay monies in respect of the deemed disposal in respect and in lieu of the Site Payment that would have been payable if there had been an actual disposal on those terms.
30.	Clause 12.4.5 provided that subject to the granting of the development sub-lease, and the making of the payments due on a deemed disposal (plus any interest due) the Freeholder would have no further claim against ACP arising out of any breach by ACP of its obligations in respect of the completion of the project.
31.	Clause 14 provided that until the issue of a certificate of practical completion in respect of the Project, ACP should not sell transfer or otherwise dispose of the development lease.
32.	At this stage I note the following features of the Preliminary Agreement:
i)	Britel’s maximum financial entitlement under the agreement was £1.215 million. Once sale proceeds of penthouses had reached £5.4 million, Britel had no further financial interest.
ii)	The obligations imposed as regards the timetable were not absolute obligations, but obligations to use “all reasonable endeavours” to meet the timetable. 
iii)	The trigger for the exercise of the option to call for the grant of the development sub-lease was the failure to conclude all works (i.e. for all five penthouses) within 54 months (subject to extensions of time). 
iv)	The option was exercisable whether or not Britel had received its full entitlement to Site Payments as a result of the sale of already completed penthouses.
 The Introduction Agreement
33.	The Introduction Agreement was made between ACP and Meretz. It recited:
A Meretz has introduced ACP to Britel Corporation NV (“the Freeholder”) the owner of a property known as Albert Court, Prince Consort Road, London SW7 2BH (“the Property”).  
 B It is intended that ACP and the Freeholder should enter into an Agreement in respect of the Property in the form of the draft annexed hereto (“the Preliminary Agreement”).  
 C Consequent upon the Preliminary Agreement being entered into it is intended that ACP should act as a Developer in respect of the Project (as therein referred to) subject to and in accordance with the terms of the Preliminary Agreement and this introduction agreement shall be deemed to incorporate the terms of the Preliminary Agreement (provided that in case of conflict the terms of this introduction agreement shall prevail).  
 D In consideration of Meretz introducing ACP to the Freeholder ACP has agreed to enter into this Agreement in respect of which (inter alia) Meretz may become entitled to a commission for such an introduction upon the terms and conditions contained below.”
34.	The operative part provided:
1. Save as varied hereby the terms of the Preliminary Agreement shall be deemed to be incorporated herein as though set out in extenso (mutatis mutandis) subject to references therein to the Freeholder being deemed to be substituted so as to refer to Meretz for the purposes of this Agreement.  
 2. ACP agrees to enter into the Preliminary Agreement with the Freeholder.  
 3. Meretz shall procure that the Freeholder enters into the Preliminary Agreement with ACP.  
 4. ACP shall consequent upon the entering into of the Preliminary Agreement continue to liaise with Meretz from time to time (and vice versa) in connection with the Project progressing and Meretz shall at its own expense render such assistance and cooperation as ACP may reasonably require in order to enable the Project to proceed.  
 5. The provisions of Paragraphs 5, 6.3, 8, 9 (save Paragraph 9.1) and Paragraph 12 of the Preliminary Agreement shall not apply hereto.  
 6. In the event of the Project proceeding and following completion of the sale of the Penthouses by ACP on long lease (pursuant to Paragraph 7 of the Preliminary Agreement) and the aggregate net sale proceeds in respect of such Penthouses exceeding a figure of £5,400,000 then ACP shall within 7 days of completion of the disposal of the last of the Penthouses by ACP pay to Meretz (or as Meretz may direct) an amount by way of commission representing the sum of:  
(a) 0% of such net sale proceeds up to £5.4 million  
(b) 70% of such net sale proceeds between £5.4 million and £6 million and  
(c) 50% of such net sale proceeds above £6 million.  
7. ACP shall provide Meretz with proper calculations in respect of such commission payment.”  
35.	The figures in clause 6 were subsequently varied.
36.	At this stage I note the following features of the Introduction Agreement:
i)	It did not commit ACP to carrying out the development: clause 6 was expressly conditional on the project proceeding;
ii)	The contractual timetable in clause 12 of the Preliminary Agreement was specifically excluded from the Introduction Agreement;
iii)	The trigger event for the payment of commission to Meretz was the completion of the sale of penthouses by ACP. Thus (a) no commission became payable on the completion of the construction of a penthouse: it was a sale that was the triggering event and (b) the sale had to be a sale by ACP: a sale by anyone else would not trigger the payment of commission;
iv)	If ACP were to fail to comply with the long-stop date in the Preliminary Agreement, with the result that Britel called for and obtained the development sub-lease under the Lease-Back Option that would deprive Meretz of any right to future commission. To that extent the rights of Britel and Meretz were in potential conflict.
The FP Guarantee
37.	Under the FP Guarantee FP guaranteed to Britel the performance by ACP of its obligations under the Preliminary Agreement and the development lease. The Guarantee recites (in recital B) that it is intended that ACP (defined as “the Developer”) and Britel should enter into the Preliminary Agreement (a draft of which was annexed). Recitals C and D of the Guarantee are in the following terms:
C Consequent upon the Preliminary Agreement being entered into it is intended that the Developer should act as a Developer in respect of the Project (as therein referred to) subject to and in accordance with the terms of the Preliminary Agreement which may result in the granting of a Development Lease (‘the Lease’) being granted to the Developer in the form of the draft annexed hereto.  
D In consideration of the Freeholder entering into the Preliminary Agreement at the request of the Guarantor in favour of the Developer, the Guarantor has agreed to enter into this Deed upon the terms and conditions set out below
38.	The operative part of the guarantee read:
1. Subject to the Preliminary Agreement being entered into (at the request of the Guarantor) by the Freeholder and the Developer and with effect therefrom, in consideration of the premises the Guarantee HEREBY COVENANTS with the Freeholder that the Developer or the Guarantor will duly perform and observe all the covenants and conditions on the part of the Developer contained in the Preliminary Agreement and (subject to and with effect from the same being granted) the Lease and in particular that the Developer or the Guarantor will duly pay the monies falling due thereunder and payable to the Freeholder and the Guarantor HEREBY FURTHER COVENANTS to indemnify and keep indemnified the Freeholder from and against all losses, damages, costs and expenses arising directly or indirectly out of any default by the Developer in the performance and observance of any such covenants and conditions as aforesaid.  
 2. The Guarantor HEREBY FURTHER COVENANTS with the Freeholder that the Guarantor is to be regarded as being jointly and severally liable with the Developer for the fulfilment of all the obligations of the Developer under the Preliminary Agreement and under the Lease and agrees that the Freeholder in the enforcement of its rights pursuant to the terms of the Preliminary Agreement and/or the Lease may proceed against the Guarantor as if the Guarantor were named as the Developer in the Preliminary Agreement and/or the Lease.”
39.	The FP Guarantee did not extend to ACP’s obligations under the Introduction Agreement. FP gave no guarantee to Meretz.
The reason for two agreements
40.	During the course of the negotiations Meretz was introduced into the financial package. Meretz was not the (or a) freehold owner of Albert Court. Its only interest was as leaseholder of flat 6. Nor had it introduced Britel to FP; it was inserted into the financial package subsequently. It is clear that the reason for splitting the profit share between Meretz and Britel was to conceal the existence of the additional potential receipts from NUBBH. Mr Stern said that he regarded NUBBH as willing to release its security over Albert Court for £1 million, even though the indebtedness secured by its charge greatly exceeded that amount. Once NUBBH had taken that position, he felt under no legal or moral obligation to reveal to NUBBH that potential receipts from the development could exceed the sum of £1 million. Had he done so, NUBBH would probably have insisted on applying all the potential receipts in reduction of the secured indebtedness.
41.	In a subsequent debt action by Meretz (to which I refer later) HH Judge Seymour QC described the purpose of two agreements rather than one as “fiscal”. In his witness statement Mr Stern said that this was correct; but added that the purpose of the two agreements was “financial”. It is clear to me that the purpose of having two agreements was nothing to do with tax (“fiscal”). Its purpose was to keep money out of the hands of NUBBH as mortgagee. It is also clear that the first recital to the Introduction Agreement was false: Meretz had not introduced ACP to Britel.
The lease and the first series of charges
The CHAPS declaration of trust
42.	On 23 October 1996 Britel executed a declaration of trust in favour of Channel Hotels & Properties (UK) Ltd (“CHAPS”). Recital 2 said that Britel had agreed to convey the freehold of Albert Court to CHAPS conditional on:
i)	Completion of the development of the penthouses on the roof and
ii)	The discharge of all monies owing to NUBBH secured on the property.
43.	The operative part of the declaration read as follows:
“1. Britel will henceforth hold the property and the net rents and income from it in trust for CHAPS absolutely
2. This trust shall continue from the date hereof until such time as the conditions referred to in recital 2 (a) and 2 (b) above have been satisfied whereupon the freehold of the Property will immediately be transferred to CHAPS or to whom it may direct, free of mortgage charge or other financial obligation.”
44.	Mr Stern suggested in his evidence that this trust was intended to operate “in futuro”; and pointed out that the agreement to convey the freehold was conditional on conditions that had not been fulfilled. However, while the obligation to convey legal title was conditional, the declaration, in my judgment, operated as an immediately binding trust in the interim.
The development lease
45.	On 22 July 1996 ACP had called for the grant of the development lease. Under the terms of the Preliminary Agreement the lease was to be granted six weeks after it had been called for.
46.	Pursuant to clause 5 of the Preliminary Agreement, on 4 November 1996 (and therefore some weeks late) Britel granted the lease to ACP for the term from 25 December 1995 until 24 December 3000. The Lease was registered at HM Land Registry under title NGL 74613. 
47.	The development lease contained covenants by the lessee not to assign without consent (clause 2(iii)(b)) and to observe and perform the obligations set out in the Third Schedule (clause 2(ix)) and a proviso for re-entry in the event of a material breach of covenant by the Lessee. The Third Schedule contained an obligation “to carry out and to complete the Works as expeditiously as possible (but subject to the same being phased by the Lessee in such manner as the Lessee reasonably requires)”. The “Works” were defined as either one large penthouse or five penthouses or such other number as the lessor might reasonably agree. There was no fixed timetable. As envisaged by the Preliminary Agreement the development lease did not prevent the lessee from charging it. However, the lease did contain, in clause 2 (iii) (a) contractual restrictions on sub-letting. The relevant parts may be summarised as follows:
i)	The lessee was not permitted to sub-let part of the premises (as distinct from the whole) except by way of a sub-lease in the standard form;
ii)	Each underlease had to be an underlease of a single self-contained flat or penthouse constructed in accordance with valid planning permission;
iii)	No underlease of a flat or penthouse could be granted until the Works had been completed to the reasonable satisfaction of the lessor or its surveyor.
The FP Charge
48.	As noted, the original idea was that funding was to come from the Standard Bank of Jersey secured on the development lease. Once ASH withdrew, alternatives had to be found. Thus it came about that FP agreed to lend money to ACP. The agreement between ACP and FP is recorded in the minutes of the board meetings of both companies on 16 December 1996. What was agreed was that FP would take on the costs of the development. That would result in ACP incurring a debt to FP consisting of the costs themselves, a builders’ margin (to include a profit of 5%) and interest on all costs at 10% per annum. It was also agreed that if possible ACP would grant FP a first charge over the development lease as security. 
49.	By a charge dated 11 August 1997 and registered at HM Land Registry on 5 September 1997 ("the FP Charge"), ACP charged the development lease to FP to secure sums due from ACP to FP. The FP Charge was expressed to rank first over the development lease. It contained an express power of sale. At the date of registration of the FP Charge, the Lease-Back Option remained unprotected by registration.
The Meretz Charge
50.	By a charge dated 19 September 1997 ("the Meretz Charge") ACP charged the development lease to Meretz to secure all sums due to Meretz under the Introduction Agreement. The Meretz Charge was to rank third over the development lease. Clause 5 of the Meretz Charge contained a covenant by ACP to observe and perform the lessee’s covenants in the development lease. As will be recalled, the lease contained an obligation to carry out the works as expeditiously as possible, but no fixed timetable. ACP had no contractual obligation to grant this charge. But it was persuaded to do so by Mr Stern who held out the hope of introducing FP to the Freshwater Group (to whose directors he was related by marriage) with a view to FP undertaking further rooftop penthouse developments on blocks of flats owned by the Freshwater Group. Once granted the Meretz Charge was sub-charged by Meretz to Highdorn Co Ltd (a company within the Freshwater Group).
51.	Shortly afterwards the question arose of the grant of a further charge over the development lease to NUBBH to secure the payments due to Britel under the Preliminary Agreement, which Britel had assigned to NUBBH by way of security. Britel and Meretz were nervous about giving notice of the Meretz charge to NUBBH. As Mr Shaw put it in a letter of 18 November 1997 to Mr Hedden (the in-house lawyer for the Freshwater Group):
“Mr Stern has negotiated a finite sum that is acceptable to NUBBH Ltd in discharge of their second Charge over the freehold of Albert Court and thus far they have not been involved in the Meretz Investments N.V. Introduction Agreement and I believe that Mr Stern’s sole concern is not to “rock the boat” as far as NUBBH Ltd is concerned and set hares running unnecessarily.”
52.	Mr Stern agreed in his evidence that this accurately stated his position; and that he still wished to keep the existence of the Introduction Agreement hidden from NUBBH.
The NUBBH Charge
53.	By a Deed of Agreement dated 17 May 1996 Britel assigned to NUBBH as continuing security the benefit of the Preliminary Agreement by way of security for sums due from Britel (and others) to NUBBH. This included not only the right to the Site Payments, but also Britel’s other rights under the agreement (including the Lease-Back Option). In addition Britel assigned to NUBBH as continuing security the benefit of the FP Guarantee. NUBBH also consented to the grant to ACP of the development lease, conditional on the grant by ACP of a charge over that lease in favour of NUBBH. Although ACP granted NUBBH a charge to secure payment of these sums, it was not registered at Companies House within the requisite time limit and was replaced by a later charge.
54.	The replacement charge was dated 23 December 1997 and made between ACP and NUBBH. ACP covenanted to pay to NUBBH all sums due to Britel under the Preliminary Agreement (the benefit of which had already been assigned by Britel to NUBBH) and charged the development lease by way of second mortgage to secure payment of those sums. This charge was limited to securing the “Secured Sums” (as defined). It did not secure the Lease-Back Option.
55.	This charge was to rank second over the development lease.
Car parking and management
56.	It will be recalled that one of the conditions attaching to the planning permission related to the provision of a parking space for each penthouse. The position as regards the availability of parking was that Britel had contracted to sell the car park to the Royal Albert Hall, subject to a right to call for a lease back of 23 parking spaces to be leased back under a single lease. Moreover, the terms of that lease required an offer to surrender before it could be assigned. The Royal Albert Hall were prepared to delete the obligation to surrender before assigning; but only at a price. Difficulties over the provision of car parking were at least one of the reasons why ASH withdrew from the joint venture arrangement. On 18 August 1998 Mr Shaw wrote to Mr Olsson to ask him to agree to contribute £100,000 towards the cost of a variation of the obligation. As Mr Shaw reported to Mr Stern on 9 September 1998 the problem over parking was causing funding difficulties for FP. He said:
“Lloyds [Bank] have apparently expressed concern over … the car parking position. The latter point must be read in conjunction with what we are doing vis-a vis the Royal Albert Hall and I do not think we should under-estimate the damage that RAH can do. It is not a question of the number of spaces so much as the fact that the lease of the car-parking spaces has a restriction on assignability by requiring us to offer it back to RAH at market value and only being allowed to assign 28 days later if the offer is rejected. Our obligation to ACP, however, is to grant a lease within the new car park and although the Preliminary Agreement does refer to the RAH agreement, the practical fact is that it will cause problems with a purchaser who will be advised that they have no certainty of being able to sell with the penthouse a car parking space.”
57.	Mr Stern was unwilling in his evidence to accept that car parking was a real problem. He disagreed with Mr Shaw’s contemporaneous assessment. He thought that it was simply one of Mr Olsson’s excuses for not progressing with the development. Although Mr Stern was prepared to accept that the contractual arrangements with the Royal Albert Hall required modification in order to enable Britel to perform its obligations to ACP, he did not regard that as a practical difficulty. I do not accept Mr Stern’s view. In my judgment it is coloured by hindsight and by the strong opinions he holds about Mr Olsson’s lack of integrity. I prefer Mr Shaw’s contemporaneous assessment. Whether the car parking problems were the cause of continuing delay is, however, a different question, to which I will return.
58.	The second issue was the management company. Services to the flats at Albert Court were provided, not by the landlord, but by a management company owned by the residents. The Preliminary Agreement did not contain any obligation on the part of Britel to procure the entry by the management company into the lease of any penthouse; and there was no agreement with the management company itself which could compel it to do so. Moreover, there were disputes between Britel and Meretz on the one hand and the management company on the other over the recoverable service charge. In a subsequent letter (some three months later) Mr Stern referred to the management company’s “intense dislike” of Britel. This added to the funding difficulties; and was another reason why ASH withdrew from the joint venture.
59.	The funding difficulties were, in turn, making ACP unwilling to order the modules. 
60.	By October 1998 Varlet International Ltd (“Varlet”) had appeared on the scene as the potential buyer of one or two penthouses. Their agents said in a letter of 20 October 1998 that they would not be willing to enter into any contractual commitment until the position concerning the car parking and the status of the management company had been resolved. Varlet were proposing to fund the construction of the penthouses they were proposing to acquire and to take security over the development lease for that purpose. Varlet’s solicitors also raised their concerns over the parking issue and the management company.
NUBBH raise the role of Meretz
61.	On 8 December 1998 NUBBH’s solicitors wrote to Mr Stern. They said that they had been under the impression that Meretz and Highdorn had been funding the development; but were concerned by a reference to Lloyds Bank as funder. They asked why, if Meretz and Highdorn were not the funders, they were chargees over the development lease. They also asked for full details of “their arrangements” and added that:
“If it transpires that any consideration given has not been used in the development, NUBBH would regard this as a most serious state of affairs.”
62.	The initial reply came from Mr Shaw rather than Mr Stern. He said blandly that:
“Both ACP and Britel have certain financial obligations to Meretz and The Freshwater Group and they quite naturally required security from ACP in respect thereof.”
63.	He did not reveal what ACP’s obligations to Meretz were. On 15 December 1998 Mr Stern himself wrote to NUBBH purporting to provide “the fullest possible background in relation to everything that impacts on our business relationship.” His letter ran to four and a half single spaced pages. He set out much of the history of his business career, concentrating on his relationship with the Freshwater Group. He did not reveal the existence of the Introduction Agreement between ACP and Meretz. Indeed Meretz was not mentioned at all.
64.	Towards the end of the year Mr Kirch (the moving spirit behind CHAPS) was trying to meet Mr Olsson. Mr Stern was alarmed as he thought that Mr Kirch was in a position to stir up trouble with NUBBH. In a memo to Mr Shaw of 31 December 1998 Mr Stern wrote:
“To the extent that everything is charged to Meretz which in turn has sub-charged it to Highdorn, I should not really be worried as there is nothing DK can extort. On the other hand, DK has a powerful blackmail weapon in that he knows NUBBH is unaware of the Meretz commission and he must feel that there is some room for manoeuvring for him in that respect.
We have been reasonably successful in pretending to NUBBH that Meretz is within the Freshwater sphere of influence but of course DK knows better …”
The Deeds of Priority and alterations to the initial agreements
The April 1999 Deed of Priorities
65.	By April 1999 the development had fallen badly behind schedule. According to the original timetable, the modules should all have been installed on the roof of Albert Court already. In fact not a single module had been hoisted. Mr Olsson prepared new cashflows showing a revised timetable. He had sent these to (among others) Mr Shaw and NUBBH in support of a request for an extension of time. By now Varlet were prepared to contract to buy a penthouse and fund its construction.  Accordingly the parties entered into the April 1999 Deed of Priorities.
66.	The April 1999 Deed of Priorities was made between (1) FP; (2) NUBBH; (3) ACP; (4) Meretz; (5) Britel; (6) Varlet; (7) Highdorn and Mr SI Freshwater. The agreement recited that Varlet was proposing to purchase one or possibly two penthouses (B and C) in course of construction and, in order to provide the necessary monies to finance the completion of construction, had agreed to pay the purchase price ahead of completion on the security of a charge on the Lease (“the Varlet Charge”) provided that the charge ranked as a first charge over the Lease in priority over all other charges.
67.	Clause 1 of the April 1999 Deed of Priorities provided that, so long as any sum remained owing to Varlet under the Varlet Charge, the Varlet Charge should be regarded as substituted for and replacing the FP Charge and rank as a first charge with priority over all other charges over the Lease:
“and the security given to [FP] is thereby suspended”
68.	Clause 2 said  that on discharge of the Varlet Charge the FP Charge 
“shall subject to clause 19.1 and 19.2 being complied with once again come into full force and take effect and shall automatically be reinstated as the First Charge …”. 
69.	Clause 4 dealt with the distribution of any monies received on realisation of the development under the development lease. Clause 6 dealt with monies payable to Meretz under the Introduction Agreement. In essence, Meretz’ entitlement to commission was accelerated; but Meretz agreed to defer payment of any commission payable until the sale of the fourth penthouse, provided that ACP could demonstrate that all five penthouses would be built within a reasonable time. Clause 13.2 confirmed that ACP had applied for extensions of time pursuant to the provisions of paragraphs 12.2.3 to 12.2.5 inclusive of the Preliminary Agreement, and Britel agreed that the deadline for completion of the Project in that agreement and in the Lease (if applicable) was to be extended to 7 September 2002. FP acknowledged that this variation would not affect its guarantee of ACP’s obligations under the Preliminary Agreement. Clause 18 dealt with the sale of the freehold to a residents’ company and provided for the grant of an overriding lease back to Britel. This provision was intended to solve the problem that the management company would not enter into the sub-leases. By clause 19.2 the parties both acknowledged the priority (and enforceability) of the FP Charge and agreed that the security provided by the FP Charge should be reduced in value to £1.5m upon the sale of the third penthouse, and should be discharged upon completion of the sale of the fourth penthouse “and the priorities will in any event have effect as if this clause 19.2 had been complied with”. 
70.	Clause 21 provided that each of the parties, in exercising their discretion, rights or powers should act “in good faith towards the other parties and wherever possible (but without prejudicing his or its own interest) without damaging the interests of the other parties”.
71.	Clause 22 said:
“[ACP] joins in this Deed for the purpose of (inter alia) better securing the rights of Varlet … and undertakes with each of the parties hereto to observe the provisions of this Deed, the Lease, the Agreement and the Introduction Agreement (which continue in full force save as varied by this Deed) at all times and not in any way to prejudice or affect the enforcement of such provisions or to do or suffer anything which would be a breach of the terms of this Deed, the lease, the Agreement and the Introduction Agreement”
72.	Clause 23.2 said:
“Wherever there is a reference to the completion of a sale of a penthouse completion shall for that purpose be deemed to take place on the date of actual completion or on a date when it is first reasonable to assume that a completion shall never take place”
The Heads of Terms
73.	On 15 October 1999 ACP, Britel, Meretz and FP entered into written heads of terms expressed to be binding pending entry into a formal deed. This agreement was intended to settle outstanding claims and in particular a claim by Britel for an injunction restraining ACP from entering into a “package sale” of a number of penthouses off-plan; and a claim by ACP for damages for delay in granting the development lease and for additional sums to be deductible from sale proceeds.
74.	By clause 3 ACP waived all claims against Meretz and Britel arising from alleged delays in executing the development lease. Clause 4.1 quantified ACP’s claims in respect of liabilities that could be deducted under clause 9.1 of the preliminary agreement at £1.55 million.
75.	Clause 6 (c) of the Introduction Agreement was varied by deleting the figure of £6 million and replacing it with £7.55 million. The effect of this change was that ACP was under no liability to pay commission to Meretz in relation to that slice of the sale proceeds which exceeded £6 million and fell short of £7.55 million. However, it was expressly provided that this change should not affect Britel’s right to Site Payments under the Preliminary Agreement.
76.	Accordingly, as from 15 October 1999 Meretz’ entitlement to commission was:
i)	0% of net sale proceeds up to £5.4 million  
ii)	70% of net sale proceeds between £5.4 million and £6 million 
iii)	0% of sale proceeds between £6 million and £7.55 million and
iv)	50% of net sale proceeds above £7.55 million.  
77.	Clause 7 of the Heads of Terms recorded that in return for a payment of £50,000 Britel and Meretz agreed to release an area of some 300 square feet from the Introduction Agreement and the Preliminary Agreement. This area, which was shown on a plan, had formed the upper level of Flat 62, and was known as “the Loft”. Although the Heads of Terms recorded that the Loft would be released from the two agreements, it did not specifically mention release from the NUBBH Charge or the Meretz Charge. This was to become a subsequent bone of contention.
The sale of the freehold and the overriding lease
78.	On 29 October 1999 Britel agreed to sell the freehold title of the property for £400,000 to Albert Court (Westminster) Freehold Ltd; and, in pursuance of that contract, by a transfer dated the 17th May 2000 Britel transferred its freehold title to the property to Albert Court (Westminster) Freehold Ltd. That company was owned by the residents. On the same day Albert Court (Westminster) Freehold Ltd granted an overriding lease to CHAPS for a term exceeding that of the Lease by 1 day at an annual rent of £1. By a Deed of Acknowledgement dated 19th September 2002 CHAPS acknowledged that it held (and it continued to hold) the Overriding Lease on trust for a company associated with CHAPS, NUBBH, Britel and Meretz. 
The May 2001 Deed of Priorities
79.	On 17 May 2001 the parties to the April 1999 Deed of Priorities with the exception of Varlet (whose charge had been discharged) but with the addition of National Westminster Bank ("the Bank") executed a further Deed of Priorities ("the May 2001 Deed of Priorities"). The purpose of the May 2001 Deed of Priorities was to enable ACP to grant a charge in favour of the Bank ("the Bank Charge") which would rank ahead of all other charges of the Lease during its intended short life. Clause 1.2 of the May 2001 Deed of Priorities provided that the FP Charge should come into full force and effect once the Bank Charge had been discharged, subject to two provisos: first that the amount secured by the FP Charge should not exceed £1.5 million; and second that the “terms of Clause 19.2 of the 1999 Deed continue to apply” to the FP Charge. That was the clause that provided for the reduction in FP’s priority on the sale of the third penthouse and for discharge of the FP Charge on the sale of the fourth penthouse. The May 2001 Deed of Priorities did not repeat the terms of clause 23.2 of the April 1999 Deed of Priorities dealing with deemed completion; but it said in clause 2 that the provisions of the April 1999 Deed, “to the extent that the same had yet to be performed and/or observed”, should remain in full force and effect. In clause 9 Britel confirmed that ACP had applied for extension of time pursuant to the provisions of paragraphs 12.2.3 to 12.2.5 inclusive of the Preliminary Agreement; and that the time limits in that agreement and in the Lease (if applicable) were varied so as to provide for completion of the Project on the 7th September 2002. Although the long stop date remained the same as in the April 1999 Deed of Priorities, there was an extension of time for an intermediate stage. FP acknowledged that this variation should not in any way affect the FP Guarantee given to Britel in respect of ACP’s obligations under the Preliminary Agreement.
