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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Sibir Energy Ltd & Ors v (1) Slocom Trading Ltd & Ors [2014] EWCA Civ 831 (17 June 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/831.html Cite as: [2014] EWCA Civ 831

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
The Honourable Mr Justice Roth
HC10C00139

		Royal Courts of Justice Strand, London, WC2A 2LL
		17th June 2014

Lord Justice Briggs :

1. On 13^th May 2010 Tatik Inc ("Tatik"), a Delaware corporation, sold to the French company Maritime Villa Holdings SCI ("Maritime") the Villa Maria Irina on Cap Martin in the south of France ("the Villa"), said to be one of the largest private properties on the Cote D'Azur, for EUR70,000,000, pursuant to an option granted in January 2010 and governed by French law.
2. The sale of the Villa was part of an elaborate mechanism whereby the entirety of the value of the Villa (less certain of Tatik's tax liabilities) was to be conferred upon an English-registered former AIM company Sibir Energy PLC ("Sibir"), which was managed from Moscow and carried on oil and gas exploration and production in Russia. Sibir is now wholly owned by the state-controlled Russian oil company Gazprom-Neft.
3. The conferring upon Sibir of the value of the Villa was an important part in the settlement of Sibir's claim that it had been defrauded of sums in excess of US$400,000,000 between September and early December 2008 by its then director Mr. Chalva Tchigirinski who had been, prior to the financial crash in 2008, one of the wealthiest men in Russia and who had been the ultimate beneficial owner of the Villa. Since Maritime was at the time of the settlement a wholly-owned subsidiary of Sibir, the sale of the Villa benefitted Sibir not merely in relation to the proceeds of sale, but by it becoming the ultimate beneficial owner of the Villa itself, through Maritime.
4. The claimants in these proceedings (and respondents to this appeal) Slocom Trading Limited and Derbent Management Limited are both companies incorporated in Cyprus. When they discovered that the Villa was to be sold, they sought to prevent it. Slocom claimed to be a secured creditor of Tatik, as assignee from Derbent of the benefit of a loan agreement between Derbent and Tatik dated 19^th December 2008 ("the December Loan Agreement"), together with security including a pledge of Mr. Tchigirinski's shares in Tatik ("the Pledge") and an equitable mortgage over the Villa itself, pursuant to an assignment agreement between Derbent and Slocom dated 24^th December 2008 ("the Assignment Agreement").
5. Slocom did temporarily delay the sale, but a without-notice injunction to that effect was discharged in May 2010 by reason of serious non-disclosure of Sibir's likely defences. Nonetheless, Slocom pursued claims that the sale of the Villa amounted to an actionable interference by Sibir and Maritime with its rights (as assignee) under the December Loan Agreement and the Pledge, and a breach by Tatik itself of the Loan Agreement. Slocom also claimed against Maritime that the Villa continued to be subject, in its hands, to the equitable mortgage created by the December Loan Agreement. By amendment, Derbent was joined as co-claimant.
6. These claims were pursued to a 12-day trial before Roth J in February and March 2012. The issues between the parties were mainly factual, arising out of dealings taking place almost entirely outside the UK, between individuals who, as the judge observed, conducted their affairs in a manner and in a commercial and social environment very different from that which prevailed here. The history of dealings which the judge was required to examine, and the factual issues which he had to determine, were detailed and complex.
7. In a careful and clear 100-page judgment handed down on 4^th December 2012, the judge found in the first claimant's favour. In a supplementary reserved judgment handed down on 10^th May 2013, after hearing further argument, he quantified Tatik's liability for breach of the December Loan Agreement as EUR59.5million-odd. He quantified Sibir's and Maritime's liability for interference with contract at EUR40.1million-odd. He declared that Maritime continued to hold the Villa subject to an equitable mortgage in favour of Slocom to secure payment of EUR31.5million-odd as the principal amount of the debt created by the December Loan Agreement.

The Appeal

8. Sibir, Maritime and Tatik appealed the judge's Order (with permission granted by Kitchin LJ on 2^nd December 2013) by challenging two discrete elements in the judge's long and complex analysis. First, the appellants say that the judge should not have rejected their claim, at trial, that the December Loan Agreement was a sham ("ground 1"). Secondly, the appellants say that the judge should not have rejected their claim at trial that the Assignment Agreement was voidable as a fraud on creditors under Section 423 of the Insolvency Act 1986 ("ground 2"). These grounds of appeal have each been pursued in a commendably focussed way, which leaves the great majority of the judge's findings and analysis unchallenged. There are however a number of complex matters which would have arisen, in part because of respondents' notices, if either of the appellants' two grounds of appeal had succeeded. Since we have concluded that neither of them succeeds, it is unnecessary to say more about the matters arising or the facts which would have called for analysis if they had. The result is that it is possible for me to describe the factual background relevant to the grounds of appeal by means of a brief summary. Save where I state otherwise, the summary is a distillation of facts which are unchallenged on this appeal. Anyone wishing to understand the background in full should study the judge's judgment at [2012] EWHC 3464 (Ch). The summary which follows inevitably lacks the thrust and precision of the judge's full account, and its brevity implies no criticism at all about the painstaking detail with which the judge thought it appropriate to set it out.

