[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Clydesdale Bank Plc v Duffy [2014] EWCA Civ 1260 (29 January 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/1260.html Cite as: [2014] EWCA Civ 1260

[New search] [Printable RTF version] [Help]

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(HIS HONOUR JUDGE KAYE QC)

		Royal Courts of Justice Strand London WC2A 2LL
		29 January 2014

1. LORD JUSTICE LEWISON: Clydesdale Bank PLC ("the bank") claims sums due under a guarantee signed by Mr Duffy. Part of Mr Duffy's defence, which the bank disputes, is that the bank agreed to release him from liability under certain guarantees. The action has yet to come to trial. On 19 April 2012 Master Bragge ordered the trial of two preliminary issues in order to decide whether evidence of negotiations between the parties, which took place at the meeting on 30 January 2009 and thereafter, would be admissible at trial.
2. The issues turned on (a), whether the negotiations were without prejudice and (b), if they were, whether they fell within one of the exceptions to the general rule that evidence of without prejudice negotiations is inadmissible.
3. The preliminary issues were tried by His Honour Judge Kaye QC. He heard seven witnesses over two court days and considered extensive bundles of documents. He decided that apart from the meeting on 30 January 2009 the negotiations were not without prejudice but that even if they were it was appropriate to admit evidence of them at trial. With the permission of Kitchin LJ, Mr Duffy appeals.
4. Mr Giles Maynard-Connor presented his appeal. Mr James MacDonald presented the bank's response. There are three grounds of appeal:

1. The judge wrongly found as a fact that there was a continuous and extended course of negotiations between mid 2008 and July 2009.

2. The judge wrongly found as a fact that there was no legal dispute between the parties after the meeting on 30 January 2009 such as would have made the negotiations without prejudice.

3. If the negotiations were without prejudice, the judge was wrong in holding that they fell within one of the exceptions to the general rule. It will be apparent that the legal issue raised by ground 3 only arises if Mr Duffy succeeds on grounds 1 and 2.