80.	Clause 14 recorded that ACP joined in the May 2001 Deed of Priorities for the purpose of better securing the rights of the Bank, and acknowledging the priorities. It also undertook with each of the parties to the deed to observe the provisions of the May 2001 Deed of Priorities, the development lease, the Preliminary Agreement and the Introduction Agreement.
81.	Meretz relies on clause 14 of the May 2001 Deed of Priorities (which was in the same form as clause 22 of the April 1999 Deed of Priorities) as amounting to a contractual undertaking by ACP to Meretz that it would comply with the contractual timetable for construction contained in clause 12 of the Preliminary Agreement (as varied) and also as amounting to a contractual undertaking by ACP with Meretz that it would grant the development sub-lease to Britel, pursuant to the Lease-Back Option.
Another funding crisis
82.	By the late summer of 2001 the development was running into difficulties again. The problems were discussed at a board meeting of both ACP and FP held on 12 September 2001. One problem was caused by delays in the manufacture of the modules. It was thought that there might have to be a change of supplier, with consequential costs. By this stage the development was no longer thought to be profitable. The board of ACP were forecasting a loss of £400,000. It was in this context that the directors of both ACP and FP (who were the same people) began to give thought to using the FP Charge in order to avoid a loss. Consideration of this found its way into the board minutes in a paragraph captioned ACP; but Mr Olsson explained (and I accept) that matters relating to Albert Court were dealt with under that heading, whether the matters technically related to ACP or FP. The minutes record the formulation of a plan. The plan included cutting design and building costs; completing the project as soon as possible; keeping “our staff” in work and:
“Use the £1.5M 1st charge to avoid a loss.”
83.	One of the steps involved in the plan was to keep borrowing “at no less than £1.5M to the end”. It was put to Mr Olsson (and he agreed) that the company wished to pursue this plan because all four directors present at the meeting resolved to pursue it, with no dissent. It was also agreed that one of the directors would approach Berwin Leighton Paisner (“BLP”) as potential property lawyers.
84.	The two boards returned to the question on 5 November 2001.  The agenda for the meeting was prepared by Mr Olsson. Part of his proposal to the boards was that FP should “foreclose” on ACP. It was suggested that advice should be taken from a barrister whether that was possible; and whether to build out under FP’s receiver’s management or to sell it off to someone who would use FP to complete the development. The consequence of this was expected to be that FP would take the first £1 million profit, and any excess profit would be paid to “Stern & Co”. The benefit to FP was that it was more than likely that it would make a profit. However, the agenda also pointed out that there was likely to be a long legal fight with Mr Stern.
85.	The minutes record that:
“FP is likely to foreclose and take control of the development lease.”
86.	However the board resolved that Mr Olsson should take counsel’s advice before the board could make a decision whether to use the first legal charge.
Enter Mr Tamimi
Mr Tamimi
87.	Mr Tamimi was interested in buying penthouse A, which had not yet been built. He first made an offer in September 2001. The proposed purchase was driven largely by his wife and eldest daughter. They liked the design of the penthouse, which Mr Tamimi himself did not. However, the penthouse as designed contained only three bedrooms; and Mr Tamimi wanted five, with attendant en-suite facilities. This necessitated the redesign of the penthouse. He told me (and I accept) that even after completion of the penthouse it is used only by his wife and daughters, and that he prefers to stay in a hotel when he is in London. He dealt through agents and was not at first in direct contact with the potential vendor (whose identity he did not know at that stage). Although understandably Mr Tamimi did not understand the niceties of English land law, he did understand that he would advance money towards building costs as the project proceeded. The agents introduced him to an English solicitor, Mr Peter Ware, on whose advice he relied.
The relationship between Mr Tamimi and Mr Ware
88.	Mr Tamimi had not dealt with Mr Ware before, but he trusted his advice. Mr Ware regularly updated Mr Tamimi by fax on the progress of negotiations. Mr Tamimi said that he did not read Mr Ware’s letters in detail. He would scan the faxes and then ring Mr Ware to ask whether there was anything of concern. Mr Tamimi was more interested in the financial aspects of the transaction (the “numbers”) than the legal details. It is clear that although Mr Ware kept him apprised of the commercial aspect of the deal, he did not bother Mr Tamimi with all the legal ins and outs. I accept Mr Tamimi’s evidence. In addition to contact by fax and telephone Mr Tamimi and Mr Ware met several times when Mr Tamimi was in London.
89.	At a relatively early stage in the process consideration was given to taking the proposed lease of the penthouse in the name of a company to be owned either by Mr Tamimi’s wife and daughters or by a trust (the Davos Trust) under which they are beneficiaries. The company eventually became Hanson Trading Ltd.
Mr Stern is informed
90.	Mr Stern had been pressing for a progress report on penthouse A. ACP’s solicitors wrote to him on 6 December 2001. They explained that Mr Tamimi was trying to renegotiate the price and that they were hopeful of reaching a compromise. They enclosed copies of two agreements which they described as follows:
“… the latest version of the draft Contract … along with a copy of a Supplemental Agreement dealing with Project Management and a substantial re-design to suit the Purchaser’s requirements (bearing in mind that it was originally intended that penthouse A would have three bedrooms but this particular Purchaser would like the property re-designed so that it has five bedrooms).”
91.	The draft contract envisaged the making of stage payments as various stages in the construction process were achieved. The stated consideration was £2.8 million. The Supplemental Agreement appointed FP as project manager for a fee of £100,000. Mr Stern complained in his evidence that the payment of the project management fee had been concealed from him. This was clearly not the case.
The contingency plan develops
Worsening relations
92.	Penthouse C had been sold in October 2001, having been on the market for some ten months. Meretz claimed that a commission payment had become due to it on completion of that sale. ACP argued that it was entitled to defer payment under the terms of the October 1999 Heads of Terms. A dispute over Meretz’ entitlement developed which was, in due course, to lead to legal proceedings. In addition, the projected development was progressing slowly, to the extent that it was progressing at all. Each side blamed the other for the delays. FP began to develop the contingency plan. This, in essence consisted of the exercise by FP of its powers under the FP Charge. FP took advice from counsel and the substance of the advice was relayed to the board at its meeting of 6 December 2001. Much of the advice (which was contained in a written Opinion) was concerned with Meretz’ claim for commission. But counsel did also consider whether FP could appoint a receiver under its legal charge. She pointed out that FP had to exercise its rights “in good faith and for the sole purpose of protecting its investment”. She pointed out that FP had a duty to obtain a proper price, and that that duty was owed to subsequent mortgagees. She advised that if a receiver appointed by FP were to sell the development lease (and were not prevented from doing so by injunction) then a purchaser would take free of any incumbrances. But she also said that the receiver would be in no better position than ACP. Mr Olsson said (not without justification) that the advice was not entirely clear and in some places seemed to be self-contradictory. Counsel did not consider the effect of FP as mortgagee itself exercising a power of sale (as opposed to a sale by a receiver). The board agreed that Mr Olsson would get a “firmed up opinion before any legal action” was taken.
93.	Mr Olsson communicated FP’s intention to exercise its power of sale under the charge to NUBBH in a letter of 11 December 2001. Mr Stern said that he was unaware of this at the time; and I accept his evidence in this respect. On the same day FP demanded repayment from ACP of some £1.9 million.
Agreement to sell Penthouse A
94.	On 8 January 2002 ACP entered into an agreement to sell Penthouse A to Mr Tamimi for £2.75 million. The penthouse had not yet been built; and so the agreement contained the same provisions as the draft for its construction and for stage payments to be made by Mr Tamimi during the progress of the works. Clause 4.3 required ACP to use all reasonable endeavours to complete the works within 10 months (i.e. by 8 November 2002). Clause 7 of the agreement gave Mr Tamimi “step in rights”; that is to say the right to enter the property and build out the development himself, if the works had not been completed within 12 months (i.e. by 8 January 2003). Completion was to take place five working days after the purchaser had served notice accepting the works. The Supplemental Agreement was executed on the same date. The Supplemental Agreement made provision for the payment of a fee of £100,000 to FP for “project management”. In fact Mr Tamimi had his own project manager: a Mr John Barron. The contracts were in the same form as the drafts that had been sent to Mr Stern in the previous month.
The beginnings of the contingency plan
95.	On 5 February 2002 Mr Olsson gave instructions for a valuation of the development lease on certain assumptions. The assumptions included the assumption that a purchaser would not have to pay anything to the freeholder. He explained to the valuer:
“As part of [FP’s] contingency plans are plans to step in as mortgagee in possession over the Development Lease and to sell it on to a developer or to develop it as mortgagees in possession. … FP would be willing to act as designers and builders for the developer who bought the development lease. FP would charge £300,000 for the existing design should the developer wish to use that. If not, the developer would have to do their own design.”
96.	A week later Mr Olsson was in communication with BLP seeking advice. He told Mr Bretherton (the partner in charge) that FP were “planning to use our charge”. He continued:
“Our plan is first to have the Loft released and then to take charge by stepping in as Mortgagees in Possession, arrange finance and building out or to sell the development lease to a developer where we would reinvest the purchase price into the development in return for being able to build and participate in the profit.”
97.	On 26 February the board met again. It resolved that:
“subject to … further legal opinion and any ruling or decision by the courts the Company would take expedient action deemed appropriate and necessary and which was in the best interests of it and the group collectively.”
98.	Some time in February 2002 Mr Lever of CHAPS passed on to Mr Stern (in confidence) the information that FP were considering the exercise of the power of sale. 
99.	Counsel was consulted again in March 2002. She advised that the Lease-Back Option had not been registered against the development lease and that it might anyway be void under the Landlord and Tenant Act 1954 as being tantamount to an offer to surrender. She also drew attention to FP’s position as guarantor of ACP’s obligations and advised that it was likely to be preferable if FP, in exercising its powers under the charge, were to sell on the property to a third party or assign the benefit of its charge, rather than maintaining any direct involvement. On 20 March 2002 a conference took place. Mr Hawkins, a solicitor and consultant to BLP, had assumed the lead responsibility in advising FP; and he attended the conference. It was his first meeting with Mr Olsson. Mr Hawkins recalled that at the conference Mr Olsson told him that FP’s objective in enforcing the charge was to recover at least part of the debt. Although Mr Hawkins did not make a note of this, he said that since this was his first meeting with Mr Olsson he would have explained to him that it would be improper to use the charge unless it was to recover the debt; and that if Mr Olsson had not said something to that effect he would have been uncomfortable in going ahead with what eventually became the scheme. I accept this evidence. Following the conference, Mr Hawkins of BLP sent Mr Olsson a long e-mail containing his advice. The discussion at the conference had concentrated on whether FP could grant underleases of the various penthouses. But on reflection Mr Hawkins considered that FP, as mortgagee, had no power to do this. He therefore considered alternative courses of action. He said that FP could sell the headlease as mortgagee. This would overreach the mortgages of NUBBH and Meretz (and the latter’s sub-chargees) but would need the landlord’s consent. Any purchaser would require comfort that the headlease would not be forfeited because of the failure to complete the development by 7 September 2002. He also pointed out that Britel or Meretz might apply for an injunction to stop the sale or call for the development sub-lease. However, Mr Hawkins said that the terms of the headlease did not appear to allow a development sub-lease to be granted.
100.	Also on 20 March 2002 Mr Olsson wrote to NUBBH suggesting a meeting as “a last attempt to agree on how FP’s rights to the first £1 million and the others rights can be taken into account and the method of enforcement if and when FP uses its charge.”
101.	FP was now soliciting offers for the development lease. On 22 March 2002 Britel attempted to register a caution to protect its interest under the Lease-Back Option; but the Land Registry refused to register the caution immediately. The reason for this was that there was a priority period running in favour of a prospective buyer, called Que Quoin Holdings Ltd (“QQH”), which would not expire until 27 April 2002. Britel’s solicitors wrote to ACP’s solicitors indicating that no further extension of time would be granted and that they had instructions to issue proceedings for a declaration that the Lease-Back Option was exercisable. Mr Olsson took the view that unless this threat was removed it was going to be almost impossible for ACP to raise money for to carry out further development. I agree.
102.	On 25 March Mr Hawkins summarised his thinking as follows:
“The way forward seems to be:
1.	FP to obtain funding for the Loft, then use the money to buy out NUBBH/Britel, and take a transfer of the NUBBH charge.
2.	ACP grant a sublease of the Loft to FP …
3.	FP sells the ACP lease as mortgagee to QQH, subject to obtaining [CHAPS’] consent….
4.	QQH continues with the development, possibly using the services of FP.”
103.	On 27 March Britel also sought assurances that the lease would not be transferred to QQH without imposing on it the obligations contained in the Preliminary Agreement. No such assurances were given. On 28 March 2002 Britel’s solicitors wrote to QQH’s solicitors saying that if QQH were to take an assignment of the development lease without assuming ACP’s obligations under the Preliminary Agreement, Britel would begin proceedings for inducing a breach of contract.
104.	On 1 April 2002 Mr Olsson sent an e-mail to (among others) Mr Stern in which he explained the relationship between ACP and FP. He said:
“ACP are developers and FP are builders.
FP have the expertise staff and do design and construction for ACP and charge net cost, plus a builders margin and interest.
ACP has got no capital of its own and have to pay FP out of sales and/or bank loans.
FP has provided ACP with a floating credit facility which means that ACP builds up a debt to FP and pay off that debt whenever they have money. ACP is building up a debt to FP during construction. This debt goes down when a sale occurs and then builds up again until the next sale, etc. The idea was that by the end of the project FP would have been fully paid leaving a profit for FP.
Unfortunately, delay costs due to litigation, etc have now eroded the profit for ACP and the prospect for FP to be fully paid.”
105.	On 2 April 2002 ACP’s solicitors wrote to give an assurance that ACP would not attempt to assign the development lease without notifying the purchaser of the terms of clause 12 of the Preliminary Agreement.  Two points should be noted about this. First the assurance was given only on behalf of ACP. No assurance was given on behalf of FP. Second, the assurance was limited to notifying the purchaser of the existence of the obligation. There was no assurance that it would be imposed on a purchaser.
106.	On 3 April 2002 Mr Bretherton sent an e-mail to Britel’s solicitors (among others). In it he said:
“My client in this matter is First Penthouse which has now lent some £2 m to ACP in relation to this development, all of which is fully secured but of which £1 m has priority to the subsequent charges in favour of NUBBH and Meretz. FP is in the position of watching ACP lose money to an extent which could prevent ACP from carrying on with the development and in those circumstances, in the absence of any settlement between our respective clients, FP will have no alternative but to take enforcement action, either by way of exercising mortgagee powers or by seeking the appointment of an administrator.”
Mr Tamimi gets involved in financing construction
107.	By now Mr Olsson was trying to interest Mr Tamimi in playing a more active part in financing the construction of penthouse A. The original contract signed on 8 January 2002 envisaged payment in stages:
£40,000	On exchange of contracts	
£10,000	5 working days after production of the module sub-contract	
£280,000	On completion of the sub-structure	
£90,000	On completion of the modules and dispatch from the factory	
£420,000	On the day following the delivery of the modules and craning into position	

108.	In addition £100,000 was payable to FP under the supplemental agreement. Mr Tamimi in fact paid £140,000 in December 2001 and a further £280,000 in February 2002. However, this was insufficient to maintain ACP’s cash flow. Mr Olsson was trying to persuade Mr Tamimi to advance £1.6 million, of which £700,000 would be payable in one lump sum, and the remainder by monthly instalments of £300,000. In return Mr Tamimi would be given a discount of £60,000 on the purchase price of penthouse A. If this were done quickly, it was hoped that the penthouse could be finished by November 2002.  Mr Ware reported to Mr Tamimi on this proposal on 5 April 2002. Mr Tamimi was not keen on the proposal. He is not a financier and his only real interest was in securing the building of penthouse A. However Mr Tamimi began to be worried, because he had heard that Mr Olsson had financial troubles. If what he had heard was right, that was all the more reason not to finance ACP or FP.
109.	On 8 April, in anticipation of a meeting with Mr Stern the following day, Mr Hawkins sent an e-mail to Mr Olsson. Having discussed certain possible outcomes he said:
“I think we still need to be ready to enforce the [FP] mortgage and/or put ACP into administration, should the meeting fail to produce a settlement or if the Meretz proceedings start to look bad.”
110.	 Britel’s solicitors wrote to ACP’s solicitors to say that ACP could not deal with the development lease, whether or not the buyer was aware of the Preliminary Agreement, because of the absolute bar on assignment contained in clause 14 of that agreement. On 10 April 2002 they wrote to Mr Bretherton asserting that:
“Our clients are advised that it would be inappropriate and improper in the circumstances that have arisen for First Penthouse to exercise any power of sale as mortgagee.”
111.	On the following day a conversation took place between Mr Mathias (Britel’s solicitor) and Mr Bretherton. Mr Mathias’ redacted attendance note of that conversation reads:
“I asked him about the fax that he had sent me the previous day. He said he wanted to think about it but it was not intended during these discussions for First Penthouse to sell under their power of sale. He realised that if they tried to do so there would be endless litigation and an injunction application. That was to the benefit of nobody. Regardless of the rights and wrongs each party would litigate if there was not a settlement. He said that they would not take any action without giving us notice. It was not his style to do two acts in a way where he would not give us notice.”
112.	Mr Stern said that he was unaware of this conversation. I accept his evidence.
113.	On 10 April 2002 Mr Olsson sent an e-mail to Mr Hawkins setting out his thoughts. He said:
“I feel it in my bones that we need to do something. Time is now crucial for the cashflow and here are my thoughts.
We did not agree a deal yesterday and to protect our position we should now
•	Enforce the mortgage
•	Explain to the Stern camp that we are still happy to do a deal but we are running out of time
•	Explain to Tamimi what we had to do and why, that no bank will finance until litigation with Stern has ended and that he is the only one who can now finance his penthouse. If he agrees so that we can get cracking now, then we will agree to do the additional design that he has asked for and to sell him the Loft. We can also ask him if he would prefer that someone else than FP completes his penthouse if they also finance.”
114.	He followed this up on 14 April with an e-mail in which he said:
“We need to concentrate on what will generate money quickest.”
115.	The two particular things he identified were selling the Loft and building out penthouse A. He suggested FP as mortgagee in possession might go to court to get the Loft released from the charges and added:
“Surely the Court will recognise that FP’s charge is there to protect its £1M.”
116.	He ended by saying that if the two problems could be sorted out Mr Tamimi or even NatWest would finance; and penthouse A could be completed.
117.	On 16 April 2002 Mr Olsson drafted a letter to CHAPS on behalf of FP which asked for consent to assign the development lease to QQH; and a similar draft asking for consent to assign to Mr Tamimi. It does not appear that either letter was sent. QQH were still in the frame for taking an assignment of the development lease; but Mr Olsson raised the possibility that Mr Tamimi might take an assignment. In an e-mail to Mr Ware on 22 April 2002 Mr Olsson set out a series of proposals which he said that he would explain on the following day. The proposals included:
i)	Immediate sale of a car parking space to Mr Tamimi for £100,000 in return for a discount on the price of the penthouse of £110,000;
ii)	Sale of the Loft for £480,000;
iii)	A further discount of £60,000 off the price of penthouse A in return for Mr Tamimi financing its construction;
iv)	Buying in the NUBBH charge (for £340,000) in order to obtain the release of the Loft. This sum was already included in the finance needed for penthouse A.
118.	In the e-mail Mr Olsson said that it was not essential that Mr Tamimi buy the development lease as there was another company lined up; but if he did so it would put him in even more control. 
119.	On 23 April 2002 Mr Olsson Mr Tamimi and Mr Ware met. The meeting took place over a long lunch at Les Ambassadeurs, Mr Tamimi’s club in London. Mr Olsson said that a number of things were discussed during the course of the meeting. These included the question of Mr Tamimi funding the construction of penthouse A; and the question whether Mr Tamimi would be interested in buying the development lease. Other matters were also discussed including Mr Tamimi’s shipping interests. He was in fact on the point of concluding the purchase of two supertankers for some $200 million. Understandably, he was more preoccupied with this deal than with penthouse A which, as I have said, was driven mainly by his wife and daughter. Mr Tamini’s recollection of this meeting was not good. However, he did recall that about this time (although he was not sure that it was at or before the meeting itself) he started feeling that there was a major problem in getting the construction of penthouse A off the ground. By now Mr Tamimi had paid nearly £430,000 and he began to feel that this investment was at risk. He was given to understand that the development lease was worth about £850,000 and the Loft about £460,000. He formed the idea that if he could have these as security (what he called “guarantees” in his evidence) he might be able to protect his investment; and he would be more comfortable about financing the remainder of the construction of penthouse A. Mr Tamimi was, however, clear that although Mr Olsson might have wanted him to finance more than the construction of penthouse A, he was not interested in doing so. I accept his evidence.
120.	On 24 April 2002 Mr Olsson wrote to NUBBH to ask them to confirm that if FP paid the amount of the site payments outstanding under the NUBBH charge, NUBBH would assign the debt and the security to FP. He calculated the outstanding sum as £339,000-odd. On the same day ACP’s solicitors wrote to CHAPS’ solicitors applying for consent to assign the lease to QQH. They added that if in due course the assignment were effected by FP or any of the other mortgagees, the application should be treated as being made on behalf of FP also. The letter said that QQH would contract with FP to complete the penthouse project.
121.	On 26 April 2002 Mr Stern wrote to Mr Tamimi’s solicitors. He appears to have been aware that Mr Tamimi had signed a contract for the sale of Penthouse A on 8 January 2002 and that he had paid sums in addition to the £40,000 deposit. He said that Britel intended to exercise its rights under clause 12.4 of the Preliminary Agreement (the Lease-Back Option). He asserted that FP was, in Britel’s opinion, technically insolvent and that there was a distinct possibility that FP would be wound up on the petition of one of its creditors. He also said that Britel and CHAPS had lined up an experienced builder to build out the development. The letter enclosed the FP Guarantee; clause 12 of the Preliminary Agreement and clause 9 of the April 1999 Deed of Priorities. On the same day Mr Hawkins wrote to Mr Ware setting out how he saw a deal with Mr Tamimi might be structured. Mr Olsson said in evidence (and I accept) that the proposal followed what had been discussed a few days earlier at the meeting at Les Ambassadeurs. In essence it was as follows:
i)	The development lease would be sold by FP as mortgagee to a company controlled by Mr Tamimi for £1.15 million. FP would reinvest the proceeds of sale into the development.
ii)	The purchaser would engage FP to carry out completion of the Loft and the building out of penthouses A and D
iii)	The purchaser would also buy 3 car parking spaces from ACP.
122.	Mr Hawkins added:
“FP has not commenced enforcement yet, but the relevant loans are overdue and demand has been made on ACP… FP regards the principal reasons for the need to enforce is because of the delays which have occurred due to the obstruction from Mr Stern and his associates, and which seem likely to continue so long as Mr Stern and his associates are able to influence matters.”
123.	On 29 April 2002 Mr Hawkins wrote to Mr Ware saying that Mr Stern was proving difficult; and that his letter of 26 April was attempting to prevent ACP from completing the development, in part by attempting to deter purchasers. Mr Hawkins continued:
“It is for this very reason that [FP] is contemplating a sale as mortgagee, in order to protect its own position as first chargeholder.” 
124.	On 29 April 2002 Mr Stern wrote to QQH’s agent. He referred to clause 12.4 of the Preliminary Agreement (the Lease-Back Option) and to clause 14 (the bar on assignment). He asserted that although Britel had sold the freehold, it remained entitled to enforce those provisions. He concluded:
“Accordingly, please be informed Britel proposes to injunct and/or set aside any attempted disposal of the Development Lease to your client company or any other entity.”
125.	This letter seems to have had the desired effect of putting off QQH. It withdrew from the proposed purchase. 
126.	On 2 May 2002 a meeting took place between Mr Olsson, Mr Tamimi and Mr Ware. Mr Olsson’s strategy was to try to persuade Mr Tamimi to take an early assignment of a car parking space for £100,000 and to agree to finance the ongoing works. Mr Olsson placed the location of this meeting in the Loft. Mr Olsson’s recollection was that the meeting was mainly concerned with the Loft itself; and that Mr Tamimi wanted a better price. However, Mr Olsson reported to Mr James (FP’s conveyancing solicitor) on that day that he was optimistic that the supplemental agreement relating to the car parking space would be concluded within a day or so; and that he and Mr Tamimi had reached agreement in principle “for Mr Tamimi to fund the on-going works”. Mr Tamimi did not want to finance anything apart from the construction of penthouse A. Even then he was reluctant to do so without guarantees. But he accepted, on being pressed in cross-examination by Mr Morgan, that by the end of the meeting he had agreed in principle to finance the development. From his perspective he was forced into it in order to save his investment in penthouse A. During the meeting there was some discussion of Mr Stern; in the course of which Mr Tamimi learned that there was ongoing litigation between one of Mr Stern’s companies and one of Mr Olsson’s companies in which the former were claiming money from the latter relating to the roof space at Albert Court. However, Mr Tamimi had been firmly advised that his own contract for the purchase of penthouse A had been “completely agreed by everybody” and so the litigation presented no problem for him. He did not, therefore, concern himself with the details. What did concern him was the risk of losing his money if Mr Olsson “went under”.
127.	On 6 May 2002 the shareholders of FP met at an EGM. The purpose of the meeting was to decide whether preference shares should be converted into ordinary share capital or whether FP should be wound up. The various classes of shareholder voted to convert their shares. That of itself is not relevant. But in the course of the meeting Mr Olsson presented the shareholders with an “action plan”. Some objective idea of the contents of the action plan can be deduced from the update that was provided to shareholders six months later. The first item in the action plan was to sort out the problems at Albert Court and complete the project. The update said:
“We have had problems with the former freeholder represented by Mr William Stern who has delayed the project in different ways. FP, who has got a first legal charge over its daughter company ACP’s roof lease, has therefore decided to exercise its rights. To protect its interests, FP decided to sell the roof lease to enable finance of the project to its completion, thereby disconnecting Mr Stern from the project.”
Mr Stern intervenes
128.	On 10 May 2002 Mr Stern wrote to Mr Tamimi’s solicitors again, this time as agent for Meretz. This letter enclosed a copy of the Introduction Agreement. His letter included the following:
“My principals have been informed that:
(a) 	Your client, Mr Tamimi, would prefer that [FP] should finish the construction of Penthouse A rather than entrust the construction to the builder selected by my principals and CHAPS …
(b) 	Your client is prepared to finance [FP] in the sense of providing it with the funds necessary to discharge the balance of the sum ACP owes to NUBBH.
(c) 	[FP] intends to exercise the Power of Sale it has got in the First Charge and proposes to sell the Development Lease to your client.
(d) 	Your client intends to acquire the Development Lease and to retain [FP] to complete the construction of Penthouse A in any event and possibly Penthouses D and F, if planning permission for the latter is obtained.