Summary of the material facts

9. It is necessary first to say a little more about Mr. Tchigirinski, and the other two individuals from whose interwoven dealings this dispute has arisen.
10. Mr. Tchigirinski was widely perceived prior to 2008 to be extremely wealthy, and an unquestionably good credit risk. He was greatly attached to the Villa, but it was not an income-producing asset. Nonetheless he used it as security for borrowings to fund his other business activities. Despite his wealth, he had during a long period prior to 2008 a need for cash, which he borrowed, at least in part, by taking personal loans. Mr. Tchigirinski did not give evidence at the trial. He is now disgraced, probably ruined, and believed to be living in Israel.
11. The second individual is Mr. Urs Haener. He is (or was) a Swiss banker and financial manager. He came to Mr. Tchigirinski's attention as having been the head of the Moscow division of HSBC and, from about mid 2001, was Mr. Tchigirinski's "homme d'affaires" in relation to the management of his financial affairs, including his borrowings. In that capacity Mr. Haener was also implicated in Mr. Tchigirinski's massive fraud on Sibir. He gave evidence at trial, by video link, from a hotel in Germany near the Swiss border. Not surprisingly, the judge found it necessary to treat his evidence with great care, and examine it against the contemporaneous documents and other evidence directed to the relevant issues. In the end, he rejected parts of Mr. Haener's evidence and accepted other parts. No general challenge is made to the exercise of careful judgment which that appraisal of a witness who had participated in the Sibir fraud necessarily required.
12. Mr. Haener did not confine his activities as homme d'affaires to the financial affairs of Mr. Tchigirinski. Another of his clients was Mr. Anatoly Kruglov. He was another wealthy Russian, who had profited during the collapse of the Soviet Union by reason of his status as a very senior customs official. He was by no means as wealthy or as conspicuous among the Russian rich list as was Mr. Tchigirinski but, unlike him, he and his family generally had money to invest, and he was accustomed for many years before 2008 to repose complete and largely unquestioning confidence in Mr. Haener's conduct of that investment, so much so that he did not even know that the many millions of Euros (and previously US dollars) of his and his family's money which Mr. Haener arranged to be lent to Mr. Tchigirinski between 2001 and 2008 had been lent to Mr. Tchigirinski at all. He was neither personally aware of, still less involved in, Mr. Tchigirinski's fraud on Sibir. He gave evidence at the trial, through an interpreter. The judge found that he was an essentially honest witness, but his evidence had little if any bearing upon the matters in issue on this appeal.