5. The Court of Appeal is not here to retry the case. Our job is to review the decision of the trial judge. If he has made an error of law, it is our duty to say so, but reversing a trial judge's findings of fact is a different matter. Both counsel agreed that the burden of persuading an appeal court to reverse a trial judge's findings of fact is a heavy one. Appellate courts have been repeatedly warned by recent cases at the highest level not to interfere with findings of fact by trial judges unless compelled to do so. This applies not only to findings of primary fact but also to the evaluation of those facts and to inferences to be drawn from them. The series of cases, all in the House of Lords or the Supreme Court, culminates in McGraddie v McGraddie [2013] UKSC 58 [2013] 1 WLR 2477.
6. The background to the appeal is the failure of three residential property developments in the financial turmoil of 2008 and following. The three sites are at Bingley, Wakefield and Rotherham. Each was owned by a company controlled by Mr Duffy. Another company, Portford Homes Limited ("Portford"), which was also linked to Mr Duffy, was the main contractor at each site. The bank financed each development by loans. Mr Duffy gave guarantees relating to each loan and in the case of Wakefield, also gave an undertaking to buy a number of the completed units. They have been called the WPL guarantee (relating to Bingley), the BPL guarantee (relating to Wakefield) and the APL guarantee (relating to Rotherham). The WPL guarantee and the BPL guarantee are also referred to as COGs, short for Cost Overrun Guarantees.
7. The claim in the present case relates only to the APL guarantee. In the case of Wakefield, Mr Duffy also entered into an undertaking to buy certain units in the completed development. Because of difficulties with the development in June 2008 the bank passed responsibility for managing the facilities to its London office. Negotiations then took place principally between Mr Vasarelli and Mr Newitt for the bank, and Mr Duffy and Mr Carter for the developers. Neither side wanted the developments to fail; and the judge found that both sides wanted to work towards a solvent workout based on completion and sale of the developments.
8. Both Mr Duffy and Mr Carter wanted the facilities restructured in such a way as would avoid the appointment of receivers or the calling in of the guarantees. Mr Duffy essentially wanted the bank to work with him in order to maximise returns. The bank was not opposed to that in principle but it also explored its options in case the negotiations failed. In August 2008 it instructed surveyors, Fox Lloyd Jones, ("FLJ"), to carry out a desktop review. Mr Duffy was aware of that and Mr Carter had input into FLJ's report from September 2008. That report concluded that the developments would not reach their potential and recommended a managed and consensual solution.
9. Meetings continued between the two parties with proposals and counter proposals from each. At a meeting in September 2008 Mr Duffy told the bank that if the bank were going to call in the facilities there would be no point in carrying on the development and at one point indicated that Portford was prepared to stop working. He also suggested that the undertaking to buy might not be enforceable because it contained no date by which the obligation should be performed. At the same meeting the bank said that it would not enforce its security for the time being but it is not suggested that it gave any commitment not to do so in the future.
10. In October, two crucial conversations took place. The first was a telephone call on 16 October 2008 between Mr Vasarelli and Mr Duffy. The second was a meeting a few days later between Mr Duffy and Mr Carter on the one hand and Mr Vasarelli and Mr Newitt on the other. Mr Duffy says that in the course of one or other of those two conversations the bank agreed to release him from liability under the BPL and WPL guarantees. Money owing to Portford would be set off against his liability to the bank under the APL guarantee and that any further expenditure by Portford would be set off pound for pound against his residual liability. Since Portford has now made the expenditure, Mr Duffy contends that his liability under the APL guarantee has now been extinguished.
11. It is important to note that the alleged agreement is not recorded in writing but after the meeting on 20 October the parties continued to communicate in writing. The judge refers to meetings and negotiations continuing after that date during which proposals and counter proposals were put. In December 2008 Mr Carter proposed a joint venture, but on terms that the bank would not accept. As the judge recorded, other proposals to the bank were also not acceptable. By 23 January 2009 the bank were contemplating appointing FLJ as receivers and told Mr Duffy.
12. Thus far, Mr Duffy accepts that all negotiations were conducted openly rather than under the umbrella of without prejudice. There can, therefore, be no possible objection to the bank placing evidence of the negotiations and communications before the court, even though some of it post-dated the making of the alleged agreement. As Mr MacDonald pointed out in his skeleton argument, this is simply a reflection of the well established principle that in order to decide whether a binding agreement has been reached in the course of a series of communications the court must look at the whole series and not stop the clock at the date of the alleged agreement. See Hussey v Horne-Payne [1878] 4 Appeal Cases 311.
13. The argument for Mr Duffy is that a sea change took place in January 2009; and that the effect of this sea change was that subsequent negotiations were all without prejudice. By that time it is said that Portford had completed the works, but that without warning the bank threatened to appoint receivers. Mr Vasarelli communicated that threat to Mr Duffy on 13 January. That came as a shock to Mr Duffy, who demanded a meeting. A meeting duly took place on 23 January 2009. It was common ground that at Mr Duffy's request the meeting itself was agreed to be a without prejudice meeting. Mr Duffy's case at the trial of the preliminary issues was that it was expressly agreed that all negotiations after that meeting would also be without prejudice negotiations, but having heard the oral evidence the judge rejected Mr Duffy's evidence to that effect. There is no appeal against that finding nor could there be.