(e) 	Although your client is aware that the Development Lease is subject to the provisions of the Preliminary Agreement and that Britel, Meretz as well as CHAPS, in its capacity as the lessee of the Overriding Lease, are entitled to enforce the covenants in the Preliminary Agreement, your client feels that upon application to the Court he will be granted an extension of time to enable construction of penthouse A at the very least.” 

129.	Mr Stern expressed regret that this course of action would lead to litigation. Mr Stern also added that he understood Mr Tamimi’s preference to have FP complete the construction of penthouse A; and suggested “an amiable arrangement to achieve that purpose”. On the same day Berwin Leighton Paisner wrote to Mr Stern asking him to withdraw the cautions registered against FP; and applied to the Land Registry to warn off the caution. Mr Stern replied on the same day. He said that he had been instructed by the directors of Britel and Meretz to seek legal advice “in relation to First Penthouse’s stated intention of repaying to NUBBH all monies due under the Britel charge”. He said that the advice that had been given was that FP were not entitled to do this. In due course the Land Registry directed Britel to issue proceedings to determine the validity of the caution and these were duly issued. 
130.	Mr Stern accepted in evidence that he had known since February 2002 that FP was considering the exercise of its power of sale. He accepted that by 10 May (when he wrote in connection with the suggestion that FP should take an assignment of the NUBBH charge) that it was a matter of real concern. He was unable to pinpoint anything in particular which had changed between February and June 2002; and was unable to identify what had been the trigger for the launch of the subsequent injunction application (which I deal with below).
131.	Mr Stern also accepted that Britel and Meretz would do whatever they lawfully could to prevent the exercise of FP’s power of sale. He accepted that he adopted a three-fold strategy:
i)	To deter potential purchasers of the development lease by threatening proceedings against them;
ii)	To put pressure on BLP by suggesting that it was improper to exercise the power of sale; and
iii)	To threaten proceedings against ACP and FP.
132.	On 17 May 2002 Mr Ware sent a fax to Mr Tamimi. His fax was intended to enclose a number of documents. These included Mr Stern’s letters of 26 April and 10 May; the FP Guarantee; clause 12 of the Preliminary Agreement; clause 9 of the April 1999 Deed of Priorities, and the Introduction Agreement. The fax was intended to be sent to Mr Tamimi in Saudi Arabia. However, Mr Tamimi was in Germany at the time; and he says that he did not receive the fax or its enclosures. Although he accepts that he received a copy of the fax itself a week later, he says that he never received the enclosures. I accept his evidence. Mr Tamimi also said (and I also accept) that if he had seen Mr Stern’s letter of 10 May it might have altered his perspective. His advice at the time was that he would lose his money if he did not make Mr Olsson finish penthouse A. Had he known about an offer from Mr Stern, he might have “gone with it”. However, although he did not know the contents of Mr Stern’s letters he was advised by Mr Ware’s letter that they were “unconvincing”; and he was content to rely on that advice. Mr Ware’s oral advice, he said, was even more emphatic.
The context of the Wrap Around Agreement
133.	On 24 May 2002 Mr Ware sent a fax to Mr Tamimi in Germany. It was this fax that enclosed a copy of Mr Ware’s earlier fax of 17 May. In his fax of 24 May Mr Ware said that he had had two further meetings. He attached financial documents, including a “recap” from Mr Olsson. In his recap, Mr Olsson proposed concentrating on the financing of penthouse A with a “looser agreement” for the rest. What was envisaged was Mr Tamimi advancing the full purchase price for penthouse A. That would enable FP to complete penthouse A, pay off Meretz (if necessary) and clear off Britel by buying the NUBBH charge. In return Mr Tamimi would obtain a further discount of £90,000. Mr Ware commented on the proposal that he did not expect that Mr Tamimi would be called upon to finance the remainder of the development.
134.	On 27 May 2002 HH Judge Seymour QC gave judgment for Meretz against ACP for £326,000-odd which became due under the terms of the Introduction Agreement on 26 October 2001. ACP did not have the money to pay. On the same day Mr Olsson sent an e-mail to Mr Hawkins in preparation for a drafting meeting. In that e-mail he said that he wanted to make things simple so that Mr Tamimi could grasp them immediately “and if he should not take the development lease at once and then decide whether to finance only A or the lot”. On 29 May Mr Olsson, on behalf of ACP, wrote to Mr Tamimi saying that, due to the litigation, ACP would not be able to complete penthouse A by 8 January 2003; and that Mr Tamimi was now entitled to exercise his step-in rights. Because ACP did not have the money to satisfy the judgment, the proposed arrangement with Mr Tamimi was expanded to include the loan of the money needed for that purpose. The lawyers continued to draft documents to give effect to the overall proposal; but Mr Tamimi was still not committed. He was on holiday at a health farm in Germany; and on 29 May 2002 Mr Ware wrote to him there. Mr Ware reported that he had agreed documents for the financing of penthouse A, which included:
i)	A “works agreement” under which in exercise of his step-in rights Mr Tamimi would appoint FP to construct penthouse A in place of ACP, and would make stage payments;
ii)	A loan to FP to enable it to advance the money to ACP in order for the latter to satisfy the judgment in favour of Meretz;
iii)	A loan to FP to enable it to buy in the NUBBH charge; and
iv)	A supplemental agreement enabling Mr Tamimi to take over a car parking space.
135.	Mr Ware said that he was working on other agreements relating to the remaining penthouses, which would include a profit split between Mr Tamimi and FP. The profit shares would depend on the extent of the finance that Mr Tamimi was willing to provide. On 31 May Mr Olsson and Mr Ware flew to Germany, where they met Mr Tamimi. Because Mr Tamimi was on holiday the meeting was bothersome for him. He said that he was prepared to let his investment go, which would have been the easy thing to do. But he was persuaded not to; and agreed the terms of the Wrap Around Agreement. He went through the numbers and the basic agreement in general; but left the rest to his lawyers. The documentation underwent some minor changes but was agreed and signed in Germany on 31 May.
The Wrap Around Agreement
136.	The Wrap Around Agreement was made on 31 May 2002. It recited (amongst other things) that:
i)	ACP had requested FP to advance it the sum of £343,591.19 on the terms of a facility letter (“the FP Loan Agreement”)
ii)	FP had requested Mr Tamimi to advance it the same sum in order for FP to be able to lend it to ACP (“the Meretz Loan Agreement”);
iii)	FP had requested Mr Tamimi to advance it a further sum of £339,689.75 to enable FP to buy out the second mortgage held by NUBBH (“the NUBBH Loan Agreement”)
iv)	FP intended to sell and Mr Tamimi (or a company nominated by him) intended to buy the Development Lease
v)	Following transfer of the Development Lease Mr Tamimi and FP had agreed that FP would be appointed to complete the development and procure the sale of the units.
137.	The agreement then provided for the various loans to be made and the various loan agreements to be executed. Clause 6  provided:
“FP and Mr Tamimi shall … seek to enforce the FP security and hereafter execute and exchange a contract for the sale and purchase of the [Development] Lease … in the agreed form.”
138.	Mr Olsson reported to the board of FP and ACP at their meeting of 10 June.  Mrs Olsson was not present. The agenda (which the board approved) has not survived. Mr Olsson reported that agreements had been signed with Mr Tamimi on 31 May that would provide finance enough to complete the whole project. The board of FP noted that cashflow was tight and heavily dependent on drawdowns from Mr Tamimi.
Mr Tamimi’s perception of the wrap around agreement
139.	Mr Tamimi had a clear (and in my judgment genuinely held) view of the commercial purpose of the Wrap Around Agreement. As far as he was concerned, he was helping everybody. Meretz would be paid everything that it was owed. NUBBH would likewise be paid everything that it was owed. ACP would be able to discharge its debt to Meretz; and the development could progress once more. All this would be done with money provided by Mr Tamimi, whose only goal was the completion and leasing of penthouse A. In return Mr Tamimi would take the development lease as a guarantee just in case the company he was financing went bankrupt. He agreed to finance the construction of penthouse A. The remaining penthouses would be financed by their prospective buyers, although Mr Tamimi was willing to finance any “gaps”.  Whatever the terms of the agreement actually said, he was relying on what had been agreed verbally in the presence of his lawyer. The essence of it was that everybody’s problems would be solved; he would get the penthouse and after that the development would finance itself. As far as “the legalities” were concerned, he left that to the lawyers. 
The immediate run up to the injunction
140.	On 7 June 2002 Britel’s solicitors asked FP’s solicitors for confirmation that no steps would be taken without giving notice. They asked for an unequivocal response by return. The response, on 11 June, was that no assurance was given. When, on 13 June, Britel’s solicitors asserted that Mr Bretherton had already given such an assurance, the assertion was promptly denied.
141.	On 12 July 2002 the boards of FP and ACP met. Mrs Olsson was again not present. Mr Olsson reported that Mr Tamimi had agreed to buy the development lease “when FP steps in as mortgagees in possession.” He also reported that BLP were “doing a fantastic job.” The report continued:
“They have developed a well thought through and finely balanced plan that we need to stick to in order to save the project. So far everything is going as planned and the next important steps that should happen this week are:
6.4.1.1 Paying Meretz to give Orbach clean title
6.4.1.2 Paying NUBBH to get our hands on their legal charge
6.4.1.3 FP to ask ACP for its money back and ACP confirming that it can not pay
6.4.1.4 FP to sign sale agreement with Tamimi and assign ownership of the development lease.” 
142.	The report was approved at the meeting. The board again noted that cashflow was tight and heavily dependent on drawdowns from Mr Tamimi.
Transfer of mortgage
143.	By a transfer dated 19 July 2002 NUBBH transferred the benefit of the NUBBH Charge to FP. The transfer acknowledged that NUBBH had received £339,689 from FP.
Exercise of power of sale
144.	On 19 July 2002, FP as mortgagee entered into a contract for the sale of the development lease to Mr Tamini. The contract price was £1.2 million, but it was liable to reduction in certain circumstances. Clause 18.2 of the contract acknowledged that the parties were familiar with the terms of the Preliminary Agreement and, in particular, the Lease-Back Option. The contract was conditional on the consent of the landlord being obtained. Schedule 1 Part 3 of the contract provided that completion should take place five working days after either the grant of consent or the date of any declaration by the court that consent had been unreasonably withheld.
145.	On the same day FP and Mr Tamimi entered into the Development Agreement. Under this agreement Mr Tamimi appointed FP to act as developer of the roofspace. FP was also to be responsible for the sale of completed penthouses. Mr Tamimi was to provide finance for the development in instalments shown on a spreadsheet. Clause 8 said that the proceeds of sale of any penthouse were to be applied in the following order:
i)	In payment of legal and estate agent’s costs and fees;
ii)	In repayment of finance provided by Mr Tamimi;
iii)	In payment of FP’s costs in carrying out the development including the cost of any litigation being conducted in relation to the property, the development lease, the Preliminary Agreement and the Introduction Agreement.
146.	Clause 9 required Mr Tamimi to pay FP a fee of 60 per cent of development profit. However, Mr Tamimi was entitled to a return of £260,000 in priority to FP’s fee.
147.	By this time Mr Tamimi had already made or arranged substantial payments as follows:
Date	Amount £ (rounded)	Payer	
9 January 2002	140,000	Mr Tamimi	
6 February 2002	280,000	Mr Tamimi	
13 June 2002	40,000	Mr Tamimi	
17 June 2002	150,000	Mr Tamimi	
11 July 2002	190,000	Mr Tamimi	
11 July 2002	920,000	Mr Tamimi	
17 July 2002	125,000	Mr Tamimi	
19 July 2002	225,000	Davos Trust	
Total	2,070,000		

148.	On 22 July 2002 FP, as mortgagee, applied to CHAPS for permission to assign the Lease to Mr Tamimi. The application stated explicitly that:
“Mr Tamimi will contract with [FP] to carry out the works and there is no doubt about the ability of [FP], given the fact that they have already completed three, and have done so using techniques which do not cause inconvenience to the existing tenants in Albert Court.”
149.	On the same day BLP wrote to Britel’s solicitors informing them of FP’s intention to take steps to enforce its mortgage.  On 23 July contracts were exchanged in relation to the car parking spaces.  On the same day Britel and Meretz applied for an injunction to stop the sale. I deal with the course of these proceedings later.
150.	On 29 July 2002 CHAPS said that they were only willing to grant licence to assign if Mr Tamimi agreed to accept and be bound by the obligations assumed by ACP under the Preliminary and Introduction Agreements. This letter was written, not by CHAPS’ usual solicitors, but by the firm acting for Britel and Meretz, who had been instructed for this purpose by CHAPS. Mr Tamimi would not agree to those terms. On 8 August 2002 CHAPS gave as an additional ground for refusal of consent the existence of clause 14 of the Preliminary Agreement (containing an absolute bar on assigning the development lease before completion of the development) which, they said was a tenant covenant that bound FP as mortgagee in possession, and to the benefit of which CHAPS were entitled as reversioner. On the same day Meretz alleged that the proposed sale was a sale at an undervalue. 
151.	In the meantime, on 6 August 2002 ACP and FP had entered into an agreement under which FP agreed with ACP to carry out the works described in the Preliminary Agreement as far as possible in a manner consistent with that agreement. In return ACP agreed to provide FP with all assistance reasonably required.
152.	On 16 August 2002 CHAPS set out its reasons for refusal of consent in a more formal document. The main reasons were the same as those that had already been canvassed in correspondence. The formal statement of reasons referred expressly to clause 12 of the Preliminary Agreement and to the Introduction Agreement and summarised the terms of each that were relied on. At the same time CHAPS served notice under section 146 of the Law of Property Act 1925 alleging breach by ACP of the development covenants in the development lease.
153.	The agreements between FP and Mr Tamimi, and CHAPS’ refusal of consent to the assignment to Mr Tamimi, were reported to the boards of FP and ACP on 27 August. 
Exercise of Lease-Back Option
154.	On 10 September 2002 NUBBH made a written request to ACP for the grant of the development sub-lease pursuant to the Lease-Back Option. CHAPS and Britel repeated the request in the same document, without prejudice to the contention that the request was properly made by NUBBH. On the same day Britel refused an extension of time for completion of the works.
Mr Tamimi takes an assignment
155.	Mr Tamimi was not particularly keen to take an assignment of the development lease. His concern was to get penthouse A constructed; and he viewed the development lease as no more than a security for his financing that construction. However, as time went on, and he poured more and more money into the development, he felt that the risk of non-completion of penthouse A was diminishing. Thus the pressure to take security was likewise diminishing. He was, however, keen to obtain a good title to penthouse A.
156.	In an e-mail to Mr Ware on 11 November 2002, Mr Hawkins expressed the view that the only practical way to pass title to Mr Tamimi was by an assignment of the development lease. Mr Hawkins’ reasoning was that:
i)	The development lease only allowed ACP to grant leases of completed penthouses, and penthouse A was not due for completion until early in 2003;
ii)	The FP Charge did not give FP power to create a lease of the kind contemplated;
iii)	The NUBBH Charge (which did contain adequate leasing powers) was not yet enforceable, and would not become enforceable until after the sale of the fourth penthouse;
iv)	ACP could not grant a sub-lease of penthouse A without a release from all the chargees. FP would not consent because sale of the fourth penthouse would discharge the FP Charge and thus put FP in breach of its contract to assign the development lease to Mr Tamimi.
157.	By December Mr Tamimi was becoming increasingly reluctant to provide more money without acquiring title. He and Mr Olsson met on 23 December 2002. At the meeting they agreed that Mr Tamimi would continue to finance the construction of penthouse A, and a maximum of £200,000 towards the other penthouses; and that as soon as penthouse A had been installed, he would take an assignment of the development lease to enable him to grant a lease of penthouse A. Mr Tamimi was still reluctant to take the development lease because he did not wish to become embroiled in litigation with Mr Stern. However, Mr Ware advised him on 29 January 2003 that if he did not continue funding, Mr Stern would be able to argue that the development was not being carried out expeditiously.
158.	A further meeting took place in February 2003. Mr Olsson, Mr Hawkins, Mr Tamimi and Mr Ware were present. Following the meeting, on 19 February 2003, Mr Hawkins wrote to Mr Ware repeating his view that there was no choice but to move forward on the basis of completing the transfer of the development lease immediately. On 25 February Mr Olsson notified Mr Tamimi that penthouse A was installed and would soon be complete. The freeholder had agreed to join in the lease. Mr Tamimi gave instructions to proceed on 5 March 2003.
159.	 On the basis that consent to the assignment of the development lease was being unreasonably withheld FP and Mr Tamimi proceeded to complete the agreement for sale and Mr Tamimi was registered as proprietor of the Lease on 11 March 2003. No declaration from the court to that effect had been obtained; and so Mr Tamimi could not have been compelled to complete the contract. Practical completion of penthouse A was achieved on about 24 March 2003. On 31 March BLP informed Meretz that the proceeds of sale (£1.2 million) had been applied towards satisfaction of ACP’s secured indebtedness to FP (£1 million) with the balance being applied in reduction of the amounts secured by the NUBBH charge. There was, therefore, no surplus for Meretz. In fact, since there had been no sale by ACP, and Meretz had received all the commission due to it thus far, Meretz would not have been entitled to participate in any surplus.
160.	On 28 April 2002 CHAPS served notice under section 146 of the Law of Property Act 1925 alleging a breach of covenant consisting of the assignment of the lease to Mr Tamimi.
161.	The leasehold interest in penthouse A was in fact granted to Hanson Trading Ltd. This is a company owned by Davos Trust. Davos Trust is a trust for the benefit of Mr Tamimi’s wife and daughters. It was established by Mr Tamimi for good and genuine reasons (which I need not go into). It provided some of the instalments of finance for the works itself (about £300,000). It has borrowed from Barclays Bank the amounts originally advanced by Mr Tamimi, and has repaid him. The loan from Barclays Bank is secured by a legal charge over the lease. Mr Morgan rightly accepted that Hanson Trading Ltd cannot be equated with Mr Tamimi. 
Progress of the development
The actual progress of the development
162.	Mr Olsson described the actual progress of the development. He explained that the Swedish factory which fabricated the modules closed down for a summer holiday for about four weeks in July each year, and closed again for about three weeks over Christmas. Making allowances for these closures, his evidence was that:
i)	Penthouse B was produced and installed between June 1999 and November 1999 (4 months);
ii)	Penthouse E was produced and installed between October 1999 and April 2000 (3.5 months);
iii)	Penthouse C was produced and installed between June and December 2000 (5 months);
iv)	Penthouse A was produced and installed between September 2002 and March 2003 (6 months).
163.	The gap between December 2000 and September 2002 was partly occupied by the construction of the Loft (April 2001 to January 2002) which was constructed using traditional building methods rather than the modular system.
164.	Mr Olsson’s description of the actual progress of the development was common ground.
165.	The precise mechanics of the sale of the remaining penthouses do not matter; but in outline the position is as a follows. Planning permission for a sixth penthouse (penthouse F) was granted on 7 November 2002. Penthouses D and F were pre-sold to a company called Fieldvalley Ltd. The agreement was dated 13 February 2004.
Impediments to progress
166.	Mr Olsson suggested that there were a number of impediments to building. He mentioned the problems over parking, which had deterred Varlet from entering into a contract; and problems with the willingness of the management company to enter into sub-leases of the completed penthouses. Since a contract for the sale of penthouse had been made in February 1999 and a contract for the sale of penthouse E was made very shortly afterwards, the car parking problem was not, at that time, preventing marketing. The car parking problem was in fact resolved in early 2000. Mr Olsson agreed that both these problems had been solved by March 2001 at the latest. There was also a glitch caused by the insolvency of the Swedish module manufacturer (Modulent). ACP terminated the contract with Modulent in the early summer of 2001; but it soon found an alternative manufacturer (LB Hus). However, it was unable to proceed with the project because penthouse C remained unsold. Without the proceeds of sale of that penthouse ACP and FP neither had the ready cash to pay a manufacturer, nor the ability to raise bank finance. Accordingly from March 2001 at the latest the only impediment to building was ACP’s and FP’s lack of finance, as Mr Olsson accepted in his evidence. However, I consider that at least part of the problem in raising finance was the series of disputes between ACP and FP on the one hand, and Britel and Meretz on the other.
167.	The period from March 2001 to September 2002 (the revised long stop date) was some 18 months. That would have been ample time for ACP to have completed the production and installation of the two remaining penthouses that ACP had undertaken to build, if the necessary finance had been available.
Completion never taking place
168.	It will be recalled that clause 19.2 of the April 1999 Deed of Priorities provided for the reduction of the debt secured by the FP charge on completion of the sale of the third penthouse and for the discharge of that charge on completion of the sale of the fourth penthouse. Clause 23.2 said: 
“Wherever there is a reference to the completion of a sale of a penthouse completion shall for that purpose be deemed to take place on the date of actual completion or on a date when it is first reasonable to assume that a completion shall never take place”
169.	I will deal later with the question whether it is open to Britel and Meretz to argue that the effect of this is that FP cannot be heard to say that it had a power of sale at the relevant time. However, it is convenient at this point to record my findings of fact on the question: when was it first reasonable to assume that completion of a sale would never take place? I do so on two alternative bases:
i)	That “completion” means “completion by ACP” and
ii)	That “completion” means “completion by anyone”.
170.	It is important to note that what is in issue is not whether ACP would complete the construction of a penthouse; but whether it would complete the sale of a penthouse. Both Mr Dutton and Mr Pryor pointed to the following evidence of Mr Stern (which neither of them challenged):
“I add that in the light of the case put forward by ACP in the Debt Claim, the Directors considered, as did I, that completion of the sale of penthouses A, D and F by ACP would never take place.”
171.	The Debt Claim was heard and decided in May 2002. But by May 2002 Mr Tamimi was already funding the construction of penthouse A. For as long as Mr Tamimi held off taking an assignment of the development lease, but continued to fund the construction of penthouse A, the development continued to be carried out. After May 2002 it was carried out by FP as the builder engaged by Mr Tamimi using his step in rights under the sale contract for penthouse A. But the fact that Mr Tamimi used his step in rights under the contract would not have prevented ACP from completing the sale of penthouse A pursuant to that very same contract.  Although there had been, since 31 May 2002, a commitment under the Wrap-Around Agreement, for FP to sell the development lease to Mr Tamimi if it exercised its powers under the FP Charge, there was no fixed timetable for so doing. Moreover, completion under the sale contract made on 19 July 2002 was conditional on landlord’s consent, and the completion date was tied to the grant of that consent or the making of a declaration that consent had been unreasonably withheld. This changed when FP actually transferred the development lease to Mr Tamimi. At that point it was no longer within ACP’s power as developer to complete the development or to grant leases of completed penthouses. Accepting, as I must, that Mr Stern and the directors of Britel and Meretz formed the view, as early as May 2002, that completion of the sale of penthouses A, D and F by ACP would never take place, I do not consider that that was a reasonable assumption. Accordingly, in my judgment, on the basis that “completion” means “completion by ACP”, it was first reasonable to assume that completion would never take place on 11 March 2003. Had FP exercised its power of sale earlier, it would have been reasonable to assume that completion by ACP would never take place as at the date of that earlier exercise.
172.	Since the assignment of the development lease to Mr Tamimi, the development has continued. On the basis that “completion” means “completion by anyone”, I do not consider that it can be said even now that completion will never take place.  
The previous litigation
The debt claim

173.	In Meretz Investments NV v. ACP Ltd [2002] EWHC 1019 (QB) Meretz sued ACP for monies alleged to be due under the Introduction Agreement. The relevant provision of the agreement was clause 6.
174.	The action was tried by HH Judge Richard Seymour QC, sitting as a judge of the Queens Bench Division. On 27 May 2002 he gave judgment for Meretz for £326,000-odd which became due under the terms of the agreement on 26 October 2001. This sum represented Meretz’ full entitlement to commission on the net proceeds of sale £5.4 million and £6 million. Since Meretz had no entitlement to commission on sale proceeds below £5.4 million; and no entitlement to commission on sale proceeds between £6 million and £7.55 million, it follows that Meretz has no further entitlement to commission unless sale proceeds exceed £7.55 million.
The injunction application
175.	In Britel Corporation NV v. First Penthouse Ltd Britel and Meretz claimed a quia timet injunction against FP ACP and NUBBH to restrain FP from selling transferring or otherwise dealing with the development lease. The proceedings were begun on 22 July 2002. An injunction was granted on that day, on a without notice application, by HH Judge Seymour QC; but at a resumed hearing on 25 July 2002 he refused to renew it: [2002] EWHC 1763 (QB).  The pleaded case advanced by Britel and Meretz included the following:
“24. If ACP was to sell, transfer or otherwise dispose of the Development Lease that would be a breach by ACP of its covenants in the Preliminary Agreement and the Introduction Agreement.  
 25. If First Penthouse was to sell, transfer or otherwise dispose of the Development Lease that would be a breach by First Penthouse of its covenants in the Guarantee. It would also be a breach by First Penthouse of the covenants on the part of ACP in the Preliminary Agreement and the Introduction Agreement. Those are both collateral agreements containing tenant covenants in relation to the Development Lease. Those covenants would bind First Penthouse if First Penthouse as mortgagee in possession took possession with a view to selling the Development Lease.”
176.	The claim was pleaded as follows:
“26. The claimants therefore seek a quia timet injunction to restrain First Penthouse and ACP from breaching those covenants by selling, transferring or otherwise disposing of the Development Lease before the issue of the certificate of practical completion in respect of the project.”
177.	On 25 July 2002 Mr Hawkins filed a witness statement on behalf of FP. He exhibited a copy of the contract for sale between FP and Mr Tamimi (but no other contractual documents). Paragraph 5 of his witness statement continued:
“There is (so far as I am aware) no connection between the purchaser and either ACP or FP, save that FP has contracted with him as I have mentioned and save that he has already contracted to purchase from ACP a lease of another penthouse in the building.”
178.	The judge’s reasoning process proceeded as follows:
i)	The Introduction Agreement was irrelevant;
ii)	Although the grant of the FP Charge might have been a breach of clause 5.2 of the Preliminary Agreement, any breach had been waived by the April 1999 Deed of Priorities;
iii)	The effect of clause 2 of the FP Guarantee was not that FP became a party to the Preliminary Agreement;
iv)	The suffering by ACP of the exercise of a power of sale by FP as mortgagee did not amount to a breach by ACP of the terms of the Preliminary Agreement;
v)	It was not a necessary consequence of the exercise of the power of sale that ACP would be unable to fulfil its obligations under clause 7.1 and 7.2 of the preliminary agreement;
vi)	Consequently Britel and Meretz had no cause of action against FP.