Summary of the relevant events

13. Lending of Kruglov family money to Mr. Tchigirinski through the intermediacy of Mr. Haener began in mid 2001. Mr. Haener had, two years previously, established four Liechtenstein foundations, one each for Mr. Kruglov and three members of his family, as vehicles for the investment of their money, and in 2000 Mr. Haener had decided to use a company called Willow Tree as an intermediary between the foundations and third party recipients of their invested money. The investment programme which Mr. Haener conducted for the Kruglov family began with loans to third parties in April 2000.
14. The first loan of Kruglov family money, through Willow Tree, to Mr. Tchigirinski was of US$13,000,000, lent in August 2001, and was used by Mr. Tchigirinski to fund almost the whole of the purchase price for the Villa. Nonetheless, it was a personal loan to Mr. Tchigirinski, rather than to Tatik which was, from the outset, Mr. Tchigirinski's vehicle for the acquisition and ownership of the Villa. As security, Mr. Tchigirinski pledged his shares in Tatik to Willow Tree.
15. By mid 2004, Willow Tree's lending to Mr. Tchigirinski under Mr. Haener's supervision had risen to some US$36,000,000. In September 2004 Mr. Tchigirinski wished to make alternative use of the Tatik shares as a pledge in relation to an entirely unconnected business venture of his, which necessitated their release from pledge to Willow Tree, and his repayment of the aggregate amount outstanding. This was duly done, although the release of the Tatik shares from pledge took place a week before the repayment of the loan, a risk which Mr. Haener thought he could properly take as the Kruglov family investment advisor. The modus operandi between Mr. Kruglov and Mr. Haener was such that Mr. Kruglov had no idea to whom his family monies were being lent, no expectation of being consulted about matters of detail, he being content with Mr. Haener's assurance that the money was safe, and with the satisfactory rate of return, namely 10%.
16. This first loan transaction was quickly followed by a second, in October 2004, consisting of a US$42,000,000 loan by Willow Tree (funded by the Kruglov family foundations) to Mr. Tchigirinski, secured by pledges of three blocks of oil-related shares directly or indirectly owned by Mr. Tchigirinski. On this occasion the loans had nothing to do with the Villa, in the sense that Mr. Tchigirinski needed the money in connection with it, nor was the Villa part of the subject matter of any security offered.
17. In late 2005, Mr. Kruglov decided with Mr. Haener to re-structure the investment of his family's money otherwise than through the four foundations, because increasing regulatory disclosure requirements about Liechtenstein foundations led him to be concerned about confidentiality. The new investment vehicle chosen was Derbent (the second claimant), which Mr. Haener caused to be incorporated for Mr. Kruglov in Cyprus in November 2005. Derbent was, at all times, wholly owned by Mr. Kruglov (rather than by him and his family), but was from the outset used as the family investment vehicle, funded initially by a transfer of residual balances from the foundations, prior to their dissolution. Mr. Haener had day-to-day control of Derbent on Mr. Kruglov's behalf, by means of a power of attorney granted to him by Derbent's Cypriot puppet directors.
18. The judge recorded an uncertainty in the minds of Mr. Haener and a Mr. Frick (who acted on his directions as a puppet director of Willow Tree) as to whether Derbent should act as the sole intermediary between the family and third parties, or continue to use Willow Tree as a second intermediary, between Derbent and the family beneficiaries. My reading of the judgment suggests that the judge thought that Willow Tree probably was so retained, but he was careful to address relevant issues on the alternative basis that Derbent's obligation to account for the proceeds of loans to third parties was owed either to Willow Tree, or to those members of the Kruglov family (including Mr. Kruglov himself) who had previously been the beneficiaries of the four foundations.
19. The judge decided (despite vigorous challenge by the defendants) that Mr. Kruglov's general decision to interpose Derbent as his family's investment vehicle in place of the foundations was implemented by Mr. Haener in relation to the lending to Mr. Tchigirinski via an oral agreement between the two of them in May 2006, just as the agreed term for the 2004 loan was due to expire, and in contemplation of its extension. He found that Mr. Haener and Mr. Tchigirinski also orally agreed at the same time that, as and when Mr. Tchigirinski recovered control of the Tatik shares, they would in due course be pledged to Derbent as security. Nothing about this was put in writing at the time, but from the end of April 2006 payments of interest and repayments of principal were routinely made to Derbent rather than (as previously) to the foundations or to Willow Tree. But the judge also found, contrary to the claimants' case and Mr. Haener's evidence, that there was no agreement, oral or otherwise, in 2006 between Mr. Tchigirinski and Mr. Haener that Tatik should be substituted for Mr. Tchigirinski as the borrower, or that the lending should thenceforth be denominated in Euros rather than US dollars, as the claimants had pleaded. Thus the bare essentials of the lending relationship from May 2006 until 2008 were that Derbent was making an extended loan to Mr. Tchigirinski, denominated in US dollars, varying from time to time due to occasional part-repayments of principal, upon the basis of an understanding between Mr. Haener (for the Kruglov interests) and Mr. Tchigirinski that, as and when the Tatik shares became available again for pledging as security, they would be pledged to Derbent.
20. During 2007 a practice built up, which the judge rightly described as involving "manifestly improper and discreditable conduct by Mr. Haener", of the use of Derbent at Mr. Haener's direction as the conduit for the transmission (to use a neutral word) of large sums of money at Mr. Tchigirinski's direction, connected with business activities of his which had nothing whatsoever to do with the Kruglov family. The judge did not describe them all in detail but it appears that in aggregate they exceeded US$250,000,000 by the end of 2007. They involved no gain, loss or harm to the Kruglov family but set a disastrous precedent for what followed, in late 2008, as I shall shortly describe.
21. In the meantime, in about July 2008, Mr. Haener received advice from Tatik's tax advisors (the Nice office of PWC) which led him to conclude that it would be better for Tatik's French tax position if the Derbent/Tchigirinski continuing loan was treated as, and as having been, a loan by Derbent to Tatik, rather than to Mr. Tchigirinski, and denominated in Euros rather than US dollars. It seems likely, although not entirely clear from the judgment, that Mr. Haener understood that it would be tax advantageous for Tatik if the lending could be shown always to have been in connection with expenditure on the Villa (as it had originally been in 2001, but not since 2004). Since nothing had been put in writing about the Derbent lending since the expiry of Willow Tree's loan in 2006, Mr. Haener took the opportunity of having prepared a written loan agreement ("the August Agreement") described as "made as of the 2^nd day of May 2006" (my underlining) providing for a term loan by Derbent to Tatik of EUR28.125million repayable on 30^th April 2009, and secured both by Mr. Tchigirinski's personal guarantee, and a pledge of his shares in Tatik.
22. The August Agreement was signed by Mr. Haener (for Derbent) and by Mr. Tchigirinski (for Tatik) on 14^th August 2008 and, at the same time, Mr. Tchigirinski signed the prescribed personal guarantee. It was common ground that, in August 2008, Mr. Tchigirinski was in no better position than he had been in May 2006 to commit Tatik as borrower, or to pledge the Tatik shares. Those shares, and the control of Tatik which they conferred, remained out on pledge as security for Mr. Tchigirinski's unrelated transaction.
23. The August agreement was therefore, as the judge found, wholly ineffective in law to bring about its apparently stated purposes. As to the period between May 2006 and August 2008 the reality was that the lending had been between Derbent and Mr. Tchigirinski (and denominated in US dollars). Going forward, there was nothing which Mr. Tchigirinski could do to commit Tatik to assume the role of borrower until he recovered control of its shares. Nonetheless, the judge found that there was a grain of truth in the document. At paragraph 131 of the judgment (J 131) he said:

"Nonetheless, I consider that this document evidenced an agreement between Mr. Tchigirinski and Derbent as to what would become the position when Mr. Tchigirinski received back the Tatik shares and once again became the owner of Tatik. Therefore it was at this time, and not earlier, that Mr. Tchigirinski expressed his agreement to substitute Tatik for himself as the borrower, supplemented by a personal guarantee from him."

As will appear, this paragraph is vigorously challenged by the appellants, on the ground that it was a finding neither pleaded, pursued in argument, nor supported by any evidence.