14. The judge also considered whether the whole of the negotiations that had begun in the summer of 2008 and continued into the summer of 2009 were properly to be characterised as a "continuous and extended course of negotiations". Having reviewed the evidence both before and after the alleged agreement in October 2008 the judge accepted Mr MacDonald's submissions that the negotiations were part of a "seamless whole". He pointed to a number of contemporaneous documents which supported that conclusion and which were inconsistent with Mr Duffy's primary case that the alleged agreement had been made while quite properly refraining from reaching any firm conclusion on those facts which had still to be tried.
15. This is the sort of evaluative conclusion which our system entrusts to the trial judge. It is not the function of the appeal court to trawl through cherry picked parts of the evidence in order to reach its own independent conclusion. How, then, does Mr Maynard-Connor seek to attack the judge's conclusion?
16. First, he says that the bank's threat to appoint receivers and making of formal demands for payment in February 2009 were significant changes which the judge underplayed. Second, he says that the judge failed to give sufficient significance to the fact that the meeting on 30 January was expressly agreed to be without prejudice. Third, he says that the judge did not appreciate that the object of the negotiations had changed after January 2009. Before that time they were aimed at leaving control of the development with Mr Duffy. After that time, they were directed at a managed exit. Fourth, he says that whereas before January 2009 the object of the negotiations was to keep Portford working, by the end of 2008 Portford had substantially completed the works so that that objective had been achieved.
17. As far as the first of these points is concerned, Mr Maynard-Connor argues that the negotiations that had taken place before January had not taken place under the spectre of the immediate threat of enforcement. The judge disagreed. He said at paragraph 61 that the negotiations were inextricably linked to the enforcement or reliance by the bank on its securities. In other words, his conclusion was that the threat of enforcement was always in the background.
18. In my judgment the judge was fully entitled to reach that conclusion. The very first proposals that Mr Duffy put forward to the bank in the autumn of 2008 were based on his contention that the exercise by the bank of its rights as charge holder in the then state of the market would result in losses all round, which could be mitigated by rearranging the funding of the development. It is plain, therefore, that the negotiations from their outset were aimed at avoiding the exercise by the bank of its rights at charge holder. Second, when on 16 October Mr Duffy said that Portford would stop work, Mr Vasarelli's response was that in that event the bank would call in the guarantees. Third, the joint venture proposal put forward by Mr Duffy in December 2008 compared the value of the projected return to the bank under the joint venture proposal with a return to the bank as a result of a forced sale. A forced sale would only come about if the bank exercised its powers at charge holder.
19. As far as the second point is concerned the judge was well aware of the express agreement that the meeting of 30 January 2009 was agreed to be without prejudice. He explained that that was because the bank's lawyers were present at the meeting, having wrongly thought that Mr Duffy would be bringing his own lawyers, and that in consequence Mr Duffy felt ambushed. The judge was, in my judgment, entitled to regard that meeting as a one-off event.
20. So far as the third point is concerned, the decision not to leave the development with Mr Duffy flowed directly from the contents of his proposals for a joint venture. The bank took the view that he was not serious and thus decided to move towards enforcement which had been in the background all along.
21. So far as the fourth point is concerned, even after January 2009 Mr Duffy was consistently arguing that the bank should not appoint receivers and that he and his company should be allowed to proceed with the completion and marketing of the developments.
22. In my judgment, the judge was entitled to find that no sea change took place in January 2009. Indeed, in his own witness statement Mr Duffy did not suggest that any such sea change took place. Accordingly, in my judgment it has not been shown that the judge's evaluation of the evidence was such that this court should interfere.
23. In addition to his contention that there was an express agreement that negotiations after 2009 were without prejudice Mr Duffy also contended that there was an implied agreement to that effect. The judge rejected that argument too given that (a), the parties knew how to make negotiations without prejudice expressly, as shown by the meeting on 30 January, and (b), they did not expressly designate further negotiations as being without prejudice. It is not surprising that having rejected the express agreement the judge rejected the alleged implied agreement.
24. Mr Maynard-Connor did not strenuously pursue this point in his oral submissions. However, Mr Maynard-Connor seeks to support the contention that the post-January 2009 negotiations were without prejudice by arguing that they were intended to compromise a legal dispute. The judge ruled against this argument. He held at paragraph 71 that there was no genuine dispute between the party capable of attracting the without prejudice privilege. His essential reason was that in his words:

"The entire negotiations were founded on the ability of the bank, if it wished to, to enforce its various securities. That is why a commercial deal or solvent workout was being sought and why the bank was involved."

25. He found as a fact that the parties did not seriously contemplate matters collapsing into litigation at any time during the negotiations. He concluded that there was no genuine legal dispute between the parties and that the focus was on the commercial workout or satisfaction of existing liabilities to the mutual satisfaction of both sides.
26. Mr Maynard-Connor submits that the judge focused too narrowly on the APL guarantee and that he should have paid more attention to the WPL guarantee and the BPL guarantee. Those guarantees, he submits, were part of the overall negotiations and Mr Duffy's liability under them was substantially disputed. However, as Mr MacDonald pointed out in his skeleton argument, there is a fundamental contradiction at the heart of Mr Duffy's case in this respect. The pleaded case that he advances is that the party reached a binding agreement in October 2008 under which Mr Duffy was released from all liability under the WPL and the BPL guarantees. If that is so then there cannot have been any remaining dispute relating to those guarantees left to resolve. On the other hand, if there was a remaining dispute under those guarantees to resolve then there cannot have been a binding agreement made in October 2008.
27. Mr Maynard-Connor also suggested that there was a dispute about the undertaking to buy, but that dispute (if dispute it was) had already arisen in September 2008 and had been discussed at the meeting in October 2008 at a time when Mr Duffy accepts that communications were open. Insofar as that dispute continued into 2009, there was no sea change in relation to that dispute that would of necessity change the character of the negotiations. In the end Mr Maynard-Connor accepted that the undertaking to buy did not advance his case.
28. Mr Maynard-Connor tried by reference to carefully selected documents and parts of the transcript to show that there was a dispute. Mr MacDonald countered Mr Maynard-Connor's selected references with counter examples of his own which point to the opposite conclusion. This is precisely the kind of island hopping that an appeal court should eschew. The evaluation of the evidence taken as a whole is for the trial judge but there is, with respect to Mr Maynard-Connor, no trace of a legal dispute in any of the meeting notes of the meeting of 30 January. On the contrary, Mr Duffy accepted that the bank had the right to exercise its security. Mr Vasarelli twice said without contradiction the bank could call in the guarantees. Mr Duffy's subsequent proposals on 4 February and 23 February 2009 both proceed on the basis that the existing guarantees would be discharged if revised terms were agreed without any suggestion that they might be vulnerable to legal attack. Likewise in March 2009 Mr Duffy's proposal through a managed solution was one incorporating his existing guarantees and obligation.
29. Indeed, one of the points he urged in favour of his proposals was that the bank would preserve the value of the guarantees. Again, there is no hint of a suggestion that the guarantee and obligations were vulnerable to legal attack. Subsequent communications proceeded on the same basis although there were from time to time questions raised about the quantum covered by the guarantees, but there is no trace of a legal dispute. Even if there had been, I cannot see that the negotiations that took place had as their object the resolution of that dispute. It is plain that the mere existence of a dispute does not make all communications about that dispute without prejudice communications. Assertions and counter assertions by the disputants about the strength of their own case or the weakness of their opponent's case do not attract the privilege. It is only attempts to compromise that do.
30. Mr Maynard-Connor also submitted that the dispute in question was a dispute about whether the bank had renegued on the compromise agreement made back in October 2008. It is notable, however, there is nothing in the contemporaneous document that refers to any such dispute. Mr Maynard-Connor relied on a series of emails in early April 2009 culminating in a proposal for "compromise" on 1 May; but read in context it is quite clear that the starting point for that series of emails was a commercial proposal made by the bank and accepted by Mr Carter on Mr Duffy's behalf. The proposal made by the bank was that of 9 April. Subsequent references to the "deal" are plainly references to that and not to any antecedent agreement made in October 2008.
31. Accordingly, I remain unpersuaded that the judge made an error of evaluation of the evidence with which this court should interfere. Accordingly, I would dismiss the appeal on grounds 1 and 2. Ground 3, which is dependent on success on one or other of those grounds, does not therefore arise.
32. LORD JUSTICE ELIAS: I agree.
33. LORD JUSTICE KITCHIN: I also agree.