179.	Although the application was for interim relief only, HH Judge Seymour dismissed the claim against FP under CPR Part 24 at the invitation of FP. The injunction against ACP was continued until trial or further order. Britel and Meretz applied to the Court of Appeal for permission to appeal against the dismissal of the claim against FP. That application was heard on 7 August 2002. Permission to appeal was refused: [2002] EWCA Civ 1350. Jonathan Parker LJ said that the issue as to the true construction of the FP guarantee was “plainly an arguable one”. However, he said that assuming that Britel succeeded on that issue, the terms of the April 1999 Deed of Priorities resolved any doubt in FP’s favour.  Clause 2 of the FP guarantee could not prevent FP from exercising its power of sale. Chadwick LJ expressed the issue as follows:
“On 19th July 2002, in the exercise of its power as mortgagee under section 101 of the Law and Property Act 1925, FPL entered into a contract to sell the lease to a third party buyer. The immediate question is whether FPL can be restrained by injunction from completing that sale.”
180.	The argument for Britel and Meretz was that by granting the FP Charge in August 1997, ACP was in breach of its covenant under the lease and of its obligations under the Preliminary Agreement and was also in breach of its obligations under the Introduction Agreement. Chadwick LJ was prepared to assume that that was correct. On those assumptions Chadwick LJ considered that Britel (but not Meretz) would have been entitled to restrain a sale. However, the parties had subsequently entered into a deed of priority which said that in certain events (which had happened) FP’s charge “shall …once again come into full force and take effect and shall automatically be reinstated as the first charge”. Chadwick LJ held that the terms of this agreement overrode any prior collateral agreement which would have undermined the validity of the charge. Accordingly he held that it was:
“impossible now for Britel or Meretz to say that they are entitled to rely on some collateral contractual arrangement under which FPL is restricted from exercising the rights conferred on it by the 1997 charge. The time to raise that point was before the 1999 Deed of Priorities was executed, and had that point been raised, then it might or might not have been expressly provided for; but to execute a deed which confirms the full force and effect of the 1997 charge is quite inconsistent with their contention that the power of sale under it could never be exercised while the development remained uncompleted.”
181.	It followed that the appeal had no realistic prospect of success. Thus permission to appeal was refused; and the judge’s dismissal of the claim against FP stood.
182.	Both the judge and the Court of Appeal referred to the evidence of Mr Hawkins that Mr Tamimi was not connected with either FP or ACP (save that he had already contracted to buy a penthouse). Mr Hawkins did not refer to the Wrap Around Agreement.
The assignment action
183.	This action, First Penthouse Ltd v. Channel Hotels & Properties (UK) Ltd, was begun on 22 November 2002. In the action FP claimed a declaration that CHAPS had unreasonably withheld consent to a licence to assign the Lease to Mr Tamimi. The issue raised was whether it was entitled to that declaration. Paragraph 6 of the Particulars of Claim alleged that the development lease “is charged to [FP] by reason of the FP charge”. This allegation was admitted in paragraph 5 of the Defence. Paragraph 8 of the Particulars of Claim alleged that on 19 July 2002 FP contracted to sell the development lease to Mr Tamimi. This, too, was admitted in paragraph 5 of the Defence. Paragraph 9 of the Particulars of Claim alleged that FP had applied for licence to assign; and that by reason of section 1 of the Landlord and Tenant Act 1988 CHAPS owed certain duties to FP. Paragraph 6 of the Defence admitted that CHAPS owed FP the statutory duties under the Act.
The forfeiture action
184.	This action, Channel Hotels & Properties (UK) Ltd v. First Penthouse Ltd, was begun on 16 July 2003. CHAPS alleged that it was entitled to forfeit the Lease on the ground of breach of covenant. The claim was, therefore a claim for possession. The two breaches of covenant alleged were failure by ACP to comply with its development obligations under the lease; and the assignment of the lease to Mr Tamimi without CHAPS’ consent “in purported exercise” of FP’s powers arising under the charge. Mr Tamimi denied the breaches and counterclaimed for relief against forfeiture. FP made a similar counterclaim. CHAPS pleaded a defence to the counterclaim, alleging that relief against forfeiture should not be granted, because the assignment was effected “pursuant to a series of agreements … made with the object of injuring [CHAPS] and/or [Britel and Meretz]” by depriving Meretz of its entitlement to commission payments and denying Britel (among others) the benefit of the Lease-Back Option. A 31 page Appendix to the pleading set out the history (including references to the April 1999 Deed of Priorities and the March  2001 Deed of Priorities) and referred also to a letter written by Britel’s solicitors on 23 October 2002 alleging conspiracy. Following an order made by Hart J preliminary issues in that action came for trial before Lightman J. The three preliminary issues raised were: (1) whether (as maintained by CHAPS) at the date of commencement of the second action the development lease was liable to forfeiture for breach of covenant by reason of the assignment of the Lease to Mr Tamimi without the consent of CHAPS; (2) whether (again as maintained by CHAPS) at the same date the lease was liable for forfeiture for breach of covenant by the lessee in failing to carry out and complete the development of the roofspace expeditiously; and (3) in respect of the latter alleged breach of covenant whether (as maintained by FP and Mr Tamimi) any right to forfeit had been waived.
Lightman J’s judgment
185.	Lightman J heard the assignment action and the preliminary issues in the forfeiture action [2003] EWHC 2713 (Ch). He set out the background to the actions. In paragraph 22 of his judgment Lightman J said:
“By a transfer dated 19 July 2002 NUBBH transferred the benefit of the NUBBH Charge to FP. The effect of this transfer was that, from 19 July 2002, such sums as might fall due under clause 9 of the Preliminary Agreement were charged to FP, and the only persons with a direct financial interest in the late completion of the Project under the Preliminary Agreement were ACP (as the developer) and FP.”
186.	The judge recorded that it was common ground that the assignment to Mr Tamimi would be effective to defeat or override the Lease-Back Option and of Meretz to payment of its commission under the Introduction Agreement. He then considered the effect of the April 1999 Deed of Priorities. He referred to the decision of the Court of Appeal that clause 2 was totally inconsistent with the provisions of the Introduction or Preliminary Agreements in favour of Meretz and CHAPS restricting the full and unfettered exercise by FP as mortgagee of the power of sale conferred by the FP Charge. He continued:
“The issue raised before me is whether the 1999 Deed of Priorities likewise precludes CHAPS as successor in title to the reversion upon the Lease from exercising the power to refuse consent to an exercise of the power of sale on the ground that it will defeat the rights in question. In my view the answer is clearly in the affirmative.”
187.	Following on from that Lightman J held that it was unreasonable for CHAPS to refuse consent to the assignment in order to revive rights which would otherwise be overridden by the assignment. To allow CHAPS to take the position which it has taken was to set at nought the provision in the 1999 Deed of Priorities; and a refusal of consent on these grounds and the insistence on these conditions were in fundamental derogation from the rights conferred on FP by the 1999 Deed of Priorities. Accordingly he held the refusal of consent to be unreasonable.
188.	He also rejected the argument that because of the trustee/beneficiary relationship between CHAPS and Britel and Meretz, CHAPS was entitled to take into account the effect of the assignment on Britel and Meretz.
189.	The next issue that Lightman J considered was CHAPS’ argument that the provisions of the Landlord and Tenant (Covenants) Act 1995 operated to annexe to the reversion to the development lease the covenant of ACP in the Introduction Agreement to pay the commission to Meretz, and the covenant of ACP in the Preliminary Agreement to grant the development sublease and render them enforceable by CHAPS as owner of the overriding lease. He held that the covenant to pay was not a “tenant covenant” within the meaning of the Act. The obligation imposed on ACP was in all senses personal to ACP and could on no basis constitute a tenant covenant. Thus it was not annexed to the reversion.
190.	He then turned to consider clause 12.4 of the Preliminary Agreement. He said:
“The Preliminary Agreement is, I think, a collateral agreement within the definition contained in s 28 of the 1995 Act. But, as it seems to me, the Preliminary Agreement sufficiently expresses the intention that the Option shall be personal to ACP and not be a tenant covenant. The provision for the grant of the Option is part of machinery set up for payment by ACP to Britel of a premium for the grant of the Lease. The premium is payable when and if ACP has fulfilled its obligation to complete the Project expeditiously and to sell the completed penthouses. The provision granting the Option is a default provision, arising in the event of default by ACP in fulfilling this obligation.” (Emphasis added)
191.	So far as the forfeiture action was concerned, the judge held that the right to forfeit had been waived. By his order made on 14 November 2003, Lightman J declared that the refusal of consent was unreasonable; and that the assignment to Mr Tamimi (and its subsequent registration at HM Land Registry) was not in breach of covenant. He also dismissed the forfeiture action.
The appeal to the Court of Appeal
192.	CHAPS appealed to the Court of Appeal against the orders made by Lightman J. The Court of Appeal dismissed the appeal: [2004] EWCA Civ 1072. Peter Gibson LJ recorded the argument of Mr Morgan QC, for the appellant as follows:
“He refers to the 1999 Priorities Deed as indicating that there was no intention that FP could exercise its rights as chargee of the Lease in disregard of its obligations as guarantor under the Guarantee. On the contrary, he says, cl 13 of the 1999 Priorities Deed, which contains an agreement by Britel to extend the time limits in paras 12.2.3 to 12.2.5 of the Preliminary Agreement, ends:  
  “AND First Penthouse acknowledges that this Variation shall not in any way affect its guarantee dated March 7, 1996, given to Britel in respect of the obligations of ACP under the Agreement.”  
   [55] Mr Morgan says that this court in the Injunction Action does not appear to have had its attention drawn to cl 13. He argues that the 1999 Priorities Deed left FP’s obligations under the Guarantee unaffected, the effect of the Guarantee and the 1999 Priorities Deed being that FP had the benefit of its charge over the Lease but was not free to disregard its obligations as guarantor under the Guarantee.  
  [56] He suggests that this court in the Injunction Action may have decided the case on points which were not advanced by the parties. Whether that is right or not does not seem to me to matter. He says more pertinently that this court was wrong in the view which it formed and that in any event the citation of the judgments in this court in that case contravened paras. 6.1 and 6.2 of the Practice Direction (Citation of Authorities) [2001] 1 WLR 1001, which states that a judgment on an application for permission to appeal may not be cited unless it clearly indicates by an express statement that it purports to establish a new principle or to extend the present law.  
   [57] Mr Dutton went so far as to say that this court’s decision was binding on this court as being a decision on the construction of the 1999 Priorities Deed. I do not think that that can possibly be right, particularly in view of the Practice Direction to which I have referred. However, in my judgment the decision of two experienced members of this court in a case in which it had heard argument from counsel on both sides on the effect of the same deed as that under consideration here and when this court was saying that neither Britel nor Meretz had any cause of action by reason of the effect of that deed, can properly be taken into account by this court. Indeed it seems to me close to an abuse of process for Britel and Meretz through its trustee CHAPS to have another go at the effect of the 1999 Priorities Deed, having failed in their argument in 2002. Be that as it may, I regard the earlier judgments as persuasive.  
   [58] Nor am I persuaded that they are wrong. Jonathan Parker LJ at para. 47 pointed out that the Preliminary Agreement expressly contemplated the possibility that ACP might mortgage the Lease (albeit to a commercial lender), and that inherent in that was the possibility that the mortgagee might exercise the power of sale, thereby rendering the completion by ACP of the development impossible. He read the 1999 Priorities Deed as acknowledging in cl 2 that on the discharge of the Varlet Charge the FP Charge, by once again coming into full force and taking effect and automatically being reinstated as the first charge, was effective to create a valid security over the Lease according to its terms, and held that a submission on behalf of Britel and Meretz that FP was unable to exercise its security under the FP Charge was flatly inconsistent with the terms of the 1999 Priorities Deed. Chadwick LJ expressed himself similarly in his judgment, saying in para. 65: “to execute a deed which confirms the full force and effect of [the FP Charge] is quite inconsistent with [Britel’s and Meretz’s] contention that the power of sale under it could never be exercised while the development remained uncompleted.”  
   [59] I do not accept that the reference to the Guarantee in cl 13 of the 1999 Priorities Deed has the wide effect which Mr Morgan suggests. The variation referred to in the tailpiece of the clause was merely to the extensions of time referred to earlier in that clause.  
  [60] In my judgment the judge reached the right decision for the right reasons on this point.” (Emphasis added)
193.	Peter Gibson LJ rejected another argument advanced on CHAPS’ behalf on the ground that it was incompatible with the judge’s finding in paragraph 22 of his judgment that the only persons with a direct financial interest in the late completion of the Project under the Preliminary Agreement were ACP (as the developer) and FP; and noted that that finding had not been challenged on appeal.
194.	Keene and Kay LJJ agreed.
The Issues
195.	Britel and Meretz attack the sale on a number of grounds. First they say that FP did not have (or cannot be heard to say that it had) a power of sale. Second they say that any power of sale that it did have was exercised in bad faith. Third they say that there was an “unlawful means” conspiracy which has injured them; or that other economic torts have been committed. These claims are not only denied on the facts; but the Defendants say that a number of the arguments seeking to attack the exercise of the power of sale are not open to Britel and Meretz because of issue estoppel or the broader principle of abuse of process.
196.	The Particulars of Claim are required by the rules to contain a concise statement of the facts on which the claimant relies. The voluminous Particulars of Claim in the present case signally failed to comply with that rule. They are also extremely difficult to understand. However, the parties helpfully agreed a list of potential issues, which fall into four groups.
The transfer of the development lease to Mr Tamimi
197.	The issues under this head are as follows:
i)	Did FP have a power of sale at the date it purported to exercise it?
ii)	If it did, was the reason for the existence of the power of sale the existence of breaches of obligation by FP?
iii)	If so, can FP rely on its power of sale or would such reliance fall foul of the principle that one cannot take advantage of one’s own wrong?
iv)	If FP had a power of sale on which, in principle, it was entitled to rely, has it exercised that power for an improper purpose?
v)	If so, is Mr Tamimi affected by the impropriety, or can he rely on the statutory protection given to purchasers in good faith?
vi)	Are Britel and Meretz precluded from raising any of these issues as a result of res judicata, issue estoppel or abuse of process?
vii)	What (if any remedy) is appropriate, depending on the answers to these issues?
Issues relating to the Lease-Back Option
198.	The issues under this head are as follows:
i)	Who has the benefit of the Lease-Back Option?
ii)	Is the Lease-Back Option a penalty?
iii)	Is the Lease-Back Option a provision which confers security for the performance of other obligations, and if so, which obligations?
iv)	Is the Lease-Back Option void or unenforceable as a result of section 38 (4) of the Landlord and Tenant Act 1954?
v)	Who has the benefit of clause 22 of the April 1999 Deed of  Priorities and clause 14 of the March 2001 Deed of Priorities as regards ACP’s obligation to perform the Preliminary Agreement?
vi)	Are the parties precluded from raising any of these issues as a result of res judicata, issue estoppel or abuse of process?
vii)	What (if any remedy) is appropriate, depending on the answers to these issues?
Benefit of the agreements
199.	The issues under this head are as follows 
i)	Who has the benefit of:
a)	The Preliminary Agreement
b)	The Introduction Agreement
c)	The FP Guarantee
d)	The obligations owed to Britel and Meretz under the April 1999 Deed of Priorities and the March 2001 Deed of Priorities
e)	The Meretz charge?
ii)	Are the parties precluded from raising any of these issues as a result of res judicata, issue estoppel or abuse of process?
The economic torts
200.	The issues under this head are as follows:
i)	Was there a relevant combination between all or any of:
a)	ACP
b)	FP
c)	Mr Olsson
d)	Mrs Olsson
e)	Mr Tamimi?
ii)	If so, when did each of them join the combination?
iii)	Did the parties to the combination agree that unlawful acts should be carried out? 
iv)	Did the parties to the combination know that the agreed acts were unlawful?
v)	Did the parties to the combination intend to injure Meretz and Britel? 
vi)	Did any or all of the parties to the combination rely on legal advice that their conduct was not unlawful and, if so, is that a defence?
vii)	In the case of a breach of contract or breach of duty committed by one defendant, did any other defendant induce or procure the breach?
viii)	If so, did that other defendant have sufficient knowledge of the contract or duty in question? 
ix)	Was any inducement or procurement of a breach of contract or duty committed with intent to injure Britel or Meretz?
x)	Did any or all of the defendants rely on legal advice that their conduct was not unlawful and, if so, is that a defence?
xi)	What (if any) remedy is appropriate, depending on the answers to these issues?
Cause of action estoppel issue estoppel and abuse of process
The strike out application
201.	The defendants applied to strike out certain allegations summarily on the ground that the claimants were precluded from advancing them as a result of cause of action estoppel, issue estoppel or abuse of process. The application was dismissed by Etherton J on 11 April 2005. He held that the proceedings revolved around disputes of fact which could not be resolved prior to disclosure and trial. The proper determination of the defendants’ contentions relating to abuse of process required a detailed analysis of the previous proceedings and, in particular, the submissions made and judgments given in those proceedings. Accordingly, he declined to deal with the allegations of abuse of process at an interim stage of the proceedings. It was not suggested that Etherton J decided that the allegations under attack were not covered by estoppel of one kind or another, or that they were not an abuse of process.
202.	Both parties thereafter proceeded on the basis that arguments of cause of action estoppel, issue estoppel and abuse of process would be dealt with as part of the trial.  However, at trial the defendants applied to have these questions decided at the close of the claimants’ case. I ruled that although in the ordinary course of events questions of abuse of process should be determined early (otherwise the abuse, if it existed, would have taken place by the time judgment was given) as a matter of case management, and especially in the light of the judgment of Etherton J, I should defer ruling on the substantive arguments until the conclusion of the trial. 
203.	However, I indicated that if I decided that any of the allegations of estoppel or abuse of process were established, I would not consider those arguments in the judgment; but I would make any necessary findings of primary fact in case I am subsequently held to be wrong. This seemed to me to be the “least worst” solution in case management terms to the position in which I and the parties found ourselves at the close of the claimants’ case.  Logically, therefore, the scope of any cause of action estoppel, issue estoppel or abuse of process must be considered first.
The different kinds of estoppel
204.	The classic description of cause of action estoppel and issue estoppel is contained in the judgment of Diplock LJ in Thoday v. Thoday [1964] P 181 at 197:
“The particular type of estoppel relied upon . . . . . is estoppel per rem judicatam. This is a generic term which in modern law includes two species. The first species, which I will call “cause of action estoppel,” is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined by a court of competent jurisdiction in previous litigation between the same parties. If the cause of action was determined to exist, i.e., judgment was given upon it, it is said to be merged in the judgment, or, for those who prefer Latin, transit in rem judicatam. If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam. This is simply an application of the rule of public policy expressed in the Latin maxim “Nemo debet bis vexari pro una et eadem causa.” In this application of the maxim “causa” bears its literal Latin meaning. The second species, which I will call “issue estoppel,” is an extension of the same rule of public policy. There are many causes of action which can only be established by proving that two or more different conditions are fulfilled. Such causes of action involve as many separate issues between the parties as there are conditions to be fulfilled by the plaintiff in order to establish his cause of action; and there may be cases where the fulfilment of an identical condition is a requirement common to two or more different causes of action. If in litigation upon one such cause of action any of such separate issues as to whether a particular condition has been fulfilled is determined by a court of competent jurisdiction, either upon evidence or upon admission by a party to the litigation, neither party can, in subsequent litigation between one another upon any cause of action which depends upon the fulfilment of the identical condition, assert that the condition was fulfilled if the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was.”
205.	The nature of issue estoppel was considered further by the House of Lords in Arnold v. Westminster Bank plc [1991] 2 AC 93. Lord Keith of Kinkel, giving the leading speech, said of cause of action estoppel:
“Cause of action estoppel extends also to points which might have been but were not raised and decided in the earlier proceedings for the purpose of establishing or negativing the existence of a cause of action.”
206.	In relation to issue estoppel he said:
“Issue estoppel, too, has been extended to cover not only the case where a particular point has been raised and specifically determined in the earlier proceedings, but also that where in the subsequent proceedings it is sought to raise a point which might have been but was not raised in the earlier.”
207.	Lord Keith then considered whether there were any exceptions to these principles. He concluded:
“In my opinion your Lordships should affirm it to be the law that there may an exception to issue estoppel in the special circumstance that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings. One of the purposes of estoppel being to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result.”
208.	Lord Keith’s statement that the principles of cause of action estoppel and issue estoppel extend to points which could have been argued but were not was founded on the rule in Henderson v Henderson (1843) 3 Hare 100, in which Wigram V-C said:
“…. where a given matter becomes the subject of litigation in and of adjudication by a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have from negligence, inadvertence or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a Judgment, but to every point which properly belongs to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.”
The scope of cause of action estoppel
209.	The scope of cause of action estoppel is demonstrated by the decision of the House of Lords in The Indian Grace [1993] AC 410. During the carriage of a consignment of munitions to Cochin on board the defendants’ vessel a fire occurred, as a result of which part of the consignment was jettisoned and the remainder was damaged. On 1 September 1988 the plaintiff cargo owners issued proceedings in India claiming damages for short delivery under the bills of lading. This claim encompassed the jettisoned cargo only. The Indian judge held that the defendants were liable for the value of the undelivered cargo, about £6,000. On 25 August 1989 the plaintiffs issued a writ in rem in London claiming damages of some £2.6 million for the total loss of the cargo. The pleaded claim in the Indian action was in respect of short delivery of the cargo delivered at Cochin, viz. 51 shells (and a small item described as “charge green bag”). The claim was advanced under one of the two bills of lading under which the consignment was shipped. In the plaint, it was alleged that the shipowners had been guilty of negligence while the cargo was in transit in the vessel, which was taken to refer to a breach of their duty as bailees (carriers for reward). It was either common ground (or found by the Indian judge) that the contract incorporated the Hague Rules. The claim in the English action was in the ordinary form for a damage to cargo claim, alleging against the shipowners (1) breach of contract and/or duty as carrier by sea for reward to deliver the goods in like good order and condition as when shipped; (2) negligence, in breach of duty as carriers and/or as bailees for reward; and (3) breach of their obligations under article III(1) and (2) of the Hague-Visby Rules, which apply to the contracts contained in or evidenced by the two bills of lading under which the goods were shipped. The first question that the House of Lords considered was whether the causes of action alleged in the two actions were the same. Lord Goff of Chieveley (with whom the other Law Lords agreed) said:
“… the goods in question were shipped under a contract of carriage the terms of which (as set out in the Hague Rules or the Hague-Visby Rules) regulate the respective rights and obligations of the parties. In these circumstances, the mere fact that the pleader can, so to speak, get the case on its feet by alleging short delivery or delivery of the goods not in the like good order and condition as when shipped, does not in my opinion assist. For it is wholly unrealistic to regard the cause of action as being other than a cause of action arising under the contract, which provides for the relevant duties of the shipowners regarding the seaworthiness of the ship and the care of the goods. Even if attention is concentrated on the liability of the shipowner as bailee, the fact remains that he is a bailee for reward, and that accordingly his liability will be governed by the terms of the contract of carriage…. Here, … it is necessary to identify the relevant breach of contract; and if it transpires that the cause of action in the first action is a breach of contract which is the same breach of contract which constitutes the cause of action in the second, then the principle of res judicata applies, and the plaintiff cannot escape from the conclusion by pleading in the second action particulars of damage which were not pleaded in the first.”
210.	Lord Goff concluded that:
“[The present case] is rather concerned with a single incident, i.e., the fire during transit which broke out in the cargo over which the plaintiffs’ consignment of munitions was stowed, which resulted in the damage to that consignment and to loss (by jettison) of a small part of it. Furthermore, as appears from the pleadings, that loss or damage might have resulted from breach of more than one term of the contract, for example breach of the obligation to make the vessel seaworthy under article III, rule 1, of the Hague-Visby Rules, or breach of the obligation to load and stow, etc., the vessel carefully under article III, rule 2. However, for present purposes, there is no need to distinguish between the two breaches; because the factual basis relied upon by the plaintiffs as giving rise to the two breaches is the same, and indeed was referred to compendiously by the plaintiffs in the Cochin action as “negligence”. In these circumstances, I am satisfied that there is identity between the causes of action in the two sets of proceedings.”

211.	It follows, therefore, in my judgment that where a single factual incident is alleged to amount to a breach of contract, and an action proceeds to judgment on that basis, it cannot be alleged in subsequent proceedings that the same incident amounted to a breach of a different obligation under the same contract. The judgment is res judicata as regards all causes of action for breach of the contract.
The scope of issue estoppel
212.	Issue estoppel, as its name suggests, applies only to issues. In Thoday Diplock LJ equated an “issue” with a condition upon which a cause of action depended. As Spencer Bower on Res Judicata puts it (3rd ed. para 201):
“Even when the court has expressly determined the same issue in the earlier proceedings an issue estoppel will not necessarily result. Only determinations which are necessary to the decision, and fundamental to it, will found an issue estoppel. Other determinations, however positive, cannot.”
213.	The editor goes on to suggest (para 202) that the test is: is the determination such that without it the judgment cannot stand? Where, therefore, a judgment is given on more than one ground, all of which would need to have been answered differently if the judgment were to have gone the other way, it may well be that no issue estoppel arises in relation to any single ground.
The scope of Henderson v. Henderson
214.	In Johnson v. Gore Wood [2002] 1 AC 1 Lord Bingham of Cornhill summarised the current position as follows:
“The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”
215.	Likewise, Lord Millett said:
“There is, of course, no doubt that Mr Johnson could have brought his action as part of or at the same time as the company's action. But it does not at all follow that he should have done so or that his failure to do so renders the present action oppressive to the firm or an abuse of the process of the court.” (Emphasis in original)
216.	Lord Millett continued:
“It may be reasonable and sensible for a plaintiff to proceed against A first, if that is a relatively simple claim, in order to use the proceeds to finance a more complex claim against B. On the other hand, it would I think normally be regarded as oppressive or an abuse of process for a plaintiff to pursue his claims against a single defendant separately in order to use the proceeds of the first action to finance the second, at least where the issues largely overlap so as to form, in Sir James Wigram V-C's words … "the same subject of litigation".”
217.	The principle also applies to assumptions on the basis of which litigation is conducted, and to admissions made in the course of litigation. As Lord Shaw put it in Hoystead v. Commissioner of Taxation [1926] AC 155, 165:
“In the opinion of their Lordships it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view of obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted.”
Exceptions to the rules
218.	It might, perhaps, have been thought that the evolution from Arnold to Johnson heralded a broader approach both to issue estoppel and to Henderson v. Henderson estoppel. However, that is not so. In Co-Flexip SA v Stolt Offshore MS Ltd [2004] FSR 708 the majority of the Court of Appeal held (paras. 144-149 and 159): 
i)	that in Arnold v National Westminster Bank the House of Lords carefully distinguished cause of action estoppel and issue estoppel with no exceptions being allowed to cause of action estoppel other than fraud or collusion;
ii)	that in the case of issue estoppel there was a limited exception where further material is found which could not have been adduced by reasonable diligence in the earlier proceedings;
iii)	that the House of Lords in Johnson v Gore Wood were fully alive to all that was said in Arnold's case and cast no doubt on what was there said on cause of action estoppel or on the limited further exception that existed in the case of issue estoppel;
iv)	that, therefore, the abuse of process approach laid down in Johnson's case was applicable only to cases invoking the Henderson principle and not to cases of cause of action estoppel or, indeed, issue estoppel.