24. Mr. Tchigirinski's financial position was gravely undermined by the 2008 financial crash, and he began his fraudulent misappropriation of some US$400,000,000 from Sibir in September 2008. No less than US$174,000,000 was obtained from Sibir through the use by Mr. Haener at Mr. Tchigirinski's direction of Derbent as an intermediary, on the basis of fictitious invoices issued by Derbent. Mr. Haener thereby dishonestly exposed his clients, the Kruglov family, to enormous claims by Sibir against their principal investment vehicle Derbent, if and when that fraud was ever discovered.
25. Meanwhile, at the end of November 2008, Mr. Tchigirinski recovered back from pledge his shares in Tatik, and therefore his control of Tatik, opening the way both to the fulfilment of his understanding with Mr. Haener (since 2006) that Tatik's shares and assets could be proffered as security for the ongoing lending, and the intention which the judge found had been formed between him and Mr. Haener in August 2008 that, essentially for reasons of Tatik's French tax position, Tatik should take over from him as borrower from Derbent under the lending. The drafting of the documentation necessary to achieve those objectives was put in hand in early December, and led to the making of the December Loan Agreement, signed by Mr. Haener for Derbent and Mr. Tchigirinski for Tatik on 19^th December, together with an associated pledge to Derbent of Tatik's shares ("the Pledge").
26. In the meantime, some of the unauthorised payments by Sibir to Mr. Tchigirinski (but not those in which Derbent was involved) had come to the attention of Sibir's AIM Nominated Advisor. Pursuant to its advice, a shareholders' meeting was called to approve the transactions, to be held on 18^th December. Mr. Tchigirinski was confident that the resolution would be carried but, as the judge found, to his and Mr. Haener's complete surprise a majority of shareholders indicated on 18^th December, shortly before the meeting, that they would oppose, so that the resolution was withdrawn and Mr. Tchigirinski forced immediately to resign as a director.
27. Notwithstanding therefore that the fuse had evidently been lit which led to the later discovery of Mr. Tchigirinski's fraud on Sibir (the advisors having assumed until then that it was merely unauthorised rather than dishonest) one day before the signing of the December Loan Agreement, the judge nonetheless concluded that no part of its motivation consisted of an intention to defraud Sibir as a potential creditor of Mr. Tchigirinski and Derbent. Indeed, he noted that, had there been any such motivation, it would have been extraordinary for Derbent to have been confirmed (as it was) by the December Loan Agreement as creditor. This conclusion is not challenged on appeal.
28. The terms of the December Loan Agreement are as follows. It is expressed to be made on 19^th December 2008 between Derbent and Tatik. Its recitals provide as follows:

"WHEREAS:

(A) The Lender and other members of the Derbent Group (as defined below) (the "Original Lenders") have advanced the Original Loans (as defined below) to the Borrower and other members of the Tatik Group (as defined below) (the "Original Borrowers") for the purpose of financing outgoings incurred in relation to the residential property located at Avenue Winston Churchill, Roquebrune Cap Martin (Alpes Maritimes), France (the "Property").

(B) The Original Lenders (other than the Lender) and the Original Borrowers (other than the Borrower) have agreed to transfer all of their respective rights and obligation in respect of the Original Loans to the Lender (in case of such Original Lenders) or the Borrower (in the case of such Original Borrowers) with the result that as at the date hereof the Original Loans are owing solely by the Borrower to the Lender.

(C) The parties are entering into this Agreement to set out the terms and conditions that will apply to the Original Loans, certain of which are currently undocumented.

(D) It is intended that this Agreement shall supersede in its entirety any agreement currently in effect between the Borrower and the Lender governing the terms of the Original Loans including, without limitation, the loan agreement dated 2 May 2006 between the Borrower and the Lender (the "Original Loan Agreements")."

Pausing there, the reference in recital (D) to the loan agreement dated 2 May 2006 was, as is common ground, a reference to what I have called the August Agreement. The Lender is defined as Derbent, and the Borrower as Tatik. The Property is, of course, the Villa.

29. Clause 1.1 contains the following relevant definition:

""Original Loans" means the loans in the total principal amount of € 30,857,724.50 (Thirty Million Eight Hundred Fifty Seven Thousand Seven Hundred Twenty Four Euros 50 Cents) which have been disbursed by the Original Lenders to the Original Borrowers before the date of this Agreement, a breakdown of which is provided for informational purposes in Schedule 1 hereto;"

Schedule 1 identified three constituent loans, the largest being of EUR28.125million advanced on 2^nd May 2006. It is common ground (but not otherwise relevant) that the aggregate outstanding in Schedule 1 is slightly exaggerated by the mistaken inclusion of a supposedly outstanding interest payment, when in fact it had been paid.

30. Under the heading "Acknowledgement of Indebtedness" Clause 2.1 provided as follows:

"The Borrower acknowledges and agrees that as at the date of this Agreement it is indebted to the Lender in the principal amount of € 32,352,724.50 of which:

(a) € 30,857,724.50 represents the total principal amount owing in respect of the Original Loans; and

(b) € 1,500,000.00 represents a further advance made by the Lender to the Borrower on the date of this Agreement and applied in full by the Lender on behalf of the Borrower in making payment of the Arrangement Fee."