Parties and privies
219.	The principles underlying these kinds of estoppel and also abuse of process extend beyond those who were formal parties to previous proceedings. They also extend to what are called “privies”. The question who is a privy of another is also to be answered in a broad way. In Johnson Lord Bingham cited with approval a statement by Megarry J in Gleeson v. J Whippell & Co Ltd [1977] 1 WLR 510:
“Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest.”
220.	Immediately after the passage from Megarry J that Lord Bingham quoted, the judge had said:
“Thus in relation to trust property I think there will normally be a sufficient privity between the trustees and their beneficiaries to make a decision that is binding on the trustees also binding on the beneficiaries, and vice versa.” 
221.	I do not detect in Johnson any disapproval of this specific example, which seems to me to be entirely correct. On the facts in Johnson Lord Bingham was clearly of the view that if Mr Johnson had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so. That would have been enough to satisfy the test of privity of interest. 
222.	However, in the same case, Lord Millett warned:
“Particular care, however, needs to be taken where the plaintiff in the second action is not the same as the plaintiff in the first, but his privy. Such situations are many and various, and it would be unwise to lay down any general rule. The principle is, no doubt, capable in theory of applying to a privy; but it is likely in practice to be easier for him to rebut the charge that his proceedings are oppressive or constitute an abuse of process than it would be for the original plaintiff to do so.”
223.	In Dexter Ltd v. Vlieland-Boddy [2003] EWCA Civ 14 Clarke LJ (with whom Scott Baker LJ agreed) summarised the position thus:
“The principles to be derived from the authorities, of which by far the most important is Johnson v Gore Wood & Co [2002] 2 AC 1, can be summarised as follows:  
   i) Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process.  
   ii) A later action against B is much more likely to be held to be an abuse of process than a later action against C.  
   iii) The burden of establishing abuse of process is on B or C or as the case may be.  
   iv) It is wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.  
   v) The question in every case is whether, applying a broad merits based approach, A’s conduct is in all the circumstances an abuse of process.  
    vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of B or C.”
Different capacities
224.	The principle is put in Spencer Bower on Res Judicata (3rd ed) para 221 as follows:
“A party who litigates in different rights is in law separate persons. A decision for or against him in one representative capacity is not binding on him personally or in another capacity.”
Public interest
225.	In Johnson v. Gore Wood Lord Bingham of Cornhill said:
“But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter.  This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole.”  
226.	On the other hand, as Lord Millett pointed out in Johnson:
“It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon.  This latter (though not the former) is prima facie a denial of the citizen's right of access to the court conferred by the common law and guaranteed by article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953).  While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression.”
The arguments under attack
227.	Mr Dutton submitted that the issues relating to the sale to Mr Tamimi could be subdivided, broadly into three areas:
i)	Did FP have a subsisting power of sale?
ii)	If so, were there any contractual fetters on its exercise?
iii)	If not, was the exercise of the power by FP a breach of any equitable duty?
228.	He submitted that because of cause of action estoppel, issue estoppel or abuse of process the first two questions should be answered in FP’s favour. He accepted that the third issue had to be determined on its merits. Mr Pryor submitted, in addition, that it was an abuse of process for the claimants to allege improper motives in the exercise of the power of sale.
229.	Neither Mr Dutton nor Mr Pryor suggested that the claimants were precluded from raising arguments relating to the commission of economic torts.
230.	The first argument that Britel and Meretz wish to advance in support of the submission that FP had no subsisting power of sale (“the deemed completion argument”) proceeds by the following steps:
i)	Under clause 19 of the April 1999 Deed of Priorities the FP Charge was to be discharged on completion of the sale of the fourth penthouse;
ii)	Clause 23.2 of that Deed expanded the definition of completion to include a deemed completion when it was first reasonable to assume that completion by ACP would never take place;
iii)	Clause 23.2 of the April 1999 Deed applied equally to the May 2001 Deed of Priorities;
iv)	At some stage earlier than 11 March 2003 it was reasonable to assume that completion of the sale of the fourth penthouse by ACP would never take place;
v)	Accordingly, the FP Charge should have been discharged earlier than 11 March 2003;
vi)	By failing to discharge the FP Charge in accordance with its obligation to do so, FP is relying on its own wrong and cannot be heard to say that the FP Charge (and its concomitant power of sale) continued to exist.
231.	The second, and related argument that Britel and Meretz wish to advance (“the own wrong argument”) is that by exercising the power of sale (even if for a proper purpose) FP committed breaches of its contractual obligations under the April 1999 Deed of Priorities and the May 2001 Deed of Priorities. There is a substantive rule of law which precludes a party from relying on his own wrong in order to achieve a benefit.
232.	Meretz claims that there have been breaches of the Introduction Agreement which have resulted in underpayment of sums due to it. The Defendants have pleaded that Meretz had no title to sue on this agreement as a result of the assignment of its benefit on 19 September 1997 to Highdorn by way of security. Meeting fire with fire, Meretz argues that this defence is not open to the Defendants because it, too, is a defence which could and should have been raised in the debt action. Alternatively they say that it is an issue which has been decided adversely to the Defendants in that action.
Cause of action estoppel
The debt action
233.	The debt action was based on Meretz’ contractual entitlement to commission under the Introduction Agreement. The commission became due on 26 October 2001. Judgment was given in Meretz’ favour. It follows, in my judgment, that as between Meretz and ACP it is conclusively established that Meretz had the benefit of the contract as at that date. The nature of the estoppel is cause of action estoppel. It is not suggested that the judgment was procured by fraud or collusion. It follows, in my judgment, that for the purposes of this action Meretz must be taken to have the benefit of the Introduction Agreement. 
234.	There is one other consequence of the recovery of judgment in the debt action. Any claim that Meretz had to commission due under the Introduction Agreement up to and including 26 October 2001 has now merged in the judgment. Meretz has claimed an account of what is properly due to it under that agreement, and wishes to allege that certain deductions were improperly made. In my judgment it is precluded from doing so. If deductions had been improperly made prior to the debt action, the effect would have been to increase the amount which Meretz could have recovered. Having recovered judgment for commission due, it is not in my judgment possible for Meretz to re-open the inquiry. 
The injunction application
235.	Although the injunction application was only an application for interim relief, it resulted in the final dismissal of the action against FP at first instance. The dismissal of the action results, in my judgment, in a cause of action estoppel as between Britel and Meretz on the one hand, and FP on the other. The contracts upon which Britel relied as entitling it to relief were the Introduction Agreement, the Preliminary Agreement and the FP Guarantee. As explained in the Indian Grace, a cause of action estoppel embraces all claims for breaches of those contracts arising out of the same incident. The incident in question was the prospective assignment to Mr Tamimi. It follows, in my judgment, that the cause of action estoppel extends to all allegations based on breaches of the Introduction Agreement, the Preliminary Agreement and the FP guarantee, whether they were pleaded breaches or not, in so far as such breaches might be said to prevent the assignment.
236.	I do not, however, consider that the cause of action estoppel extends to alleged breaches of other contracts, such as the two deeds of priorities. 
237.	The claim against ACP was not dismissed; so no cause of action estoppel arises as between it and Britel and Meretz.
The assignment and forfeiture actions
238.	It is no longer alleged that a cause of action estoppel arises out of the assignment action or the forfeiture action.
Issue estoppel
The assignment and forfeiture actions
239.	In order to obtain a declaration that consent to an assignment has been unreasonably withheld, it is necessary to establish:
i)	That consent to the assignment has been validly applied for;
ii)	That the reasons given for refusal of consent are unreasonable.
240.	Each of these is a necessary condition for the obtaining of relief. Each is therefore an “issue” for the purposes of issue estoppel. The assignment action was fought on the basis that the application for consent was made under section 1 of the Landlord and Tenant Act 1988. Section 1 (3) imposes on the landlord statutory duties relating to the giving of consent where there is served on him “a written application by the tenant for consent”. Section 5 (1) provides that where the tenancy is affected by a mortgage, and the mortgagee proposes to exercise his power of sale, “tenant” includes the mortgagee. It follows, in my judgment, that it was an issue in the assignment action whether FP was a mortgagee who proposed to exercise a power of sale. If FP had no subsisting mortgage (or could not be heard to say that it had a subsisting mortgage), that would have been a complete defence to the action, because it would not have been entitled to apply for consent and would not, therefore, have been entitled to the declaration sought.
241.	I consider, therefore, that there is an issue estoppel arising out of the assignment action which precludes those bound by it (in the absence of special circumstances) from arguing that at the date when it applied for consent, FP had no mortgage or had no power of sale. It equally precludes those bound by it from arguing that FP could not be heard to say that it had a mortgage or that it had a power of sale.
242.	So far as the forfeiture action is concerned, this was based on an allegation that FP had actually transferred the lease to Mr Tamimi. Unless there had been an effective transfer of the legal estate, there would have been no breach of covenant. That action therefore necessarily involved an assertion that FP had a power of sale capable of exercise in March 2003. 
243.	The defendant to the assignment action and the claimant in the forfeiture action was CHAPS. But it held the overriding lease on trust for (amongst others) Britel and Meretz. Britel and Meretz had the real conduct of the litigation. Mr Stern accepted that the assignment action and the forfeiture action were “Meretz’ enterprises”. Although they were not formally parties to the action they were in my judgment CHAPS’ privies. Mr Morgan argued that in the assignment action the capacity of Britel and Meretz was that of beneficial owners of the reversion, whereas in the present case they are suing in different capacities. However, in my judgment the litigation in both cases is being conducted for their personal benefit. This is not, therefore a case of different capacities. In my judgment they are bound by the issue estoppel in the absence of special circumstances.
244.	This means, therefore, that in the absence of special circumstances, Britel and Meretz may not rely on:
i)	The argument that by virtue of the development timetable, the deemed completion provisions and the obligation to discharge the FP charge on the sale of the fourth penthouse, FP is relying on its own wrong in asserting the existence of a power of sale;
ii)	The argument that Mr Tamimi’s knowledge of the existence of these obligations (if established) amounted to knowledge of an impropriety in the exercise of the power of sale.
245.	No special circumstances have been established. Consequently the issue estoppel bars these arguments.
Abuse of process
The injunction action
246.	The purpose of the injunction action was to stop the assignment to Mr Tamimi. The claim rested on the assertion that by exercising its power of sale FP would be in breach of contract. As I have said, the contracts relied on to stop the assignment were the Introduction Agreement, the Preliminary Agreement and the FP Guarantee.
247.	Although not formally in issue, the assumption underlying the injunction application was that FP had a power of sale to exercise.
A rush to court?
248.	In resisting the Defendants’ arguments based on abuse of process Mr Morgan urged on me that Britel and Meretz had been rushed into court at the end of the summer term in 2002. They had, he said, been labouring under the misapprehension that FP had undertaken not to exercise its power of sale without giving notice. That, he said, excused the failure by FP and Meretz to advance all the arguments on the construction of the various agreements that he now wished to advance. I do not accept this submission for the following reasons:
i)	Mr Stern had known since February 2002 that FP were contemplating exercising the power of sale;
ii)	Mr Bretherton had confirmed this in an e-mail on 3 April 2002;
iii)	Since then Mr Stern had pursued his three-fold strategy for preventing an exercise of that power and would have used any lawful means at his disposal to achieve that objective. Part of that strategy was to threaten QQH (and any other prospective purchaser of the development lease) with proceedings for an injunction;
iv)	Britel and Meretz were advised by solicitors throughout; and had access to counsel who advised on at least one occasion;
v)	If Britel and Meretz’ solicitors had laboured under any misapprehension about the giving of an undertaking, they had been disabused of their error by no later than early May 2002. Moreover, Mr Stern was unaware of any undertaking having been given and did not rely on any such undertaking. It is a reasonable inference that Britel and Meretz did not rely on any such undertaking either;
vi)	Mr Stern’s letter to Mr Tamimi’s solicitors of 10 May 2002 shows that he knew at least the outlines of the deal that had been done by FP and Mr Tamimi, including the proposal that Mr Tamimi would fund FP to complete the construction of penthouse A.
Exercise of power in bad faith
249.	Mr Pryor argued that it is an abuse of process for Britel and Meretz to raise in this action the argument that FP’s exercise of its power of sale is vitiated by its having been exercised for an improper purpose. He says that Mr Stern knew enough of the deal between Mr Tamimi and FP, and of its consequences for Britel and Meretz, for that argument to have been advanced in July 2002. Mr Dutton did not support this argument.
250.	I agree with Mr Pryor that Mr Stern knew the essential ingredients of the arrangements between FP and Mr Tamimi before the commencement of the injunction action. He might also have guessed at the reasons why FP desired to exercise its power of sale. But to make an allegation which, in effect, amounts to an allegation of bad faith is a serious step to take. The basis on which the injunction was sought relied solely on allegations of breaches of contract which did not impugn the integrity of any of the participants. Had it gone to trial it would have required little in the way of disclosure or oral evidence, since it depended entirely on the construction of contractual documents. Although I am inclined to accept that Britel and Meretz would have been able to plead a case of improper exercise of the power of sale (i.e. the claim could have been advanced), I am not persuaded that they should have done so, or that it is an abuse for them to raise that question now.
Damages for breach of contract
251.	Mr Dutton argued that it was an abuse of process for Britel and Meretz to claim damages against ACP and FP for ACP’s failure to complete the development on time and for ACP’s failure to grant the development sub-lease. He said that the claim in the injunction action was a claim for a quia timet injunction. Even if the court had refused to grant an injunction, it could still have awarded damages in lieu under the jurisdiction contained in section 50 of the Supreme Court Act 1981 (the modern equivalent of Lord Cairns’ Act). Damages awarded under that section may relate not only to extant breaches of obligation, but also to future breaches: Jaggard v. Sawyer [1995] 1 WLR 269, 284 per Millett LJ. Damages may also be awarded in lieu of an injunction even where the injunction sought is a quia timet injunction: Leeds Industrial Co-Operative Society v. Slack [1924] AC 851 (threatened interference with ancient lights). Thus the fact that the claim was heard and determined before the date had arrived either for completion of the development or for the grant of the sub-lease was immaterial.
252.	I do not accept this argument. In my judgment it would be an exceptional case in which the court refused a quia timet injunction but yet awarded damages in lieu before any damage at all had been suffered. If an attempt to secure an equitable remedy to prevent a threatened breach of contract fails, I do not consider it abusive to wait until damage is actually suffered, and then to sue for common law damages. In addition, the claim against ACP (which is the primary contractor) resulted in the grant of an injunction. So the argument, if a good one, can apply only to FP and cannot, in my judgment, exonerate ACP from what would otherwise be its liability for breach of contract. 
A different date?
253.	Mr Morgan sought to outflank the allegation of abuse of process in raising the argument that FP had no power of sale (or could not be heard to say that it had one). He submitted that whether FP had a power of sale had to be tested as at the date when it purported to transfer the development lease to Mr Tamimi. It did not do so until March 2003. That was nine months after the injunction proceedings were disposed of. Whatever might be the effect of estoppel or abuse of process, it could not extend to matters that occurred after the proceedings in question. Consequently, Mr Morgan submitted the argument could not have been raised in the injunction proceedings or, if it could, it was not abusive to raise it now.
254.	The debate on this question raised interesting questions on the effect of entry by a mortgagee into a contract for the sale of the mortgaged property. I do not, however, consider that I need to resolve these questions. In my judgment all the necessary material was available to Britel and Meretz to raise the arguments in the injunction proceedings. The provisions of the April 1999 Deed of Priorities and the May 2001 Deed of Priorities were both known to Meretz and Britel. Allegations of threatened breaches of these agreements could have been advanced in the injunction proceedings. So, too, could the allegations based on the “deemed completion” argument.
255.	It must not be forgotten that the injunction proceedings were proceedings for a quia timet injunction. In other words, they were proceedings whose raison d’être was looking into the future. If the deemed completion argument is correct, it would apply whenever FP contracted to exercise (or perhaps actually exercised) its power of sale. Similarly, if the own wrong argument is correct, the breaches of obligation relied on would take place whenever FP exercised its power of sale. Accordingly, in my judgment there is no significance in the fact that completion of the assignment of the development lease did not take place until March 2003. All Mr Morgan’s arguments leading to the conclusion that FP had no power of sale (or could not be heard to say that it had one) could have been advanced in the injunction proceedings.
The assignment action
256.	I have already referred to the observation of Peter Gibson LJ in the Court of Appeal in the assignment action that:
“Indeed it seems to me close to an abuse of process for Britel and Meretz through its trustee CHAPS to have another go at the effect of the 1999 Priorities Deed, having failed in their argument in 2002.”
257.	This is now the third time that Britel and Meretz have sought to rely on the provisions of the April 1999 Deed of Priorities as conferring on them a right to prevent a sale in exercise of FP’s power of sale. In my view a third attempt is without doubt an abuse of process. I do not consider that the abuse of process stops with the April 1999 Deed of Priorities. In my judgment it extends to reliance on the March 2001 Deed of Priorities as well, since there is no material difference between their terms in this respect.
258.	Mr Dutton and Mr Pryor also argued that it was an abuse of process for Britel and Meretz to argue that the Lease-Back Option was anything other than part of the mechanism for securing site payments. It is true that in the course of his judgment Lightman J considered the nature of the Lease-Back Option. However, I do not consider that the nature of the Lease-Back Option was an issue in the case. What could be described as an issue in the case was whether the Lease-Back Option was a “tenant covenant”. Lightman J decided that it was not. That, in my judgment, is the extent of the issue. Although the judge considered that it was part of the machinery for securing payment of Britel’s entitlement to site payments, the precise character of the Lease-Back Option, as a question of contract, was not an issue. I do not regard it as abusive for Britel and Meretz to re-argue the nature of the Lease-Back Option.
Conclusion
259.	Taking a broad view of the merits, I am in no doubt that it is an abuse of process for Britel and Meretz to raise in this action arguments that FP had no power of sale to exercise (or cannot be heard to say that it had one). The arguments that Britel and Meretz wish to advance could have been advanced in the injunction action. The only real reason given for not having advanced them then is that they had not been thought of. In my judgment that is an inadequate reason. In addition the assignment and forfeiture actions were both conducted (by CHAPS as trustee for Britel and Meretz) on the assumption that FP had a power of sale to exercise. Having twice sued ACP and FP on that basis, it does, in my judgment, amount to harassment or oppression to sue them for a third time on a wholly different, and inconsistent, basis. In addition the advancing of the arguments that Britel and Meretz wish to advance is, in my judgment, a collateral attack on the decision of the Court of Appeal to refuse permission to appeal in the injunction action.
260.	On the other hand, I consider that it is not abusive for Britel and Meretz to advance the claim that the power of sale was in fact exercised for improper purposes. Nor is it abusive for Britel and Meretz to reargue the nature of the Lease-Back Option; or to sue ACP for damages for breach of contract in failing to complete the development on time and/or to comply with the Lease-Back Option.
The position of the parties and the state of the account in the summer of 2002
Who had interests in Albert Court?
261.	The freehold. By September 2002 the freehold was owned by Albert Court (Westminster) Freehold Ltd, a company owned by the residents. It had been the freeholder since May 2000. It is not suggested that the declaration of trust of the freehold which Britel had executed in favour of CHAPS still had any effect.
262.	The overriding lease. This had been granted to CHAPS in May 2000. CHAPS held the overriding lease on trust for itself, NUBBH, Britel and Meretz.
263.	The development lease. This was still held by ACP.
264.	Penthouse B. A sub-lease of penthouse B had been granted to Varlet on 1 March 2000.
265.	Penthouse E. A sub-lease of penthouse E had been granted to St Helier Trust Company Ltd on 15 May 2000.
266.	Penthouse C. A sub-lease of penthouse C had been granted to Mrs Orbach on 26 October 2001.
267.	Penthouse A. The sale contract between ACP and Mr Tamimi had been made on 8 January 2002. It had not been completed.
268.	First charge. The FP Charge remained held by FP.
269.	Second charge. On 19 July 2002 NUBBH transferred the NUBBH charge to FP. FP therefore held both the first and the second charge. The NUBBH charge secured (at least) the tranche of site payments (amounting to £339,689) which FP had paid to NUBBH in return for the transfer of the charge. It was registered on 31 July 2002.
270.	Third charge. The Meretz Charge (granted to secure the commission payments under the Introduction Agreement) had been sub-charged by Meretz to Highdorn.
271.	The Preliminary Agreement. The benefit of the Preliminary Agreement had been assigned to NUBBH by way of security. Although it was not comprised in the NUBBH Charge (which was a charge over the development lease securing the Site Payments alone) the assignment by way of security remained in force. Britel retained its equity of redemption in the benefit of the Preliminary Agreement. NUBBH eventually reassigned the benefit of the Preliminary Agreement to Britel on 15 March 2004.
The state of the account between ACP and Britel
272.	Site payments had been made as follows:
Date	Payee 	Amount (£)	
May 2000	NUBBH	267,316.50	
October 2001	NUBBH	607,993.75	
July 2002	NUBBH	339,689.75	
Total		1,215,000	
273.	It is common ground, therefore, that Britel (or more accurately its assignee NUBBH) has been paid its full entitlement to site payments.
The state of the account between ACP and Meretz
274.	Meretz had been paid the amount awarded by HH Judge Seymour QC. This represented its full entitlement to commission as long as net sale proceeds did not exceed £7.55 million.
275.	Mr Stern alleged that Meretz had been underpaid and that an account should be taken of what was really due. His principal complaint was that payments (which he freely and repeatedly described as “corrupt payments”) had been made to FP ostensibly in return for project management and “extras” required by individual purchasers of penthouses. Mr Olsson appended to his witness statement a calculation of net sale proceeds. This calculation (with which Mr Stern agreed in cross-examination) showed that net of extras and other agreed deductions, net proceeds of penthouses B, E and C amounted to £6.65 million and inclusive of extras (but after agreed deductions) amounted to £7.23 million. I have already concluded that the effect of judgment in the debt action is that Meretz is not entitled to re-open the account. But even if it were so entitled, Mr Stern’s evidence establishes that even if an account were ordered, Meretz would recover no more. 
276.	It is clear, therefore, that Meretz had been paid its full entitlement in respect of net sale proceeds received up to July 2002. Since it is common ground that exercise of the power of sale would override or destroy Meretz’ future entitlement to commission, Meretz had had everything to which it was entitled. I decline to order an account.
The state of the account between ACP and FP
277.	The amount of ACP’s indebtedness to FP was calculated by Mr de Guingand, who was employed by the company’s auditors. The precise figure is open to debate; but on any view it well exceeded £1 million; and probably exceeded £3 million.
278.	The indebtedness included the amount that FP had paid to NUBBH (in its capacity as guarantor of ACP’s obligations under the Preliminary Agreement) in order to discharge ACP’s final liability to make site payments to Britel. As guarantor, FP would have been entitled to an indemnity from the principal debtor (ACP) against that payment. However, no demand for repayment was formally made under the NUBBH charge.
Breaches of contract by ACP and FP
Failure to build on time
279.	The revised timetable for building under the Preliminary Agreement required ACP to have completed the development by 7 September 2002. It did not do so. On the face of it, therefore, there was a plain breach of contract. Mr Dutton did not seriously argue that anything in the various agreements, or the exercise by FP of its power of sale, had relieved ACP of its liability for that breach. ACP is, in my judgment, liable for damages for breach of contract.
280.	FP guaranteed ACP’s liability under the Preliminary Agreement. It is therefore liable in damages for ACP’s failure to complete the development on time.
Failure to grant the lease-back
281.	The second breach relied on is ACP’s failure to grant the lease-back once Britel had exercised the Lease-Back Option, which Britel had exercised on 10 September 2002. 
282.	It is not disputed that ACP failed to give effect to the option; nor that FP’s guarantee extended to that failure.
Liability to whom?
283.	ACP’s liability under the Preliminary Agreement was a liability to Britel. That is not in dispute. 
284.	Although ACP assumed obligations to Meretz under the Introduction Agreement, clause 12 of the Preliminary Agreement (which contained the development timetable) was expressly disapplied. Moreover, liability to make payments under the Introduction Agreement was conditional on the project proceeding, which is hardly consistent with a contractual obligation to build. Accordingly, at the outset, ACP owed no contractual obligation to Meretz as regards the development timetable. However, Mr Morgan argues that this was changed by the two deeds of priorities. By clause 14 of the May 2001 Deed  of Priorities ACP undertook with each of the parties to the deed to observe the provisions of the May 2001 Deed of Priorities, the development lease, the Preliminary Agreement and the Introduction Agreement. Meretz was a party to the May 2001 Deed of Priorities, and consequently the undertaking was given to it. Thus by virtue of clause 14 ACP undertook with Meretz to observe the provisions of the Preliminary Agreement which incorporated the development timetable. A covenant given by A to B under which A covenants to comply with his pre-existing obligations to C is not a mere covenant of indemnity. It is an independent contract with B which B is entitled to enforce: Ayling v. Wade [1961] 2 QB 228. It follows therefore that Meretz is entitled to maintain a claim for breach of contract as a result of ACP’s failure to adhere to the development timetable, as varied by the May 2001 Deed of Priorities.
285.	I accept Mr Morgan’s submission. Accordingly, in principle, ACP is liable to Meretz, as well as to Britel, for failure to build on time.
286.	FP’s guarantee was not extended to Meretz under the terms of either of the deeds of priorities. Consequently, FP’s liability is a liability to Britel alone.
287.	I deal later with the consequences of a breach.
Mortgagee’s equitable duties
The general principles
288.	It is common ground that a mortgagee, exercising his remedies under the mortgage, owes equitable duties to the mortgagor and to subsequent encumbrancers. In Downsview Nominees Ltd v. First City Corporation Ltd [1993] AC 295 Lord Templeman described them as follows:
“Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for the repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower.”
289.	Mr Morgan also referred me to the distillation of principle by Peter Gibson LJ in Raja v. Austin Gray [2003] 1 EGLR 91, 96:
“(1) A mortgagee with the power of sale is not a trustee of that power, the power being given to the mortgagee for his own benefit. 
(2) A mortgagee is not under a general duty of care to the mortgagor and can act in his own interests in deciding whether and when he should exercise his power of sale. 
(3) A mortgagee, however, is subject to an equitable duty to act in good faith and to obtain the best price reasonably obtainable at the time he decides to sell. That duty is owed to those interested in the equity of redemption. They include the mortgagor, other mortgagees and a guarantor of the mortgage debt, but they do not include a tenant at will of the mortgaged property, nor, where the mortgagor is a trustee, a beneficiary of the trust.”
290.	Mr Morgan also relied on the decision of Stuart V-C in Robertson v. Norris (1857) 4 Jur NS 155, in which the Vice Chancellor described a sale for purposes other than merely to recover payment of the debt as a “fraud on a power”. In so saying, the Vice Chancellor followed what he understood to be the law; namely that the mortgagee was a trustee of his power of sale. However, this view of the law is not correct. Moreover, the decision in Robertson v. Norris was disapproved by Jessel MR, in typically trenchant terms, in Nash v. Eads (1880) 25 Sol J 95 (which I quote below).
To whom are the duties owed?
291.	In Downsview Lord Templeman said that the argument that a mortgagee owed no duty to a subsequent encumbrancer was untenable. He explained:
“The owner of property entering into a mortgage does not by entering into that mortgage cease to be the owner of that property any further than is necessary to give effect to the security he has created. The mortgagor can mortgage the property again and again. A second or subsequent mortgage is a complete security on the mortgagor's interests subject only to the rights of prior encumbrancers. If a first mortgagee commits a breach of his duties to the mortgagor, the damage inflicted by that breach of duty will be suffered by the second mortgagee, subsequent encumbrancers and the mortgagor, depending on the extent of the damage and the amount of each security.”
292.	Since the damage suffered by a second encumbrancer is measured by the extent of his security, it seems to me to follow that the extent of a mortgagee’s duty to a subsequent encumbrancer must itself be measured by the extent of the subsequent security.
293.	Britel had been paid everything that was due to it as site payments. Its only remaining entitlement was as holder of the equity of redemption in the Lease-Back Option. But the Lease-Back Option was not secured. Consequently, in my judgment FP owed no equitable duty to Britel. Moreover, as Peter Gibson LJ pointed out in Raja, the duty is not owed to a tenant at will of the property. It must follow, therefore, that a mortgagee owes no duty to the holder of an option to take a tenancy of the property. Mr Morgan did not seriously suggest that an equitable duty was owed to Britel.
294.	Meretz had been paid everything that was due to it, so long as the proceeds of sale of completed penthouses did not exceed £7.55 million. It retained its security but the debt thereby secured depended on two contingencies:
i)	Net proceeds of sale exceeding £7.55 million and
ii)	ACP being the grantor of sub-leases of completed penthouses.
295.	The right dependent on the second of these contingencies was not a right capable of being “overreached” in the conventional sense of the word; that is to say a right which is transferred from the property itself to the proceeds of sale. It is this kind of right which gives rise to the equitable duty imposed on a mortgagee to take proper steps to obtain the best price for the mortgaged property. A subsequent mortgagee has an obvious interest in that price being achieved. But Meretz’ right was a contingent right which the exercise of the power of sale would itself destroy, in the sense that the contingency would never be capable of fulfilment. Once the power had been exercised, Meretz would have no interest in the proceeds of sale. If, therefore, the power of sale was exercisable at all, it must have been exercisable in circumstances in which that inevitable result would follow. In those circumstances I conclude that FP owed no equitable duty to Meretz which would require it to refrain from exercising its power of sale even though the result would be to deprive Meretz of its contingent entitlement. In practical terms, this means that FP owed no equitable duty to Meretz, apart from a duty to exercise its powers in good faith.
The content of the duty
296.	Mr Morgan relied on the further statement by Peter Gibson LJ in Raja that:
“Equity intervenes to ensure that proper account is taken of the interests of the mortgagor and others interested in the equity of redemption. The mortgagee is only interested in the discharge of the debt owed to him, but equity makes sure that the mortgagee acts fairly to those interested in the equity of redemption when the mortgagee exercises the power of sale.”
297.	Mr Morgan emphasised the statement that the mortgagee must act fairly to those interested in the equity of redemption. But of equal importance is that this duty arises when the mortgagee exercises his power of sale. Given that Peter Gibson LJ had just said that the mortgagee was entitled to act in his own interest in deciding whether and when to exercise that power, it does not seem to me that he can have intended his reference to the duty to act fairly “when” he exercises that power to cut down the mortgagee’s right to act in his own interests in deciding whether to exercise it.
298.	Mr Morgan also referred to Palk v. Mortgage Services Funding Ltd [1993] Ch 330, 337 in which Nicholls V-C said:
“As Lord Templeman noted in the China and South Sea Bank case, at p. 545, a mortgagee can sit back and do nothing. He is not obliged to take steps to realise his security. But if he does take steps to exercise his rights over his security, common law and equity alike have set bounds to the extent to which he can look after himself and ignore the mortgagor's interests. In the exercise of his rights over his security the mortgagee must act fairly towards the mortgagor. His interest in the property has priority over the interest of the mortgagor, and he is entitled to proceed on that footing. He can protect his own interest, but he is not entitled to conduct himself in a way which unfairly prejudices the mortgagor.”
299.	This appears to me to emphasise that the mortgagee is entitled to protect his own interests and is entitled to give those interests priority over those of the mortgagor (or, for that matter, over those of a subsequent mortgagee). The question for decision in Palk was not whether the mortgagee was in breach of its duty (the Court of Appeal appeared to think that it was not); but whether the court should exercise a statutory discretion. Palk is not, therefore, of direct help.
The mortgagee’s motives
300.	Mr Morgan submitted that a power of sale would only be properly exercised where the mortgagee had “purity of purpose”; that is to say where the mortgagee’s only motive was to recover, in whole or in part, the debt secured by the mortgage. Even if the mortgagee’s purpose was to protect his security, rather than to recover the secured debt, that was an illegitimate purpose. Moreover, Mr Morgan submitted that if the mortgagee had mixed purposes, the requisite purity of purpose was not achieved, and the exercise was improper. Mr Dutton, on the other hand,  supported by Mr Pryor, submitted that as long as one of the mortgagee’s purposes was to recover the debt secured by the mortgage or to protect his security, it did not matter that he had other purposes as well. He referred to Fisher & Lightwood on Mortgages (11th ed para 16.13) in which it is said:
“It seems that a mortgagee who genuinely seeks payment of sums due will not be defeated merely because he has an additional improper motive.”
301.	This is an expression of opinion by a respected work of authority; although in my judgment it is not clear whether the case on which it relies for this proposition (Ashley Guarantee plc v. Zacaria [1993] 1 WLR 62, 69) was a decision of principle or simply a decision on the facts.
302.	In Nash v. Eads (1880) 25 Sol J 95 Jessel MR said:
“The mortgagee was not a trustee of the power of sale for the mortgagor, and if he was entitled to exercise the power, the Court could not look into his motives for so doing. If he had a right to sell on June 1, and he then said, 'The mortgagor is a member of an old county family, and I don't wish to turn him out of his property, and will not sell it at present,' and then on July 1 he said, 'I have had a quarrel with the mortgagor, and he has insulted me; I will show him no more mercy, but will sell him up at once' - if all this was proved, the Court could not restrain the mortgagee from exercising his power of sale, except on the terms of payment of the mortgage debt. The Court could not look at the mortgagee's motives for exercising his power. Lord Eldon had never said anything of the kind which Vice-Chancellor Stuart supposed him to have said. The Vice-Chancellor was entirely mistaken, and must have been citing the judgments to which he referred from his recollection, without looking at the reports. Of course there were some limits to the powers of the mortgagee. He, like a pledgee, must conduct the sale properly, and must sell at a fair value, and he could not sell to himself. But he was not bound to abstain from selling because he was not in urgent want of his money, or because he had a spite against the mortgagor.”
303.	This quotation undoubtedly supports Mr Dutton’s submission. But it also seems to me to run counter to the modern trend of authority which imposes on the mortgagee a duty of some kind to act fairly towards the mortgagor. An exercise of a power of sale out of spite does not, at least at first blush, sit well with such a duty. Nevertheless, it does not appear to have been disapproved in any recent case.
304.	It is in this context that it is appropriate to consider the facts of the Downsview case; and also the decision of the Court of Appeal in Quennell v. Maltby [1979] 1 WLR 318.  In Downsview the holder of a second debenture appointed receivers of a company’s assets. Subsequently, a first debenture holder appointed receivers of the same company, not for the purpose of obtaining repayment of its debt; but for the purpose of disrupting a receivership by receivers originally appointed by the second debenture holder, and for reinstating the managing director of the company who had been removed by the second debenture holders’ receivers. The critical finding of fact  made by the trial judge was as follows:
“In pursuit of his own objectives [the second defendant] embarked upon a course, having as its first objective disruption of the receivership under the [second] debenture. His intention in urgently acquiring the [first] debenture and accepting appointment as receiver was not for the purpose of enforcing the security under the [first] debenture but for the purpose of preventing the enforcement by the plaintiffs of the [second] debenture.”
305.	The original receivers gave way to the subsequently appointed receivers, since their appointing creditor had priority. In addition the holder of the second debenture offered to buy the first debenture by paying all money secured by it (i.e. offered to redeem) but this offer was wrongly refused by the first debenture holder, even though it would have meant that it recovered its debt in full. The trial judge held that the receivers had been appointed by the first debenture holder for improper purposes. His decision was upheld by the Privy Council and the second receiver was held liable for equitable compensation. The measure of the compensation was the difference between what would have been recovered had the original receivership proceeded undisturbed, and the amount actually recovered under the subsequent receivership.
306.	Mr Dutton submits that this was a case in which no part of the first debenture holder’s purpose was the recovery of the debt secured by the first debenture. This appears to me to be correct, on the facts. 
307.	The second case is the decision of the Court of Appeal in Quennell v. Maltby [1979] 1 WLR 318. In that case a house was mortgaged to a bank to secure a debt of £2,500. The house was let to tenants at an annual rate of £1,000. The tenants were protected as against the mortgagor by the Rent Acts. The tenancy was not binding on the bank. The mortgagor’s wife took a transfer of the mortgage and sued for possession. The purpose of obtaining possession was not to enable the wife to sell in her capacity as transferee of the mortgage, but to enable her husband, the mortgagor, to do so. It was held that this was an improper use of the powers conferred on a mortgagee. Lord Denning MR said:
“So the objective is plain. It was not to enforce the security or to obtain repayment or anything of that kind. It was in order to get possession of the house and to overcome the protection of the Rent Acts.”
308.	Bridge LJ said:
“…on the facts of this case it is as plain as a pikestaff that the purpose of the bringing of these proceedings via Mrs. Quennell is not for her own benefit to protect or enforce the security which she holds as the transferee of the legal charge but for the benefit of her husband as mortgagor to enable him to sell the property with the benefit of vacant possession. In substance she is suing as his agent.”
309.	Templeman LJ said:
“In the present case it is clear from the facts and the evidence that the mortgagee, Mrs. Quennell, is not bona fide exercising her rights and powers for her own purposes as mortgagee but for the purpose of enabling the landlord mortgagor (her own husband) to repudiate his contractual obligations and defeat the statutory tenancy of the tenant which is binding on the landlord. Mrs. Quennell does not even pretend to be acting in her own interests as mortgagee. She brings this action to oblige her husband. In my judgment the court must therefore treat this action, although in form brought by a mortgagee, as an action brought for and on behalf of the landlord mortgagor.”
310.	Mr Dutton submits, and again I agree, that on the facts this was a case where no part of the mortgagee’s purpose in exercising the legal rights conferred on a mortgagee was that of enforcing the security for the mortgagee’s own benefit. I note also that Bridge LJ said that the mortgagee’s purpose was not to “protect or enforce” the security.
311.	The quotation from Jessel MR in Nash v. Eads was applied by Russell J in Belton v Bass [1922] 2 Ch 449. In that case the mortgagees of shares in a brewery wanted to confer an option on one of the directors of the brewery to acquire the shares at a future date. They were advised that they had no power to grant such an option. So they purported to sell the shares to the director, as mortgagees, lending the whole of the purchase price, interest free, for that purpose. They also gave the director the right to require the mortgagees to buy back the shares at the original purchase price. The economic effect of the transaction was, therefore, the same as if they had granted the option that they were advised they could not do. The mortgagor applied to set aside the sale. The argument was that:
“…it is said that the mortgagee exercised his power of sale with an indirect motive, not with the view of realizing his security, but with the object of conferring a benefit upon the defendant Garrard by giving him an option masquerading as a sale.”

312.	Having referred to Nash v. Eads, Russell J concluded:
“I am unable accordingly to inquire into the motives of the defendants Bass, or to hold that the sale is vitiated because they desired to confer a benefit on the purchaser by selling to him upon terms, which included a fair price.”
313.	I should, lastly under this head, refer to the well-known case of Farrar v Farrars Ltd (1888) 40 Ch D 395. Mr JR Farrar was one of three mortgagees of a quarry. He was also a solicitor; and acted in that capacity for himself and his co-mortgagees. The mortgagor (James Farrar) defaulted on the loan. The mortgagees took possession and tried to sell the quarry, but without success. Mr JR Farrar then had the idea of forming a company to buy the quarry; and he and others duly formed the company, which bought the quarry. Mr JR Farrar was the solicitor to the company; and he was also a shareholder in it. The sale was not at an undervalue. The Court of Appeal held that the sale should not be set aside. However, they did say that the mortgagees had the burden of sustaining the transaction. However, they held that Mr JR Farrar had shown that the sale was made in good faith, and at a proper price; with the consequence that the sale stood. This case shows that the fact that the mortgagee will acquire benefits consequent upon the sale does not necessarily involve a breach of the mortgagee’s duty of good faith. 
314.	Drawing the threads together, it seems to me that none of the authorities to which I was referred gives unequivocal support to Mr Morgan’s submission that the mortgagee must have “purity of purpose”. On the contrary, Nash v. Eads and Belton v. Bass are inconsistent with it. So, too, is the statement in Fisher & Lightwood. A dissection of a mortgagee’s motives is likely to be difficult in practice. Moreover, unlike statutory powers conferred for the public benefit, or trustees’ powers conferred for the benefit of beneficiaries (which were two analogies on which Mr Morgan relied) a mortgagee’s powers are conferred upon him for his own benefit. In such circumstances “purity of purpose” may be difficult to achieve. The cases do support the proposition that a power of sale is improperly exercised if it is no part of the mortgagee’s purpose to recover the debt secured by the mortgage. Where, however, a mortgagee has mixed motives (or purposes) one of which is a genuine purpose of recovering, in whole or in part, the amount secured by the mortgage, then in my judgment his exercise of the power of sale will not be invalidated on that ground. In addition I consider that it is legitimate for a mortgagee to exercise his powers for the purpose of protecting his security.
Protection of purchasers
The statutory provision
315.	Mr Tamimi relies on section 104 (2) of the Law of Property Act 1925 which provides:
“(2)   Where a conveyance is made in exercise of the power of sale conferred by this Act, or any enactment replaced by this Act, the title of the purchaser shall not be impeachable on the ground—  
  (a)    that no case had arisen to authorise the sale; or  
  (b)    that due notice was not given; or  
  (c)    where the mortgage is made after the commencement of this Act, that leave of the court, when so required, was not obtained; or  
  (d)    whether the mortgage was made before or after such commencement, that the power was otherwise improperly or irregularly exercised;  
 and a purchaser is not, either before or on conveyance, concerned to see or inquire whether a case has arisen to authorise the sale, or due notice has been given, or the power is otherwise properly and regularly exercised; but any person damnified by an unauthorised, or improper, or irregular exercise of the power shall have his remedy in damages against the person exercising the power.”
316.	The expression “purchaser” is defined by section 205 (1) (xxi) of the Act which, so far as relevant, reads:
““Purchaser” means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property except that in Part I of this Act and elsewhere where so expressly provided “purchaser” only means a person who acquires an interest in or charge on property for money or money’s worth; and in reference to a legal estate includes a chargee by way of legal mortgage; and where the context so requires “purchaser” includes an intending purchaser”
Limits to the protection
317.	Mr Morgan submitted that:
i)	A purchaser cannot rely on section 104 (2) if he has knowledge of or participates in an impropriety in the exercise of a power of sale;
ii)	Knowledge, for this purpose, includes both “shut-eye” knowledge and constructive knowledge;
iii)	Knowledge, for this purpose, also includes knowledge (including “shut-eye” and constructive knowledge) acquired by an agent and imputed to his principal;
iv)	The knowledge need not exist at the date of the contract for sale. Knowledge acquired by the purchaser between contract and completion will equally preclude him from relying on section 104 (2);
v)	A purchaser can only rely on section 104 (2) if he is a purchaser in good faith. That is a concept which goes wider than a mere inquiry into the purchaser’s state of knowledge or notice.
Knowledge of impropriety
318.	Mr Morgan’s first proposition is supported by the decision of the Court of Appeal in Corbett v. Halifax BS [2005] 1 WLR 964, 975 in which Pumfrey J (with whom Schiemann and Scott Baker LJJ agreed) said:
“section 104(2) makes it clear that the purchaser is not protected if he has actual knowledge of the impropriety. But if the purchaser has no notice of the impropriety, then on the face of it he takes free. Thus, the completed sale by a mortgagee pursuant to his statutory power is vulnerable only if the purchaser has knowledge of, or participates in, an impropriety in the exercise of the power.”
319.	I observe in passing that although Pumfrey J speaks of both “knowledge” and “notice” I do not understand him to differentiate between the two. The Court of Appeal was not concerned, in that case, with differing degrees of knowledge or notice.
320.	“Shut eye” or “blind eye” knowledge was described by Lord Scott of Foscote in Manifest Shipping Co Ltd v. Uni-Polaris Insurance Co Ltd [2003] 1 AC 469 as follows:
“Blind-eye” knowledge approximates to knowledge. Nelson at the battle of Copenhagen made a deliberate decision to place the telescope to his blind eye in order to avoid seeing what he knew he would see if he placed it to his good eye. It is, I think, common ground - and if it is not, it should be - that an imputation of blind-eye knowledge requires an amalgam of suspicion that certain facts may exist and a decision to refrain from taking any step to confirm their existence.”
321.	He concluded:
“In summary, blind-eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist. But a warning should be sounded. Suspicion is a word that can be used to describe a state-of-mind that may, at one extreme, be no more than a vague feeling of unease and, at the other extreme, reflect a firm belief in the existence of the relevant facts. In my opinion, in order for there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts. The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe. To allow blind-eye knowledge to be constituted by a decision not to enquire into an untargeted or speculative suspicion would be to allow negligence, albeit gross, to be the basis of a finding of privity.”
322.	I accept Mr Morgan’s submission that “shut eye” or “blind eye” knowledge in this particular sense is the equivalent of actual knowledge.
323.	Constructive knowledge presents more of a problem. The usual concept of constructive knowledge is knowledge that a person would have acquired if he had made all usual and proper enquiries. But section 104 (2) on its face absolves a purchaser from having to inquire whether a case has arisen to authorise the sale, or due notice has been given, or the power of sale is otherwise properly and regularly exercised. To hold that a purchaser cannot rely on section 104 (2) as a result of constructive knowledge appears to me to contradict the express words of the section.
324.	The knowledge of one person may, in certain circumstances, be attributed to another person. This is generally known as imputed knowledge. However, it is not the same as constructive knowledge. The concept of imputed knowledge does not bear on the kind of knowledge possessed by one person that is attributed to another. The general rule of agency is that where in the course of any transaction in which he is employed on his principal’s behalf, an agent receives notice or acquires knowledge of any fact material to that transaction, under circumstances in which it is his duty to communicate it to his principal, the principal will be precluded from relying on his personal ignorance of that fact; and he will be taken to have known of it (or to have had notice of it) as from the time when his agent ought to have communicated it to him if he had performed his duty with due diligence. In Strover v. Harrington [1988] Ch 390, 409 Browne-Wilkinson VC said:
“In this, as in all other normal conveyancing transactions, after there has been a subject to contract agreement the parties hand the matter over to their solicitors who become the normal channel for communication between vendor and purchaser in all matters relating to that transaction. In so doing, in my judgment the parties impliedly give actual authority to those solicitors to receive on their behalf all relevant information from the other party relating to that transaction. The solicitors are under an obligation to communicate that relevant information to their own clients. At the very least, the solicitors are held out as having ostensible authority to receive such information. Whether there be express or ostensible authority, the purchaser is in my judgment estopped from denying that he received the information relating to the transaction which has been communicated to his solicitors acting in the same transaction. In my judgment, such knowledge should be imputed to the principal.”
325.	I accept, therefore, that in a conveyancing transaction a solicitor’s actual or “shut eye” knowledge should be imputed to his client.
Did FP have a power of sale to exercise?
326.	In my judgment it is not open to Meretz or Britel to contend that FP did not have a power of sale to exercise.
Why did FP exercise its power of sale?
The case for Britel and Meretz
327.	Mr Morgan submitted that FP’s purpose in “using the charge” comprised the following strands:
i)	FP wished to “take control” of the development;
ii)	FP wished to put itself into a position in which it could obtain finance and build out the development;
iii)	In order to facilitate (ii) Meretz had to be cut out because its contingent entitlement to commission payments would make the development unprofitable; and Britel had to be cut out because the prospect of having to grant the development sub-lease would prevent FP from building out the development and hamper attempts to raise finance;
iv)	The overriding motive was to avoid a loss for ACP and, if possible, produce a profit for FP.
328.	Conspicuous by its absence in Mr Morgan’s list is any desire on the part of FP to recoup any of its lending.
Financial pressures
329.	It is clear that both ACP and FP were in financial crisis in the summer of 2002. Not only is this clear from the contemporaneous documentation (in particular Mr Bretherton’s e-mail of 3 April 2002, Mr Olsson’s e-mails of 1, 10 and 14 April 2002 and the board minutes), but Mr Olsson also said so many times during the course of his evidence. I quote some examples:
“Q. It did not matter, did it, whether ACP made the profit or FP made the profit, it was one of your companies [that] would make the profit?
A. At the end of the day that is true … but the only way FP could get any of the money it had lent to ACP back was to use the charge. (Day 8 p. 37-8)
Q. The main driving force for you doing this [i.e. entering into the Wrap Around Agreement] was that you were in one of your many financial crises in the run up to the 31st May 2002?
A. Especially it is true .. that there was a cashflow problem. The main problem, though was that the asset, the charge that [FP] had over ACP’s development lease was getting far, far too expensive. It was a great risk, especially after threats from Mr Stern that he would, right or wrong, demand the sub-lease in September. It meant that [FP] had to use the charge before then.” (Day 8 p. 127)
“Q. You had nowhere else to go, had you, except to use the life line that had been pointed out as a possible lifeline?
A. It would not have mattered when we decided to use the charge … we had a charge, we used it and we acted on the advice we had. Had we not then [FP] would have disappeared.” (Day 8 p. 128-9)
330.	The financial crisis was, as Mr Olsson said, partly related to cashflow. But that was not the only problem. Because of cost overruns and delays, completion of the development by ACP was unlikely to prove profitable to ACP if it had to make the contractual commission payments to Meretz. On the contrary, the project was likely to result in a significant loss. ACP was a single purpose vehicle; and had no assets apart from its interest in Albert Court. The debt owed by ACP to FP was mounting; and the only hope of repayment was out of the profits (if any) arising from the development. If ACP made a loss, FP would not be repaid. Accordingly the only prospect for FP to recover any of the money it had lent to ACP was to exercise its power of sale; which would result in the overriding of ACP’s contractual obligation to make commission payments to Meretz. More than that, since the trigger for the making of the commission payments was the grant by ACP of long leases of completed penthouses, the contractual commission payments would not become due at all. Exercise of the power of sale would also defeat the Lease-Back Option which had not been registered against the development lease before FP’s charge had been registered.
331.	FP had been advised, both by counsel and by Mr Hawkins, that the power of sale was only capable of being exercised for the purpose of recovering the debt due or to protect its position as chargee. I do not consider that FP would have disregarded that advice, given that the board of FP were anxious that their use of FP’s powers as mortgagee should be carefully vetted by the lawyers. Nor do I consider that Mr Hawkins would have devised the scheme and carried it into execution if he had thought that the power of sale was being exercised for an improper purpose.
332.	When FP first began to consider “using the charge” one of the options was to sell to QQH. The valuation of the development lease was obtained on the basis that one of the options open to FP was to sell the lease to a developer. The contemporaneous documents show that it was not a condition of any such sale that FP should continue to be associated with the project; although it was willing to continue. This is shown by Mr Olsson’s instructions to the valuer and by Mr Hawkins’ e-mail of 25 March 2002 (among others). They also show that FP was willing to assign the charge to a third party lender (such as NatWest). Part of the problem was that the very success of Mr Stern’s three-fold strategy (and in particular his dogged determination to deter any potential purchaser) had made it impossible for the lease to be sold at anything like its true value in what one might call a clean break. The prospect of becoming embroiled in litigation with Mr Stern and “his companies” would be likely to deter all but the bravest of purchasers. Accordingly in my judgment there was little alternative, if FP was to succeed in recovering any money as a result of a sale, to doing a deal of the kind it did with Mr Tamimi.
333.	Mr Olsson also said, and I accept, that if the lease was to be sold, it would have been “commercial madness” for anyone to attempt to build out the development using traditional as opposed to modular construction techniques; and that there were few builders, apart from FP, who had the necessary know-how.
334.	Mr Morgan criticised FP for buying in the NUBBH charge. But as I see it the real purpose of buying in the NUBBH charge was to secure the release of the Loft, the value of which exceeded the amount secured by the NUBBH charge. I do not regard that as an irrational commercial decision.
335.	Accordingly I conclude that at least one of the purposes (and a significant purpose) of FP’s exercise of its power of sale was to recover what money it could out of the financial wreckage of the project. I do not consider that that was an improper purpose.
336.	Moreover, the appeal of Britel and Meretz is to the protection afforded by equity. But it is an unattractive appeal when they themselves have been responsible for doing their best to disrupt any potential sale; and in addition doing so on the basis of legal arguments which the Court of Appeal subsequently held to be wrong or irrelevant.
Potential loss of security
337.	As Mr Olsson’s evidence indicates, one of the factors motivating FP was the potential loss of its security if Britel successfully exercised the Lease-Back Option. In my judgment another of the factors driving FP’s decision to exercise its power of sale was to avoid that potential loss. I do not regard that as an improper purpose. It would, in my judgment, be a strong thing for equity to impose upon a secured creditor a duty to allow his security to disappear, thus making it impossible for him to recover the debt.
The proof of the pudding
338.	Mr Dutton submitted that one way of testing whether recovery of the whole or part of the secured debt was a purpose of FP was to examine what actually happened. Mr Tamimi paid real cash for the acquisition of the development lease, one of whose effects was to reduce the debt owed by ACP to FP. If that was one of the effects of the transaction, in what sense can it be said that it was not one of its purposes? In my judgment there is no answer to that question.
Conclusion
339.	In my judgment FP exercised its power of sale for a proper purpose; and was not in breach of any equitable duty owed to Meretz.
If FP exercised its power of sale for improper reasons, is Mr Tamimi affected?
340.	This question does not arise. However, I should summarise my conclusions, in case I am wrong on the question whether FP’s exercise of its power of sale is vitiated.
341.	Mr Tamimi had actual or imputed knowledge of the various contractual documents. However, the allegation of improper exercise of the power of sale depends on the allegation that it was no part of FP’s purpose in exercising the power to recover its debt. Mr Tamimi had no knowledge of the internal discussions by the boards of ACP and FP and only limited access to the privileged communications between Mr Olsson and Mr Hawkins. Mr Hawkins had told Mr Ware in terms on 29 April 2002 that FP was taking action “in order to protect its own position as first chargeholder”. I do not consider that Mr Tamimi had knowledge of FP’s motivation, apart from what he was told. Nor did he have any suspicion of impropriety about which he decided not to inquire. If, as I think, the scheme devised by Mr Hawkins was capable of being properly used by a mortgagee, Mr Tamimi was entitled to assume that it would be.