31. Clause 3 provided for security in the form of a pledge of the Tatik shares and a mortgage of the Villa. Clause 19 provided for English law and jurisdiction.
32. Nothing turns on the detailed terms of the Pledge, signed on the same day.
33. The judge held that, as a matter of construction, Clause 2 of the December Loan Agreement was sufficient to constitute Tatik a debtor of Derbent from the date of the agreement even though, contrary to its recitals, it had not been previously. In so doing he rejected a primary limb of the defendants' case at trial, namely that, on its express terms, the December Loan Agreement did no more than confirm (on varied terms) an existing liability of Tatik as debtor, in the absence of which it was of no effect. Again, this conclusion of the judge is not challenged on appeal.
34. The judge went on to find that the substitution of Tatik for Mr. Tchigirinski as debtor of Derbent for the amount of Mr. Tchigirinski's previous liability, accorded with the parties' subjective intentions, so that it could not be a sham. This is squarely challenged by the Appellants' ground 1. It is worth setting out the judge's concisely expressed conclusions, both on construction and subjective intention, in two consecutive paragraphs of the judgment, after an earlier review of the law of sham, to which I will return:

"263. Accordingly, by the Derbent-Tatik Loan Agreement, Tatik appeared to acknowledge and agree with Derbent that it was henceforth liable to Derbent, on the terms set out in the agreement, for payment of the principal and outstanding interest in respect of the monies which had been advanced by the "Original Lenders" to the "Original Borrowers" (and the relevant amounts are set out), this agreement being in place of those "Original Loans."

264. In my view, that is indeed the right in Derbent and the liability in Tatik which Mr Haener (for Derbent) and Mr Tchigirinski (for Tatik) intended to achieve. As regards the Second Mr Tchigirinski Loan, the transfer to Derbent had been agreed upon in March 2006. And on my further findings, the August 2008 "Agreement" represented the intention of Mr Haener and Mr Tchigirinski to transfer the debt to Tatik although they both realised that that document could not effectively do so and that this could only be achieved once Mr Tchigirinski received back his shares in Tatik."

The second half of paragraph 264 contains, of course, a reference back to the earlier passage in the judgment about the August Agreement which I have already quoted.

35. Although the December Loan Agreement was unaffected by the outcome of the shareholders' meeting of Sibir on 18^th December 2008, the Assignment Agreement was its direct consequence, and was hurriedly prepared and signed shortly thereafter. It was expressed to be made on 24^th December 2008 between Derbent as Assignor and Slocom as Assignee. It recites the December Loan Agreement and the Pledge, together with Derbent's right to assign under Clause 17 of the December Loan Agreement. So far as is material, its express terms included the following:

"2 ASSIGNMENT OF RIGHTS AND ASSUMPTION OF OBLIGATIONS

2.1 Assignment
With effect on and from the Effective Date and subject to the terms and conditions of this Agreement, the Assignor with full title guarantee hereby assigns and agrees to assign to the Assignee and the Assignee hereby accepts all of the Assignor's right, title, interest and benefit in and to the Loan under the Loan Agreement.

2.2 Assumption
With effect on and from the Effective Date and in consideration of the assignment contained herein, the Assignee undertakes with the Assignor to assume, perform and observe the Assignor's obligations in respect of the Loan made pursuant to and the security granted under the Finance Documents as if the Assignee had been a party thereto in place of the Assignor."

Pausing there, the Finance Documents are the December Loan Agreement and the Pledge. The Assignor's obligations consisted of some limited obligations of Derbent under the December Loan Agreement and Pledge, and had nothing to do with Derbent's obligation to account to Willow Tree (or to the Kruglov family) in respect of interest and principal repaid to it.

36. Clause 5.4 provided, inter alia, that:

"With effect from Effective Date, the Assignor shall have no residual beneficial interest in the relevant rights and benefits assigned by this Agreement."

37. Clause 7.1 contained an entire agreement clause, in the following terms:

"This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any previous expression of intent, undertaking or agreement with respect to this transaction."

38. The judge found, and this is not challenged by the Respondents on appeal, that the Assignment Agreement had been made for the purpose of defrauding Derbent's creditors, i.e. Sibir, within the meaning of Section 423(3). At J 294 he said:

"Here, I find that the purpose of the first limb of the statutory test is fulfilled. The hastily arranged assignments following the outcome of the Sibir general meeting were, in my judgment, clearly designed to place the benefit of the debt and related security over Tatik beyond the reach of Sibir in the claims it may make against Derbent. Indeed, Mr. Haener came close to admitting this. He accepted that he became worried and that his motivation was to "disassociate" Mr. Kruglov from Derbent, procuring the assignment "to protect Mr. Kruglov's position and interests.""

39. But the judge found that the assignment of Derbent's debt was not at an undervalue, although no attention had been given to identifying the consideration for it at the time. At J 296 he continued:

"… the reality is that Derbent, since it became the lender to Mr. Tchigirinski in place of Willow Tree, was under a liability to pay over the proceeds of the loan (repayments of principal and interest) either to Willow Tree or, if not, to the Kruglov family directly. The loan was never an asset of which Derbent could retain the benefit for itself."

And at J 301:

"I therefore find that there was indeed consideration for the Derbent-Slocom Assignment, being the assumption of liability for the full amount of the debt being assigned. It follows that there is no question of the assignment of the Derbent-Tatik Loan Agreement being at an undervalue. The assignment of the Second Tatik Stock Pledge (the Pledge) was obviously directly related to the assignment of Tatik's liability. The challenge under Section 423 to those two assignments fails."