342.	Accordingly, even if FP’s exercise of the power of sale had been improper, Mr Tamimi would not have been affected by the impropriety; and his title is unimpeachable.
The nature of the Lease-back Option
Security for Site Payments
343.	Mr Dutton’s primary submission is that the Lease-Back Option was part of the mechanism for securing Britel’s entitlement to site payments. In this he has the support of Lightman J. It is also noteworthy that in the Court of Appeal Mr Morgan submitted that CHAPS was properly concerned to secure the performance of the Lease-Back Option:
“to bring about a grant of a development sub-lease of the premises demised by the Lease itself, so as to enable the proceeds of the sale of the penthouses to be shared in accordance with cl. 9 of the Introduction Agreement.” (see the judgment of Peter Gibson LJ para 61)
344.	In the present action, however, Mr Morgan submits that the Lease-Back Option is a free-standing promise to grant a sub-lease on the happening of certain events which has little, if anything, to do with securing payments.
345.	I have already concluded that no issue estoppel or abuse of process arises out Lightman J’s discussion of the Lease-Back Option in the assignment and forfeiture actions. Lightman J’s conclusion about the nature of clause 12 is plainly obiter. I must consider Mr Morgan’s submission on its merits.
346.	First, the obligation to grant the sub-lease is not linked to a failure to make site payments to Britel. It is linked to a failure to complete the development on time. But as the facts of the present case show, Britel might become entitled to all the site payments contractually due, irrespective of whether the development was completed on time. Second, on the grant of the sub-lease Britel assumes no particular obligation as regards the sub-lease. It is not required to develop; nor is it required to sell. Third, as Mr Olsson accepted in evidence, the commercial purpose behind the Lease-Back Option was to ensure that if ACP did not develop on time it was not left in possession of the undeveloped roofspace for the residue of the thousand year term.
347.	These factors, cumulatively, lead me to the conclusion that the Lease-Back Option is not a security.
Penalty
348.	It is common ground that a term in a contract which provides for the transfer of property from one party to another on breach of contract is capable of being a penalty. Mr Dutton and Mr Pryor argue in the alternative that the Lease-Back Option is such a penalty. Mr Dutton argues that if the Lease-Back Option is not a security, it must follow that it was not intended to compensate Britel for any perceived loss. Its predominant function, therefore, was to penalise ACP in the event that it failed to build out the development on time.
349.	It is true that the obligation to grant the lease-back only arises in the event of a breach of obligation by ACP. But that is only the starting point for the inquiry whether it is a penalty. To characterise a clause as a penalty, with the consequence that the court will refuse to enforce it, is a blatant interference with freedom of contract, and should normally be reserved for cases of oppression. There is, in my judgment, nothing inherently oppressive in a contractual term which has the effect of precluding one party to the contract from continuing to enjoy benefits under the contract at a time when he is not adhering to his own obligations. That, as it seems to me, is the substance of the Lease-Back Option. In addition, the following points should be noted:
i)	The right to a sub-lease was limited to the undeveloped parts of the roofspace. There was no question of Britel being able to take over parts of the roof on which ACP had already placed modules. Mr Dutton did argue that in some circumstances it was possible to envisage that ACP might have spent money in the manufacture of modules off-site which would be wasted in the event of the grant of the lease-back. But these were unlikely circumstances, in my view.
ii)	The development timetable was not fixed in stone in the Preliminary Agreement. ACP was entitled to mandatory extensions of time arising out of matters over which it had no control. The contract also provided for further extensions of time to be given at Britel’s discretion.
iii)	ACP only gave nominal consideration on the grant of the development lease. Britel’s only hope of a return was from the building out of the development. It was necessary, therefore, for Britel to be protected against a failure to build out. 
iv)	It is common for a development agreement (or a development lease) to be capable of termination if the developer does not develop. In some cases equity may be able to relieve against forfeiture; in other cases not. It may well have been thought in the present case that a straightforward forfeiture clause was inappropriate because of the possible intervention of purchasers of individual penthouses whose interests might have been adversely affected by the inclusion of such a clause. Indeed the presence of such a clause in the agreement might have deterred potential purchasers, or at least their prospective mortgagees.
350.	I conclude, therefore, that clause 12.4 is not a penalty.
Void agreement to surrender
351.	It was also suggested that clause 12.4 was avoided by section 38 (1) of the Landlord and Tenant Act 1954 as amounting to an agreement to surrender by a business tenant. It is well settled that an agreement to surrender by a business tenant is, indeed, invalidated by section 38 (1) unless authorised by the court under section 38 (4): Joseph v. Joseph [1967] Ch 78. (I ignore recent changes made to the Act). However, this argument fails for a number of reasons:
i)	When created, clause 12.4 was not a bilateral agreement. It was only an option which might or might not have matured into an agreement. An option to surrender, as opposed to an agreement to surrender is not invalidated by section 38 (1): Allnatt London Properties Ltd v. Newton [1982] 2 All ER 290 (not appealed on this point).
ii)	When exercised, the grantee of the option was not the landlord. It has already been held by Lightman J that the benefit of clause 12.4 did not pass to CHAPS on the creation of the overriding lease. Thus the operation of clause 12.4 cannot be equiparated to an agreement to surrender.
iii)	The grantor of the option, ACP, was not in occupation of the roof space at all. It had no employees and no staff. It was only the developer. All the physical activities were carried out by employees of FP, as the builder. Although reliance could be placed on the occupation of FP, as a member of the same group of companies as ACP (see Landlord and Tenant Act 1954, s. 42 (2)), the option related only to that part of the roof space as had not been developed. Almost by definition, that part of the roof space would not have been occupied by FP. Mr Dutton submitted, in his closing address, that the lease was held on trust for Mr Tamimi, and that Mr Tamimi was in occupation of the roofspace, via his independent contractor (FP) for the purposes of a business. Assuming for the sake of argument (but without deciding) that the lease was indeed held on trust for Mr Tamimi, this argument nevertheless fails. First, I do not consider that occupation by an independent contractor can be equated with occupation by Mr Tamimi. Second, Mr Tamimi’s participation in the development was aimed at financing the building of a penthouse for the occupation of his family. I do not regard that as a business (particularly when it is an individual, rather than a body of persons, whose activities are in question).
352.	I conclude, therefore, that clause 12.4 means what it says; and entitled Britel to call for the grant of a sub-lease on the happening of certain events.
The effect of the transfer of the NUBBH charge
353.	Mr Dutton and Mr Pryor submitted that the effect of the transfer of the NUBBH charge to FP was to transfer (among other things) the benefit of the Lease-Back Option from NUBBH to FP. Britel had assigned the benefit of the Preliminary Agreement (including the benefit of the Lease-Back Option) to NUBBH, although the Lease-Back Option was not expressly secured by the registered charge. However, Mr Dutton and Mr Pryor submitted that on the transfer of the registered charge section 114 of the Law of Property Act 1925 operated to transfer the benefit of the Lease-Back Option to FP.
354.	Section 114 of the Law of Property Act 1925 provides:
“(1) A deed executed by a mortgagee purporting to transfer his mortgage or the benefit thereof shall, unless a contrary intention is therein expressed, and subject to any provision therein contained, operate to transfer to the transferee –
(a) the right to demand, sue for, recover, and give receipts for, the mortgage money or the unpaid part thereof, and the interest then due, if any, and thenceforth to become due thereon; and
(b) the benefit of all securities for the same, and the benefit of and the right to sue on all covenants with the mortgagee, and the right to exercise all powers of the mortgage; and
(c) all the estate and interest in the mortgaged property then vested in the mortgagee subject to redemption or cesser, but as to such estate and interest subject to the right of redemption then subsisting.”
355.	Although I have decided that as between Britel and ACP the Lease-Back Option was not security for the site payments, it seems to me that, as between Britel and NUBBH the assignment of the whole of the benefit of the Preliminary Agreement was security for the loan made by NUBBH to Britel, and consequently is capable of falling within paragraph (b). If that is not correct, then it seems to me that the equitable interest created by the Lease-Back Option was part of the interest in the mortgaged property vested in NUBBH and consequently is capable of falling within paragraph (c).
Does section 114 apply to a registered charge?
356.	Mr Morgan’s principal riposte to this submission was that section 114 does not apply to a registered charge.
357.	Mr Morgan relied first on the judgment of Peter Smith J in Paragon Finance plc v. Pender [2003] EWHC 2834 (Ch). In that case the judge said:
“In my opinion, section 114 LPA 1925, either has no impact in the case of a transfer of a registered charge under registered land or its effects are subject to the need for the transferee to become registered proprietor under the LRA regime.” (para 131)
“In my judgment although s. 114 LPA does not say so it is not intended to apply to transfers of registered charges under the LRA 1925. The regime for transferring those charges is the statutory regime to which I have made reference above.” (para 133)
“That does not mean that section 114 will have no effect.” (para 134)
358.	The effect to which Peter Smith J referred was an effect in equity. I would not, unaided, read the decision as saying that section 114 is completely ousted in the case of a registered charge.
359.	Mr Morgan next relied on the decision of the Court of Appeal in Credit & Mercantile plc v. Marks [2005] Ch 81. In that case, Clarke LJ, giving the judgment of the court said:
“In a recent case, Paragon Finance Plc v Pender [2003] EWHC 2834 (Ch), 25 November 2003, it was held by Peter Smith J that section 114 has no application to registered land.
We have no reason to doubt Peter Smith J's conclusions but in any event, as he observed, section 114 provides for a transfer "unless a contrary intention is expressed" in the mortgage. Thus if section 114 applies, all depends upon the true construction of the mortgage and, in our judgment, for the reasons given earlier, on the true construction of the sub-charge, there was no such transfer in this case.” 
360.	The observations of the Court of Appeal were plainly obiter and may have attributed to Peter Smith J a rather firmer view than the one he actually expressed. Thus far, the authorities are to some extent equivocal. 
361.	But Mr Morgan’s trump card was the decision of the Court of Appeal, on appeal from Peter Smith J, in Paragon Finance plc v. Pender [2005] 1 WLR 3412. In that case Jonathan Parker LJ (with whom Carnwath and Ward LJJ agreed) said:
“In my judgment Mr Page's reliance on section 114 of the Law of the Property Act 1925 is wholly misplaced, for the reason which the judge gave: viz. that section 114 is concerned with transfers of mortgages of unregistered land (transfers of mortgages of registered land being dealt with by section 33 of the Land Registration Act 1925). To interpret section 114 as applying also to transfers of mortgages of registered land would produce a fundamental and wholly illogical conflict between the two regimes in relation to transfers of mortgages. Bearing in mind what Lord Oliver of Aylmerton said in Flegg … I can see no conceivable basis for interpreting section 114 in a way which produces that result and every reason for not doing so. Accordingly I respectfully agree with the observations of this court in Marks with reference to the instant case.”
362.	In my judgment, therefore, section 114 does not apply to a transfer of a registered charge. Since there was no express assignment by NUBBH to FP of the benefit of the Lease-Back Option, it did not pass to FP.
The economic torts: legal framework
Introduction
363.	The economic torts on which Britel and Meretz rely are:
i)	Conspiracy to injure by unlawful means; 
ii)	Unlawful interference with contractual relations; and
iii)	Unlawful interference with business.
The relevant state of mind
364.	In Douglas v. Hello! Ltd [2005] 3 WLR 881 the Court of Appeal considered the mental element in the tort of unlawful interference with business. However, it is clear that their discussion encompassed the mental element in the tort of conspiracy to injure by unlawful means: see para 218 of the judgment. In para 159 the court said:
“There are a number of contenders for the test of the state of mind that amounts to an "intention to injure" in the context of the tort that we have described as "unlawful interference". These include the following: (a) an intention to cause economic harm to the claimant as an end in itself; (b) an intention to cause economic harm to the claimant because it is a necessary means of achieving some ulterior motive; (c) knowledge that the course of conduct undertaken will have the inevitable consequence of causing the claimant economic harm; (d) knowledge that the course of conduct will probably cause the claimant economic harm; (e) knowledge that the course of conduct undertaken may cause the claimant economic harm coupled with reckless indifference as to whether it does or not. A course of conduct undertaken with an intention that satisfies test (a) or (b) can be said to be "aimed ", "directed", or "targeted" at the claimant. Causing the claimant economic harm will be a specific object of the conduct in question. A course of conduct which only satisfies test (c) cannot of itself be said to be so aimed, directed or targeted, because the economic harm, although inevitable, will be no more than an incidental consequence, at least from the defendant's perspective. None the less, the fact that the economic harm is inevitable (or even probable) may well be evidence to support a contention that test (b), or even test (a), is satisfied.”
365.	After a comprehensive review of the authorities the court concluded at para 223:
“The gist of the tort of unlawful interference is the intentional infliction of economic harm. In other words, it must be shown that the object or purpose of the defendant is to inflict harm on the claimant, either as an end in itself, or as a means to another end. If foresight of probable consequences or subjective recklessness sufficed as the mental element of the tort, this would transform the nature of the tort. This, in effect, is what Mr Browne sought to persuade us to do when he advanced tests (d) and (e) as sufficient to satisfy the mental element in the tort of unlawful interference. Indeed, we take the view that satisfaction of test (c) would not be sufficient to establish the requisite mental element. However, as mentioned in para 159 above, establishing that the defendant knew that the claimant would suffer economic loss may well be evidence which can support a contention that test (b) or even test (a), is satisfied.”

Imputed intention?
366.	Although the knowledge of one natural person can be imputed to another natural person, I do not consider that a putative tortfeasor who is a natural person can be found liable on the basis of an imputed intention where the gist of the tort includes proof of an intention on the part of the tortfeasor himself. This will be of relevance in considering whether the satisfaction of test (c) should be treated as evidence leading to the satisfaction of test (a) or (b). In the case of an artificial person (such as a company) an intention can be imputed to it, according to the ordinary rules of attribution applicable to companies. 
Mistaken appreciation of law
367.	Mr Morgan submitted that a mistaken appreciation of the legal position cannot absolve a putative tortfeasor of what would otherwise be his liability. He relied on Belmont Finance Corporation v. Williams Furniture Ltd (No 2) [1980] 1 All ER 393. In that case the allegation was one of conspiracy. The unlawful means relied on were a contravention of section 54 of the Companies Act 1948 which prohibited a company from giving financial assistance in the purchase of its own shares. Counsel had advised that the proposed transactions were lawful; but the advice was held to have been wrong. Buckley LJ said:
“In my judgment, the alleged conspiracy is established in respect of these three defendants, and they are not exempt from liability on account of counsel’s opinion or because they may have believed in good faith that the transaction did not transgress s 54. If all the facts which make the transaction unlawful were known to the parties, as I think they were, ignorance of the law will not excuse them: see Churchill v Walton ([1967] 2 AC 224 at 237). That case was one of criminal conspiracy, but it seems to me that precisely similar principles must apply to a conspiracy for which a civil remedy is sought. Nor, in my opinion, can the fact that their ignorance of, or failure to appreciate, the unlawful nature of the transaction was due to the unfortunate fact that they were, as I think, erroneously advised excuse them (Cooper v Simmons, and see Shaw v Director of Public Prosecutions, where the appellant had taken professional legal advice). 
If they had sincerely believed in a factual state of affairs which, if true, would have made their actions legal, this would have afforded a defence (Kamara v Director of Public Prosecutions ([1974] AC 104 at 119)); but on my view of the effect of s 54 in the present case, even if £500,000 had been a fair price for the share capital of Maximum and all other benefits under the agreement, this would not have made the agreement legal.”
368.	Waller LJ said:
“A person is a party to a conspiracy if he knows the essential facts to constitute that conspiracy even though he does not know that they constitute an offence (see Churchill v Walton). Since there was a breach of s 54 and the defendants through their directors made all the arrangements and knew all the facts constituting the breach, it would follow that they conspired together to contravene s 54, the object of their conspiracy being Belmont, and if Belmont suffered damage they are liable.”
369.	Thus Mr Morgan submits that although a misapprehension of the facts may give rise to a defence, a misapprehension of the law does not. Mr Dutton and Mr Pryor relied on the recent decision of the Court of Appeal in Mainstream Properties Ltd v. Young [2005] EWCA Civ 861. The case concerned an allegation against a Mr De Winter of inducing breaches of contract in the service contracts of two employees of Mainstream Properties Ltd. The breach related to the exploitation of an opportunity to develop land at Findern which, it was alleged, was an opportunity that the two employees, in breach of contract, diverted from Mainstream. Mr De Winter provided the finance. The trial judge found that before committing himself to the funding of the Findern development Mr De Winter had been assured by the two employees that there was no conflict of interest between themselves and Mainstream; and that Mainstream had been offered, and turned down, that development opportunity. He dismissed the claim against Mr De Winter. Arden LJ summarised the submission made by Mainstream on appeal as follows:
“Mr Randall submits that Mr De Winter's mistaken belief was no defence in this case. Mr De Winter's mistake was in part a mistake of fact as to whether Mainstream had rejected the Findern site or could not afford it. But it was also a mistake of law in that the assurance given by Mr Young and Mr Broad could not relieve them of a breach of duty: only the fully informed consent of Mainstream could have done that. In addition, the assurance did nothing to prevent a misappropriation of the employer's property by making telephone calls in his time and using Mainstream's office premises. 
Mr Randall submits that the correct approach to a mistake of law is set out by Goff LJ in Pritchard v Briggs [1980] Ch 338 at 414G. A party does not avoid liability simply because through ignorance of the law he does not realise that his conduct is tortious.”
370.	Douglas v Hello! Ltd was decided after the oral hearing of the appeal in Mainstream Properties Ltd v. Young; and the parties made written submissions about the effect of that case. Arden LJ referred to the court’s “panoramic overview of the case law on intention in all economic torts” in Douglas. She concluded that before Douglas the English courts had not analysed the intention necessary to found liability for the economic torts. She welcomed “the holistic approach to intention in the various economic torts” applied by the Court of Appeal in Douglas. She then turned to the question whether a mistake of law could provide a defence; and referred, in that connection to the decision of the House of Lords in Kleinwort Benson v Lincoln City Council [1999] 2 AC 349. She concluded:
“In the light of these developments in the law, this court must ask whether the policy behind the tort of interference with contractual relations would be furthered if a defendant to a claim based on this tort were to be prevented from relying on a mistake he made on the law to explain why he took the action he did. In my judgment there is nothing in the policy of this tort that requires this bar. It is clearly important that the law should provide proper incentives to parties to familiarise themselves with the law, but if the bar under consideration does not now apply to the recovery of money paid under a mistake, it is difficult to see why it should apply to the economic tort of interference with contractual relations.”
371.	Mr Morgan submitted that Mainstream Properties Ltd v Young was decided per incuriam because Belmont Finance Corporation v. Williams Furniture Ltd (No 2) was binding on the Court of Appeal and was not cited. I do not accept this submission. First, in Belmont the Court of Appeal were considering the illegality of the underlying act (viz. whether the transactions contravened section 54 of the Companies Act). In Mainstream the court was considering the necessary intention. As Arden LJ pointed out, the requisite state of mind had not been analysed before Douglas. So the two cases were concerned with different points. Second, as Arden LJ pointed out, the sharp distinction between a mistake of law and a mistake of fact has been eroded since Belmont was decided.
372.	In my judgment, therefore, a mistake of law can negate the existence of the requisite intention. 
373.	I would also add this. It has been said that the principle of the criminal law that knowledge of the illegality of the acts concerned is no defence should be imported without more into the civil law. This was the proposition in Churchill to which Buckley LJ referred in Belmont. But there is, in at least one respect, a difference between the criminal law and the civil law. In the criminal law, whether a person appreciated the illegality of his act may have no bearing on conviction, but it may be of the utmost importance when it comes to sentence. By contrast in the civil law, if a person is liable in tort, the measure of damages is prescribed by law, and there is no discretion to mitigate the extent of the liability by reference to a mistaken belief of law. If, therefore, a mistaken appreciation of the law has any part to play in the civil law (as it does in the criminal law) the only available role is at the stage of determining liability.
Conspiracy to injure by unlawful means
374.	It was common ground that the ingredients of a conspiracy to injure by unlawful means were concisely and accurately summarised by the Court of Appeal in Kuwait Oil Tanker Co v. Al Bader [2002] 1 All ER (Comm) 271, 311 as follows:
“A conspiracy to injure by unlawful means is actionable where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so.”
375.	This case is also authority for the following further propositions:
“The essence of the unlawful means conspiracy is injury to the claimant as a result of an unlawful act or acts where two or more people have combined to cause the injury. It is not necessary that every overt act is done by every conspirator, but the act must be done pursuant to the conspiracy or combination.” (Bader at 311)
“It is not necessary for the conspirators all to join the conspiracy at the same time, but we agree with the judge that the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of. In a criminal case juries are often asked to decide whether the alleged conspirators were ‘in it together’. That may be a helpful question to ask, but we agree with Mr Brodie that it should not be used as a method of avoiding detailed consideration of the acts which are said to have been done in pursuance of the conspiracy.” (Bader at 312)
“That [i.e. proving conspiracy to injure by unlawful means] involves proving each of the elements in the tort, including the nature of the agreement, the unlawful means alleged, each unlawful act relied upon as causing loss and the fact that each such act was carried out pursuant to the conspiracy.” (Bader at 318)
376.	I do not, however, consider that the above definition of a conspiracy to injure by unlawful means eliminates the need to prove the relevant state of mind of the putative conspirator. The conspiracy is, after all, a conspiracy “to injure”.
Unlawful means 
377.	Clerk & Lindsell on Torts (18th ed para 24-121; 19th ed para 25-121) express the view that there is no good reason why the ambit of unlawful means in an “unlawful means conspiracy” should not be coterminous with its scope in other economic torts of intimidation, unlawful interference and indirect procurement of breach of, or interference, with contract. Similar views have been expressed by Laddie J (Michaels v. Taylor Woodrow Developments Ltd [2001] Ch 493) and Davis J (Mbasogo v. Logo Ltd [2005] EWHC 2043). I proceed on this basis.
378.	 It is common ground that, at this level in the judicial hierarchy, the law is that an unlawful act relied upon in support of an allegation of the tort of conspiracy must be actionable by the victim: Mbasogo v. Logo. However, the unlawful acts relied on are all actionable by Britel or Meretz or both. Nothing therefore turns on this.
Interfering with contractual relations
379.	Mr Morgan submitted that the classic form of the tort consists of directly inducing a third party to break his contract with the claimant. This is how it was described by the Court of Appeal in Douglas v. Hello! Ltd at para 194. Others have said that it consists of interfering with “contractual relations recognised by law if there be no sufficient justification for the interference”: Clerk & Lindsell on Torts (18th ed para 24-15, 19th ed para 25-15) citing Lord Macnaughten in Quinn v. Leathem [1901] AC 495, 510. Goff LJ used the same formulation in Pritchard v. Briggs [1980] 1 Ch 338, 410. I do not think it matters, on the facts of this case, whether the absence of sufficient justification is part of the gist of the tort; or whether sufficient justification is a defence to what would otherwise be tortious conduct.
Justification
380.	An illustration of justified interference with a contract, on facts similar to those in the present case, may be found in Edwin Hill & Partners v. First National Finance Corporation [1989] 1 WLR 225. Edwin Hill & Partners had been appointed as architects of a proposed development by a developer. The developer had mortgaged the property to the First National Finance Corporation. The debt secured by the mortgage had reached the point at which the mortgagee was considering exercising its remedies under the charge. However, instead of calling in the loan and exercising its power of sale, it decided to finance the building out of the development. But in doing so it insisted that the developer should sack Edwin Hill & Partners and replace them with a more prestigious firm of architects. Edwin Hill & Partners sued the mortgagee for procuring a breach of their contract with the developer. Both Rose J and the Court of Appeal rejected the claim. Stuart-Smith LJ held that although four of the elements of the tort were established, the fifth (namely that the defendant’s conduct must not be justified) was not. He recorded Edwin Hill’s submission as follows:
“Mr. Judge submits that although the judge posed the correct test, namely, whether the defendants had an equal or superior right to that of the plaintiffs, he reached the wrong conclusion in law because he confused the defendants' commercial interests with the required legal right, sustainable under the civil law, deriving from their contract. He accepted that if the defendants had exercised their rights under the legal charge, such exercise might have had the effect of interfering with the plaintiffs' contract, and had that been the case the defendants would have been justified. For example, if they had called in the loan and exercised their power of sale, this would have had the inevitable consequence of putting an end to the plaintiffs' contract; but such action would have been justified. But, he submits, if for their own commercial advantage they elect not to exercise any of their legal rights but instead adopt a course of conduct which intentionally interferes with the plaintiffs' contract, they are not justified and must pay.”
381.	Stuart-Smith LJ expressed his conclusions as follows:
“The defendants had the rights of a secured creditor, that is to say the right to be repaid their loan together with interest; in support of that right they had the remedies or rights granted by the legal charge and the law, namely, to sell the land or appoint a receiver. They were not bound to exercise these remedies in defence of their rights, but they could do so. Had they done so, it is common ground at least in so far as the power of sale and I think probably also on the appointment of a receiver, that the plaintiffs' contract would have come to an end. If, instead of exercising these remedies in their full rigour, they reach an accommodation with the mortgagor in defence and protection of their right as secured creditor, which has the same result of putting an end to the plaintiffs' contract, it would in my judgment be anomalous and illogical if they were justified in the one case, but not in the other. Nor can it make any difference that the accommodation reached is one that is more beneficial to the [mortgagor] than the straightforward exercise of the right of sale or appointment of a receiver.
Why, it may be asked, should the defendants be justified in interfering with the plaintiffs' contract if they exercise their power of sale as mortgagee in possession, but not if by agreement they permit the mortgagor to conduct the sale in the hope of achieving a better deal for both? Why should they be justified if they appoint a receiver, who has power to build-out the development and appoint architects, but not if they agree to finance the mortgagor to perform this task? I cannot find any logical answer to these questions.
Moreover, I think it would be undesirable if the law were to insist that a mortgagee in such a position should exercise his strict legal rights if he is to be justified in interference with contracts between the mortgagor and third parties; and could not be justified if he reached some sensible and reasonable accommodation which may be to the benefit of both himself and the mortgagor, but which has the same effect on the third parties' contract. The accommodation is designed to protect or defend the mortgagees' equal or superior right as a secured creditor, who had in this case financed the entire purchase and development of the site so far. And the accommodation was reached against the background of the remedy of sale or the appointment of a receiver. There can be no doubt that these rights existed once a formal demand for payment was made, a demand which could not have been met.”
382.	Nourse LJ agreed and gave a concurring judgment; and Browne-Wilkinson V-C agreed.
Consent and the voluntary assumption of risk
383.	It is a general principle of the law of tort that a person cannot complain of injury arising out of a risk to which he willingly consented. The principle applies both to intentional torts and to torts involving negligence: Clerk & Lindsell on Torts (19th ed) para 3-73. I see no reason why the same principle should not apply to economic torts as well.