40. There is no express assumption by Slocom of Derbent's responsibility to Willow Tree or the Kruglov family to be found in the Assignment Agreement. The judge's conclusion was that it was to be implied. His twin findings that (i) Derbent had an obligation to account to Willow Tree or to the Kruglov family prior to the Assignment Agreement and that (ii) this was assumed by Slocom in exoneration of Derbent as an implied term of the Assignment Agreement are at the heart of the appellants' challenge under ground 2.
41. It is unnecessary to describe the subsequent events, save to note that Mr. Tchigirinski's fraud on Sibir was in due course discovered, together with Derbent's involvement in it. I have already described, at the beginning of this judgment, the relevant part of the settlement agreement between Sibir and Mr. Tchigirinski. The terms of the settlement between Sibir and Derbent do not matter.
42. I shall however describe the course of the pleadings in a little detail, because they form the immediate backdrop to my analysis of ground 1, in which a pleading point taken by the appellants played a prominent part.
43. Slocom's case that it was entitled to enforce the December Loan Agreement against Tatik both as to the debt and the security provided thereunder, was based, in Slocom's original Particulars of Claim dated 15^th February 2010, upon a simple plea of the essential terms of the December Loan Agreement, namely Tatik's acknowledgement and agreement in Clause 2.1 that it was indebted to Derbent in the amount stated, the provision for security in Clause 3, interest in Clause 4 and the repayment date and default interest provided for in Clauses 5 and 12.
44. Sibir's and Maritime's defence (at paragraph 14) was simply to put Slocom to proof of Mr. Tchigirinski's and Mr. Haener's respective authority to sign the December Loan Agreement for Tatik and Derbent respectively, and otherwise simply to deny that Tatik was indebted to Derbent as set out in Clause 2.1 of that agreement, or at all. At paragraph 2 those defendants pleaded that the recorded indebtedness of Tatik of EUR32.3million-odd was "incorrect", because no sum was ever paid by Derbent to Tatik so that there was never any debt owed to Derbent by Tatik capable of being assigned to Slocom. Tatik's original defence was to substantially the same effect, at paragraph 10.
45. Nonetheless, in a skeleton argument served in February 2010 (for the application to set aside the without notice injunction which was, in the event, adjourned until May), the defendants asserted in bold terms that the entirety of the loan agreements were a sham. This preceded either of the defences, in which, surprisingly, the allegation of sham was not repeated, at least in their original form.
46. Sensing perhaps that the defendants' case at trial might be either or both that Derbent was not the creditor and Tatik not the debtor, the claimants pleaded a detailed case in reply, in August 2010, at the heart of which was the alleged April 2006 oral agreement, which was said to have included provision both for the immediate substitution of Derbent for Willow Tree as creditor and the promised substitution of Tatik for Mr. Tchigirinski as debtor "upon CT (Mr. Tchigirinski) regaining control of the Tatik shares". That oral agreement was alleged to have been evidenced by the August Agreement.
47. In response to an RFI from the claimants asking whether it was alleged that the December Loan Agreement was part of a fraud, Sibir and Maritime replied that:

"It is Sibir and Maritime's case that the Loan Agreement purports to memorialise a series of transactions that in fact never took place and, accordingly, it is a fraudulent document. … While it is not necessary for Sibir and/or Maritime to identify the purpose of the fraud, it is probable that it was part of a scheme to defraud CT's creditors (both future and present)."

48. For its part, Tatik adopted that case as its own in an amendment to its Defence made at trial by asserting, at paragraph 10A that:

"As pleaded by Sibir and Maritime (including at response 1 of their further information dated 9^th November 2010), the Loan Agreement was a fraudulent document and constituted or was equivalent to a sham and is invalid and unenforceable."

49. As at the beginning of the trial, the transcript of opening submissions shows that the defendants acknowledged that the claimants' Particulars of Claim, taken together with their Reply, asserted both (i) a case that the December Loan Agreement created a debt obligation of Tatik for the first time on 19^th December 2008 (the "New Loan" case) and (ii) a case (in the Reply) that, since it had been agreed on behalf of Tatik in April 2006 that it would assume liability as debtor, the December Loan Agreement needed to do no more than re-iterate an existing indebtedness if, contrary to the New Loan case, it was limited as a matter of construction to doing so.
50. For the claimants' part, Mr. Benjamin John told us that regardless of any formal shortcomings in the defendants' pleadings, the claimants came to trial prepared to resist a case of sham in relation to the December Loan Agreement both on the basis of its false statement of the lending history (by reference to the August Agreement) and on the basis of an allegation that, even on 19^th December 2008, it was not subjectively intended by Mr. Tchigirinski and Mr. Haener that Tatik should be under a liability then and thereafter as debtor.

Ground 1 – the December Loan Agreement was a Sham

51. Sibir's and Maritime's written Grounds of Appeal focus this first ground entirely upon the judge's finding of fact that, at the time of the August Agreement, Mr. Tchigirinski and Mr. Haener formed a subjective intention that, as soon as Mr. Tchigirinski was in a position to do so, Tatik would be substituted for him as debtor under his existing loans from Derbent. That factual finding is said to be unsupported by any pleading or submissions on behalf of the claimants, or indeed by any evidence. It is said to have been central to the judge's overall finding that the December Loan Agreement was not a sham. Tatik's grounds of appeal followed the same track, although slightly differently worded.
52. The oral submissions of Mr. Andrew Hunter QC for Sibir and Maritime, supported without further elaboration by Mr. Simon Birt for Tatik, ranged rather more widely than that. In particular, Mr Hunter submitted that, on its face, the December Loan Agreement was a confirmation and restatement of the August Agreement, which he described as a sham. The confirmation and restatement of a sham must, he said, itself be a sham.
53. Further, in his reply submissions, Mr. Hunter developed the thesis (for the first time as far as I could ascertain) that the claimants' "New Loan" case which had been acknowledged as pleaded in paragraph 8 of the Particulars of Claim was only that the December Loan Agreement, on one view, created a new loan by Derbent to Tatik, separate from and additional to the existing lending to Mr. Tchigirinski, rather than in substitution for it. Thus, Mr. Hunter said, the only case run by the claimants at trial about the replacement of Mr. Tchigirinski's liability as debtor to Derbent was the alternative case advanced in reply that this had been agreed in 2006.
54. All this was in my judgment designed to fortify Mr. Hunter's basic submission that, since the only pleaded or evidential basis on which the claimants had sought to justify the December Loan Agreement on the footing that Tatik replaced Mr. Tchigirinski as borrower had been rejected by the judge, there was no real alternative to the defendant's case that it was a sham.
55. It is convenient to begin my detailed analysis of ground 1 by describing the judge's approach to the sham issue. He began, at J 245-250, with a concise summary of the relevant law, with which Mr. Hunter did not directly take issue. He began with the classic statement of what constitutes a sham provided by Diplock LJ in Snook v London and West Riding Investments Limited [1967] 2 QB 786, at 802, as follows:

"…acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities… that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."

56. He referred to the additional points made by Arden LJ in Stone (Inspector of Taxes) v Hitch [2001] EWCA Civ 63, at 65-69, including the following, at 66:

"Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties."

57. He concluded with apt citations from National Westminster Bank v Jones [2001] 1BCLC 98 and Miles v Bull [1969] 1QB 258, where Megarry J said, at 264:

"A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it."

Finally, and without needing any citation, the judge concluded with the observation that it is for the party who alleges that a document or transaction is a sham to prove it.

58. In his application of those principles, at J 255-275, the judge began by noting the defendants' submission (in closing) that the purpose of the December Loan Agreement was to deceive Mr. Tchigirinski's creditors and, in particular, Sibir. Having rejected the claimants' submission that this had not been pleaded, the judge rejected that alleged purpose for reasons which I have already described, and which are not now challenged.
59. He then reminded himself that the necessary two questions arising from the law as to sham are:

(i) What legal rights and obligations does the agreement appear to create?

(ii) What actual legal rights and obligations (if any) did the parties intend to create?

60. The kernel of his analysis is to be found in J 263-264, which I have already quoted in full. It is to be noted that, correctly in my view, the judge concentrated his focus upon the rights and obligations which the agreement appeared to create going forward, rather than those historic rights and obligations which it appeared to recite. This is in particular apparent from the phrase "Tatik appeared to acknowledge and agree with Derbent that it was henceforth liable to Derbent… (my underlining)" in J 263 and his use of "henceforth" again in J 268 when addressing the defendants' submissions based upon the false confirmation of the August Agreement in Recital D. He said:

"…this reference in a recital to a previous purported contract cannot, on established principles, render the Derbent-Tatik Loan Agreement a sham, when, as I have found, the agreement sets out a statement of rights and obligations henceforth between the two parties that expresses the rights and obligations which those parties both intended to assume."