Economic torts: application to the facts
Knowledge of the contracts
384.	There is no doubt that ACP, FP and Mr Olsson knew about the existence of the development lease, the Preliminary Agreement, the Introduction Agreement, the FP Guarantee and the deeds of priorities.
385.	Mr Ware had been supplied with the following documents:
i)	The Introduction Agreement (Mr Stern’s letter of 10 May 2002)
ii)	Clause 12 of the Preliminary Agreement (Mr Stern’s letter of 26 April 2002);
iii)	The FP Guarantee (Mr Stern’s letter of 26 April 2002);
iv)	Clause 9 of the April 1999 Deed of Priorities (Mr Stern’s letter of 26 April 2002).
386.	Mr Tamimi knew that there were contracts in place between companies associated with Mr Stern on the one hand and ACP and FP on the other. He did not himself have a grasp of the details of the contracts. As far as he was concerned these were matters for his lawyers on whose advice he relied. His concern was that the lawyers should tell him if there was anything serious to worry about. However, I consider that Mr Tamimi had sufficient personal knowledge of the existence of the contracts; and, moreover, that Mr Ware’s knowledge of the details of the contracts can fairly be imputed to him.
Consequence of exercising the power of sale
387.	Mr Olsson accepted that he knew that if FP exercised the power of sale ACP would be unable to perform its obligation to build out the development and that Meretz would not receive its commission payments. As he put it:
“I do know … that First Penthouse had a first charge in priority over Meretz and also I knew that if the money at the end of the day that could be salvaged was not enough to pay First Penthouse, then Meretz would suffer.”
388.	Mr Olsson also accepted that he knew that if FP exercised the power of sale, ACP would not be able to grant Britel the development sub-lease. Mr Olsson’s knowledge can, in my judgment, be attributed both to FP and to ACP.
The state of mind of FP and ACP
389.	I have no doubt that the predominant state of mind of both ACP and FP was a concern to protect their own interests, rather than gratuitously causing harm to Britel or Meretz. But both companies were aware that causing harm to Britel and Meretz would be a by-product of carrying the action plan into execution. Nevertheless both companies were concerned to act lawfully. It was for that reason that BLP were instructed to devise a plan that worked. They also believed, on the basis of Mr Hawkins’ advice that if all site payments made to Britel were made (as they were in return for the assignment of the NUBBH charge) then the Lease-Back Option would lapse, since it was part of the mechanism for securing payment of those sums. Although I do not agree with that advice, Lightman J appears to have done so. It cannot therefore be suggested that it was an unreasonable view to hold. In my judgment, neither FP nor ACP thought that any harm would be caused to Britel. Both ACP and FP believed that the agreements into which they entered were lawful.  At best this is a case within test (c) in Douglas. But it does not, in my judgment, lead to the inference that test (b) is satisfied. Accordingly, in my judgment, they lacked the necessary intention to injure.
Mr Tamimi’s state of mind
390.	Mr Tamimi had no conscious intention of harming anyone. As far as he was concerned, he was helping everyone who was owed money. Meretz would get what it was entitled to. NUBBH would be repaid. ACP would be enabled to get on with the development; and Mr Tamimi would get penthouse A, which was his only goal. He was told by the lawyers that the only way to get penthouse A was to take the head lease which is why he took it. If there was a risk, he was willing to take it because he had done nothing wrong. All he did was to finance penthouse A in the only way that he could. In my judgment Mr Tamimi also lacked the necessary intention to injure.
The breaches of contract and unlawful acts relied on
391.	Britel and Meretz rely on the alleged breach of equitable duty as one of the unlawful acts involved in the conspiracy. I have concluded that FP owed no equitable duty to Britel. I have concluded that although FP owed Meretz an equitable duty to exercise its power of sale in good faith, it was not in breach of that duty.
392.	The breaches of contract relied on are as follows:
i)	ACP’s breach of its obligations under clause 12 of the Preliminary Agreement. These include both the obligation to complete the development by 7 September 2002 and also the obligation under the Lease-Back Option. Britel relies on this breach both as the original obligee and also because of ACP’s agreement in the April 1999 Deed of Priorities and the May 2001 Deed of Priorities to perform its obligations under the Preliminary Agreement. Meretz relies on these breaches as obligee under the April 1999 Deed of Priorities and the May 2001 Deed of Priorities.
ii)	ACP’s breach of its development obligations under the lease. Both Britel and Meretz rely on this breach because of ACP’s agreement in the April 1999 Deed of Priorities and the May 2001 Deed of Priorities to perform its obligations under the development lease. Meretz also relies on a covenant to like effect in the Meretz Charge.
iii)	Breach by FP of its obligation under the FP Guarantee that ACP or it would perform the obligations under the Preliminary Agreement. Britel relies on this breach as obligee.
iv)	Breach by ACP and FP of the obligation under clause 19.2 of the April 1999 Deed of Priorities that the FP Charge would be discharged on completion or deemed completion of the sale of the fourth penthouse. Both Britel and Meretz rely on this breach as covenantees under the Deed.
v)	Breach by ACP and FP of their contractual obligations of good faith arising under clause 21.2 of the April 1999 Deed of Priorities and the May 2001 Deed of Priorities. Both Britel and Meretz rely on these breaches as covenantees under both Deeds. However, my conclusion that FP complied with its equitable duty disposes of the allegation under this head.
Justification and consent
393.	Mr Dutton submitted that where the parties had themselves agreed upon a priority as between potentially inconsistent rights, there was no room for an action in tort if one of the parties, entitled to exercise such a right, exercised it in accordance with the agreed priority. The other party would be taken either to have agreed that the exercise of that right was justified as being an equal or superior right; or would be taken to have consented to the exercise of that right despite the fact that it might cause damage. 
394.	In the present case both Britel and Meretz were parties to the contractual arrangements under which FP had an effective power of sale as mortgagee. Where parties have regulated their affairs by contract, I do not consider that it is the role of the law of tort to detract from their contractual arrangements. 
395.	What is the agreement causing loss on which Britel and Meretz rely as amounting to the conspiracy? The answer, as it seems to me, must be the Wrap Around Agreement and the subsequent implementation of the steps it contemplated. Underlying the whole of the allegation is the exercise by FP of its power of sale in circumstances in which the obligation of ACP to make further commission payments to Meretz would never arise; and Britel would not be able to enforce the Lease-Back Option. These consequences would have followed whether it was FP that exercised its power of sale under the FP Charge; or NUBBH that exercised its power of sale under the NUBBH Charge. The precise nature of the arrangements that FP made with Mr Tamimi were irrelevant to (and therefore not causative of) any harm that Britel or Meretz suffered. The harm was caused by the mere exercise of the power of sale. These consequences were, however, inherent in the legal structure of the estates and interests in and contracts relating to Albert Court that Meretz and Britel had themselves created (or allowed to be created). The Court of Appeal has twice held that the effect of the April 1999 Deed of Priorities was to enable FP to exercise its power of sale notwithstanding the existence of contractual obligations in other contracts. In my judgment the same applies to the May 2001 Deed of Priorities. In the present case, therefore, I consider that the series of agreements into which the parties entered had the effect that the rights of FP as mortgagee, and in particular its right to exercise its power of sale, were equal or superior both to Britel’s right to the Lease-Back Option and also to Britel’s and Meretz’ right to timely completion by ACP of the development. Alternatively, Britel and Meretz must be taken to have consented to the risk that FP would exercise its power of sale and that, in so doing, it would override Britel’s contractual entitlement to the lease-back and Meretz’ contractual entitlement to commission.
396.	This, as it seems to me, is the logical conclusion from the reasoning of the Court of Appeal in the injunction action (reinforced by the endorsement of that reasoning by the Court of Appeal in the assignment action). In my judgment, on the assumption that FP properly exercised its power of sale, the exercise of that power was not tortious or, if otherwise tortious, any interference with a prior contract was justified.
Causation of loss
397.	Neither the Particulars of Claim nor the written submissions explain what loss was caused (or to whom) by the individual breaches of contract relied on; or how the conspiracy (or interference) itself caused those breaches.
398.	So far as Britel is concerned, the failure to build out the development caused it no loss, because it had already received the maximum site payments to which it was entitled. On the contrary, the failure to build out actually gave rise to an advantage to Britel, because it was that very failure which opened the way to the exercise of the Lease-Back Option. As far as Meretz is concerned, the failure to build out might have caused it a loss, but the failure to grant the development sub-lease did not; because the grant of that sub-lease to Britel would have precluded Meretz from receiving any further payment under the Introduction Agreement. Thus the single conspiracy alleged has impossible conflicts within it, since the two alleged victims of the conspiracy have diametrically opposed interests in this respect. The same point applies to the allegation of breach by ACP of its development obligations under the lease itself; and to the allegation of breach by FP of its guarantee of ACP’s obligations under the Preliminary Agreement.
399.	Moreover, the conspiracy or interference did not, in my judgment, cause ACP to fail to build by the contractual deadline and thereby break its contractual obligation. On the contrary it was the provision of finance by Mr Tamimi (as the only available source) which enabled any building to take place at all. Without Mr Tamimi’s finance, the development would have ground to a halt much earlier. Mr Stern’s campaign of dissuasion of purchasers would have precluded any other purchaser.
400.	The last allegation of breach is that the FP charge was not discharged on the completion or deemed completion of the sale of the fourth penthouse. This allegation overlooks the provision in the deeds of priorities that priorities would be determined as if this obligation had been performed. Moreover, it is not clear to me how Britel and Meretz say that the alleged tortfeasors interfered with this contractual provision or how (and when) they agreed not to comply with it.
Conclusion
401.	Accordingly, I consider that neither Britel nor Meretz has a cause of action in tort; alternatively that the Defendants have a good defence to the claim. In my judgment Britel and Meretz have failed to establish the torts alleged.
Liability of directors in tort
General principles
402.	Whether a director is personally liable for a tort committed by a company is often a difficult question. In MCA Records Inc v. Charly Records Ltd [2003] 1 BCLC 93 Chadwick LJ reviewed the authorities comprehensively. His conclusions, so far as relevant to the present case were:
i)	a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company--that is to say, by voting at board meetings. That is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person.
ii)	there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control though the constitutional organs of the company; and the circumstances are such that he would be so liable if he were not a director or controlling shareholder. In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control.
Conspiracy cases
403.	The overlap of and distinction between liability as a joint tortfeasor and liability as a conspirator in tort is not always easy to discern. Mr Morgan relies on a dictum of O’Connor LJ in R v. Siracusa (1990) 90 Cr App Rep R 340 at 349:
“Participation in a conspiracy is infinitely variable: it can be active or passive. If the majority shareholder and director of a company consents to the company being used for drug smuggling carried out in the company's name by a fellow director and minority shareholder, he is guilty of conspiracy. Consent, that is the agreement or adherence to the agreement, can be inferred if it is proved that he knew what was going on and the intention to participate in the furtherance of the criminal purpose is also established by his failure to stop the unlawful activity.”
404.	I make a number of observations about this dictum. First, the case did not concern a conspiracy involving a company, so the dictum is obiter. Second, although O’Connor LJ says that the majority shareholder is guilty of conspiracy, he does not identify the other conspirator or conspirators. He does not say that the company itself (as opposed to the minority shareholder) would be a conspirator. Third, the conspiracy envisaged is a conspiracy (itself criminal) to commit a serious criminal offence. It would be difficult to envisage that a director would be acting within the bounds of legitimate corporate governance in knowingly permitting the company to commit a serious criminal offence. Fourth, in a passage previously cited by O’Connor LJ a warning is given against importing notions from the tort of conspiracy into the crime of conspiracy. Fifth, the decision preceded the review of a director’s tortious liability in MCA. Mr Morgan submitted that this dictum was quoted with approval by the Court of Appeal in the Bader case. So it was. But it was quoted for the proposition that the relevant agreement or the purposes of conspiracy may be informal or even tacit; and not to express a view about companies and their directors.
Corporate governance of ACP and FP
FP
405.	FP has a board of directors who have regular meetings. Its majority shareholder is a Swedish corporation called OG which is controlled by trusts established for the benefit of Mr Olsson’s family: principally his children. However there are a substantial number of minority shareholders, some of whom are institutional investors. The minority shareholders were at all material times represented by two directors on the board. For most of the material period these directors were Mr Törner and Mr Lindholm. They were joined in July 2002 by Mr Hallrup. Mr Olsson was a director of FP throughout; and Mrs Olsson was also a director until October 2002. Mr Olsson said that her resignation came about because the board members representing the minority shareholders thought that there were “too many Olssons” on the board. I accept his evidence. FP’s company secretary is a company that provides company secretarial services. In my judgment FP cannot be described as Mr Olsson’s creature.
406.	FP has a number of employees. These include secretaries, a bookkeeper, site managers, designers, carpenters and other craftsmen.
ACP
407.	ACP was formed in November 1995 as the vehicle for the joint venture between FP and ASH. Mr Olsson was appointed as a director of ACP on its formation and has remained an executive director ever since. Mr Dawkins was also appointed as a director. He, too, was an executive director, but he left in October 1998. On formation of ACP representatives of ASH were also appointed as directors, but they resigned when ASH pulled out in December 1996. Mrs Olsson was appointed as a director of ACP on 14 December 2000. She resigned with effect from October 2002. Mr Törner, Mr Lindholm and, subsequently, Mr Hallrup were also directors of ACP in parallel with holding office as directors of FP.  ACP has no employees. Shortly after the withdrawal of ASH ACP had no further need for a bank account; so its existing account was closed down.
Board meetings
408.	The boards of ACP and FP met simultaneously. The standard format was that Mr Olsson prepared a full agenda which also doubled as the managing director’s report. The boards went through the agenda at the meeting; and the agenda often formed the template for the minutes of the meeting. Mr Olsson said that the board were mindful of the fact that ACP and FP were separate corporate entities; but that they tried to deal with all issues relating to Albert Court under one heading, whether it was technically ACP or FP that was concerned. For example, ACP had no employees, yet the minutes refer under the heading of ACP to “our staff”. I accept his evidence.
409.	I should record attendance at the material board meetings, so far as that can be established from the evidence. In tabular form it is as follows:
Date	Present	
12 September 2001	Mr Törner; Mr Olsson, Mrs Olsson, Mr Lindholm	
5 November 2001	Mr Törner; Mr Olsson, Mrs Olsson, Mr Lindholm	
6 December 2001	Mr Törner; Mr Olsson, Mr Lindholm	
26 February 2002	Mr Törner; Mr Olsson, Mrs Olsson, Mr Lindholm	
10 June 2002	Mr Törner; Mr Olsson, Mr Lindholm	
12 July 2002	Mr Törner; Mr Olsson, Mr Lindholm, Mr Hallrup	
27 August 2002	Mr Törner; Mr Olsson, Mrs Olsson, Mr Lindholm, Mr Hallrup	
22 November 2002	Mr Törner; Mr Olsson, Mr Lindholm, Mr Hallrup	
31 January 2003	Mr Törner; Mr Olsson, Mr Lindholm, Mr Hallrup	
410.	There is nothing, to my mind, to suggest that ACP or FP were governed by their respective boards of directors otherwise than in accordance with proper corporate governance. The decisions were taken by the board as a whole and taken at board meetings. The essence of the scheme, including the exercise by FP of its power of sale and the sale of the development lease to Mr Tamimi was agreed by the boards at their meeting on 12 July 2002.
411.	In addition the shareholders as a whole were presented with the “action plan” at the EGM.
Mrs Olsson
412.	The case against Mrs Olsson is based on the fact that she held office as a director of FP at the material time. Mr and Mrs Olsson were not the only directors of FP, but they have been singled out as having personal liability.
413.	Mr Stern confirmed during his evidence that he had no personal dealings with Mrs Olsson; and that she never attended meetings with him. The extent of his acquaintance with her was a meeting in the corridor at Albert Court. As far as Mr Stern was aware, Mr Shaw never had dealings with Mrs Olsson either.
414.	Between 1998 and 2000 Mrs Olsson carried out bookkeeping functions for FP. She was in regular contact in that capacity with FP’s auditors. She also attended board meetings, although, as the table shows, not all of them. In her capacity as director she signed certain formal documents and she executed contracts on behalf of ACP and FP where the transactions had been authorised by the board.
415.	Mr Morgan invited me to draw adverse inferences against Mrs Olsson on the ground that she had chosen not to give evidence at trial. But the pleaded case against her was not, in my judgment, one that would have compelled her to give evidence. I decline to draw adverse inferences against her.
Conclusion
416.	In my judgment both ACP and FP were properly run in accordance with proper standards of corporate governance. Neither Mr Olsson nor Mrs Olsson stepped outside the proper limits. In my judgment neither of them is personally liable for any tort which either company has committed.
Result on liability
417.	In the light of my conclusions thus far, I hold that:
i)	FP did exercise its power of sale for proper purposes, and consequently the sale to Mr Tamimi is not liable to be set aside;
ii)	Even if FP did exercise its power of sale for improper purposes, Mr Tamimi is entitled to the protection of section 104 of the Law of Property Act 1925;
iii)	None of the defendants is liable in tort;
iv)	ACP is liable for breach of contract in failing to comply with the development timetable in the Preliminary Agreement (as varied by the deeds of priority); and in failing to grant the development sub-lease  to Britel pursuant to the Lease-Back Option. Its liability to Britel arises under both the Preliminary Agreement itself and the two Deeds of Priorities. Its liability to Meretz arises under the two Deeds of Priorities only.
v)	FP is liable to Britel as guarantor for ACP’s failure to comply with the terms of the Preliminary Agreement. It is not liable to Meretz.
418.	It follows, therefore, that I will dismiss all the claims against Mr Olsson, Mrs Olsson and Mr Tamimi, which are claims in tort only. The claims in tort and in equity against ACP and FP will likewise be dismissed. I will proceed to consider the extent of the liabilities in contract of ACP and FP.
Loss to Meretz and Britel
Alternatives
419.	Britel’s claimed loss is the loss of the Lease-Back Option (or the loss of the lease to have been granted pursuant to the Lease-Back Option). It is not alleged that Britel suffered any loss as a result of ACP’s failure to comply with the development timetable. Meretz’ claimed loss is the loss of the commission payments. However, since the commission payments only became payable if ACP granted the sub-leases of completed apartments, and Meretz had been paid everything due to it before 7 September 2002, Meretz’ entitlement to commission payments would not have survived the exercise by Britel of the Lease-Back Option. Conversely, if ACP had completed the development by September 2002, Britel would not have been entitled to exercise the Lease-Back Option, since the condition of its exercise was a failure to build on time.
420.	The two claims must, therefore, be alternatives. Mr Morgan did not formally elect between the two, although he did say that Meretz’ claim was the primary claim. However, it would, in my judgment, be wrong in principle for me to order inquiries into damages at the behest of both Britel and Meretz, the one inquiry proceeding on the basis that ACP had not completed the development on time; and the other proceeding on the basis that it had. I consider that I must, therefore, choose between the two alternative claims.
How to choose?
421.	Meretz’ entitlement to claim damages for breach of contract arises under the two deeds of priorities. Those were deeds to which Britel, ACP and FP were also parties. It is, therefore, a fair inference, in my judgment, that the parties must be taken to have agreed a priority of claims between them. ACP’s primary obligation was to develop in accordance with the agreed timetable. The obligation to grant the sub-lease was a default or secondary obligation. Moreover, Meretz was, at least in theory, able to benefit from a promise by ACP to adhere to that timetable, whereas it could only have acquired a very indirect (and not legally enforceable) benefit from the grant of the sub-lease to Britel, since it could not have compelled Britel to hold or exploit the sub-lease for the benefit of Meretz.  It seems to me, therefore, that Meretz’ claim for damages must be treated as having priority to Britel’s claim for damages. I consider, therefore, that I should proceed on the basis that I should consider loss by comparing the actual position with the position that would have obtained if ACP had completed the works of construction by 7 September 2002. On that hypothesis, Britel would not have been entitled to exercise the Lease-Back Option.
Meretz’ claimed loss
422.	Meretz’ claimed loss proceeds by the following steps:
i)	If ACP and FP had not committed the various breaches of contract then the development of the penthouses would have been completed on time by ACP;
ii)	The combined sales price of penthouses D and F was £2.4 million, making a total gross sales price for five penthouses of £11.3 million (equivalent to £10.76 million net sales price after permitted deductions) of a total sales price for all six penthouses of £12.25 million (equivalent to at least £11.64 million net sales price after permitted deductions);
iii)	Thus Meretz would have been entitled to commission of at least £1.6 million (on the basis of sales of five penthouses) or £2 million on the basis of the sale of all six penthouses.
423.	There is, of course, a missing link in this chain of reasoning. ACP’s contractual obligation was an obligation to complete construction by 7 September 2002. But Meretz’ entitlement to commission only arose on completion of a sale of penthouses by ACP: not on completion of the works of construction. Meretz’ entitlement was, therefore, contingent and would still have been contingent even if the works had been completed by 7 September 2002. The loss of that contingency is no more than the loss of a chance.
424.	In addition, ACP was under no obligation to build more than five penthouses. I do not consider that damages should be assessed on the footing that it had built six. Damages for breach of contract cannot be recovered for something that the contract breaker was not contractually obliged to do.
425.	Meretz alleges that all five penthouses could have been completed well before 7 September 2002. Mr Morgan cross-examined Mr Olsson on this topic; and Mr Olsson agreed that if ACP had had the necessary finance, this was so. But that, to my mind, is irrelevant to the question of damages for breach of contract. The contract only required ACP to use all reasonable endeavours to complete the development by 7 September 2002; and again there is no warrant for considering the question of damages on the basis that ACP did any more than the contract required it to.
426.	In his closing address Mr Dutton submitted that for Meretz to make good its claim in damages, it must address the following matters:
i)	It must identify those penthouses in respect of which it says that (but for ACP’s breach of the build-out obligation) it would have received commission;
ii)	In respect of each such penthouse, it must establish
a)	The date when that penthouse would have been sold;
b)	The price at which that penthouse would have been sold, and
c)	That the sale of that penthouse would have taken place at a time while ACP remained the tenant under the Lease.
427.	Mr Dutton went on to submit that: 
i)	There is no expert evidence to assist the court in identifying how long it would take to sell a completed penthouse unit; but what (non-expert) evidence there is strongly suggests that built-out penthouses take much longer to sell than do penthouses sold off-plan;
ii)	There  is no expert evidence to assist the court in identifying the price at which such penthouses would have been sold;
iii)	What evidence there is strongly suggests that the sale of the development lease to Mr Tamimi would have been completed before the sale of any such penthouse.
428.	Mr Dutton’s first two points are undoubtedly correct. But although there has been no order for a split trial, the Particulars of Claim claim no more, at this stage than an inquiry into damages. Indeed, the voluminous Particulars of Claim pleaded no loss at all, until I raised the question at an early stage of the trial. Even now, the loss alleged is pleaded in exiguous terms. Be that as it may, the Defendants did not object to this form of pleading, or to the relief sought. Mr Dutton did not raise this argument until his closing address. In my judgment to allow Meretz’ claim to be defeated on the footing that it had not called the right evidence at trial, and to deny it the right to an inquiry into damages if, otherwise, it would be entitled to one, would be unjust. Accordingly, I proceed to consider whether Meretz has established an entitlement to an enquiry. At this stage it seems to me that all that needs to be shown is that there is a realistic prospect that Meretz would recover more than nominal damages if it proceeded to an inquiry.
429.	How would things have stood if ACP had completed the development by 7 September 2002? To recap:
i)	ACP had contracted to sell penthouse A to Mr Tamimi. Under that contract the works were not due to be completed until two months later, 8 November 2002; and completion was due five days after the purchaser had accepted the works;
ii)	FP had contracted to sell the development lease to Mr Tamimi, conditional on obtaining landlord’s consent, with completion due five days after the grant either of consent or of a declaration that consent had been unreasonably withheld;
iii)	FP could not therefore have compelled Mr Tamimi to complete the purchase of the development lease before the court proceedings had concluded;
iv)	Mr Tamimi was not keen to complete the purchase of the development lease, although he was keen to get good title to penthouse A.
430.	I can, I think, reach the following further conclusions based on the evidence I have heard:
i)	In order for ACP to have been able to complete the sale to Mr Tamimi, it would have been necessary for penthouse A to be released from all the charges, including the FP Charge;
ii)	But if FP had released penthouse A from the FP Charge, thus enabling the sale of the fourth penthouse to be completed by ACP, its own charge would have been automatically discharged under the terms of the May 2001 Deed of Priorities;
iii)	If FP had consented to release penthouse A from the FP Charge, it would only have done so on the basis that any outstanding proceeds of sale of that penthouse were paid to it in reduction of the amounts owed by ACP;
iv)	In that event, ACP would not have had the money to pay Meretz the commission due;
v)	Moreover, to release penthouse A from the FP Charge, with the consequent discharge of that charge, might have put FP in breach of its contract with Mr Tamimi to sell him the development lease;
vi)	It is therefore an open question whether FP would have released penthouse A from the FP Charge, thus enabling ACP to complete the sale of penthouse A to Mr Tamimi and triggering Meretz’ entitlement to commission;
vii)	If there had been an additional (fifth) penthouse completed on the roof by 7 September 2002, it is difficult to see where the finance could have come from other than by way of further secured borrowing;
viii)	FP had already considered winding up ACP and, if its security was discharged, it is likely that it would have taken that course.
431.	Any further attempt on my part at this stage to work out what would have happened, would, I think, be little more than speculation. What would have happened would have depended in part on the actions of FP and Mr Tamimi as well as prospective purchasers of the hypothetical fifth penthouse; and, for the purpose of assessing damages in a “loss of a chance” case, they count as third parties, rather than the wrongdoer (who is ACP alone). Meretz will have to prove a substantial chance (but no more than a substantial chance) that it would have received commission, and the amount of commission it would have received if the chance had matured into a certainty. The chance can then be quantified. It need not prove on the balance of probabilities that it would have done so. That said, I agree with Mr Dutton that Meretz will have to address the questions that he posed. But these questions are the proper province of an inquiry into damages. I am satisfied that there is a realistic prospect of Meretz recovering more than nominal damages against ACP for the loss of the chance of being paid commission on completion by ACP of the sale of penthouse A and of one other hypothetical penthouse.
Britel’s loss
432.	Since Britel has suffered no substantial loss by reason of ACP’s failure to build in accordance with the contractual timetable, it is entitled only to nominal damages for breach of contract. I assess those damages at £5. FP is liable as guarantor of ACP’s obligations under the Preliminary Agreement, so that there will be judgment against FP for £5 also.
Result on damages

433.	I will enter judgment for Britel against ACP and FP for £5 nominal damages.
434.	I will enter judgment for Meretz against ACP for damages to be assessed, and will consider with counsel what directions I should give for the conduct of the inquiry. Whether ACP has any assets out of which to satisfy a quantified judgment is a different question; but that is none of my concern.
435.	Since FP gave no guarantee to Meretz, the remaining claims against FP will be dismissed.