61. The judge relied in support of his clear distinction between recitals and operative parts of an agreement, when considering whether it is a sham, upon Ross River Limited v Waveley Commercial Limited [2012] EWHC 81 (Ch), a decision of Morgan J. Again, that analysis was not directly challenged on this appeal as an error of law, but much of Mr. Hunter's submissions appeared to me to ignore or run counter to it. In my view the judge's distinction between recitals which paint a false picture of the history, and operative parts which are alleged falsely to describe the parties' obligations going forward is, in general at least, both principled and correct. An agreement is not a sham merely because it makes reference to a sham agreement in its recitals, or merely because it deliberately misdescribes history.
62. It is of course implicit, in the judge's overall analysis, that the December Loan Agreement imposed a liability as debtor upon Tatik in relation to what had until then been Mr. Tchigirinski's liabilities to Derbent for the first time. In other words, he accepted the claimants' "New Loan" case, simply as a matter of construction of clauses 2 and 3 of the agreement. That is no longer challenged. He rejected the claimants' alternative case that, to the extent that clauses 2 and 3 depended for their effect upon a pre-existing liability of Tatik to Derbent, that liability had existed since 2006. All that remained was for him to decide whether, treating the December Loan Agreement as creating a Tatik liability for the first time, that was invalidated by reason of the defendants' allegation of sham.
63. The judge's reference to his finding of fact that Mr. Tchigirinski and Mr. Haener had in August 2008 reached the subjective common intention that Tatik should replace Mr. Tchigirinski as debtor as soon as it could do so, needs to be seen in that overall context. The burden of proof in relation to sham lay, from start to finish, upon the defendants. It was for them to show that, on 19^th December 2008, Mr. Tchigirinski and Mr. Haener shared a different subjective intention as to Derbent and Tatik's mutual rights and liabilities than that set forth in clauses 2 and 3 of the December Loan Agreement. The claimants did not have to prove anything about subjective intention. They simply relied on the rights and obligations conferred and imposed on Derbent and Tatik by the agreement itself, signed by their authorised representatives. The defendants' case was that from start to finish, and in particular on 19^th December, Mr. Tchigirinski and Mr. Haener had a common intention as to those rights and obligations different from that stated in the agreement. They demonstrated at trial by forensic examination of the documents and a painstaking cross-examination of Mr. Haener that (contrary to his evidence) he and Mr. Tchigirinski did not subjectively intend that Tatik should be liable in 2006, but the judge found, as the result of the detailed forensic investigation of the August Agreement (including hours of cross-examination of Mr. Haener) that, from August 2008, there was such a subjective mutual intention, albeit necessarily postponed as to implementation until Mr. Tchigirinski recovered control of Tatik and its shares.
64. In my judgment, no parts of ground 1 of the defendants' appeal survive that analysis. Taking first the point that the judge's factual finding about the formation of a subjective intention in August 2008 had not been pleaded, that seems to me to be misconceived. The burden of proof was, as I have said, on the defendants in relation to sham. That is a burden to plead and prove the facts necessary to sustain that allegation by way of defence.
65. Looking at the defendants' pleadings, some effort is required to find that their case as to sham was properly pleaded, not least because, as I have demonstrated, Sibir's and Maritime's defence made no express reference to sham at all. But I accept Mr. John's sensible concession that, for practical purposes, the claimants had sufficient notice of a full blown sham case.
66. The sham case failed because the defendants did not persuade the judge that, on 19^th December 2008, Mr. Tchigirinski and Mr. Haener had a different subjective intention as to Derbent and Tatik's ongoing rights and obligations than that set out in clauses 2 and 3 of the December Loan Agreement. For that purpose it did not matter whether the judge found that a subjective intention consistent with the agreement had been formed on the day it was made, in August 2008 or in 2006. He could have found simply that the defendants had not proved their case as to subjective intention.
67. An important reason why the defendants' sham case failed was that the judge rejected their case that the December Loan Agreement was motivated by a desire to deceive Mr. Tchigirinski's creditors, including Sibir. There was quite simply no reason why, in December 2008, Mr. Tchigirinski and Mr. Haener should have prepared an agreement transferring Mr. Tchigirinski's liabilities to Tatik, unless that is indeed what they subjectively intended.
68. Mr. Hunter's main point was that the claimants had committed themselves to a single case in answer to the sham allegation by their Reply, namely a case that the requisite and concordant subjective intention had been formed in 2006. But in my view it is wrong to treat the Reply as a pleaded defence to the allegation of sham. At the time when the Reply was served, no pleaded allegation of sham had been made by any of the defendants. On the contrary, the 2006 agreement was pleaded not as the origin of Mr. Haener's and Mr. Tchigirinski's subjective intention, but as an alternative basis for the assertion of a Tatik contractual liability to Derbent, sufficient to give substance to the transfer of the benefit of it by Derbent to Slocom in the Assignment Agreement.
69. I am no more persuaded by the defendants' argument that the judge's finding as to subjective intention in August 2008 was contrary to the only evidential case advanced by the claimants. True it is that, from start to finish, Mr. Haener asserted that he and Mr. Tchigirinski had mutually agreed that Tatik should take over Mr. Tchigirinski's liabilities to Derbent in 2006, rather than at any later date. That was his evidence, and that was what the claimants submitted that the judge should accept. The defendants' case lay at the opposite extreme, namely that the two men had never formed any such subjective intention, but concocted the December Loan Agreement as a dishonest pretence to the contrary.
70. It is commonplace in civil litigation for parties to advance rival evidential cases, and support them by single-minded submissions, but for the judge to find that the truth lay not at the opposing ends of the spectrum thereby created but somewhere in the middle. This is, as Mr. John rightly submitted, a classic example of such a case. To suggest that the judge was constrained to opt for one or the other of the two extremes contended for would be to impose an unrealistic, mechanistic and unjust fetter upon trial judges.
71. I reject the submission that there was, in any case, simply no evidence upon which the judge could properly find as he did. The reasons behind and the rationale for the August Agreement were forensically examined in the minutest detail at trial. True it is that in the literal sense, no document or witness stated in terms that this is when Mr. Tchigirinski and Mr. Haener first formed that subjective intention together, but the evidential basis from which the judge could properly so infer was fully available to him, including in particular the considerable detail which he had about the French tax advice which led to the August Agreement, and the provisions of the August Agreement itself. He was entitled to conclude that, although a sham in its operative parts because Mr. Tchigirinski could not in August procure Tatik's assumption of his debt liabilities to Derbent, it nonetheless constituted written evidence supportive of a subjective intention on his and Mr Haener's part that Tatik should do so as soon as Mr. Tchigirinski was able to procure that it did.
72. The final specific element in this ground of appeal was that the judge was wrong to allow his factual conclusion to be influenced by an adverse inference drawn from Mr. Tchigirinski's failure to give evidence. In my judgment this cannot withstand the judge's clear statement in J 275 that, in relation to the sham case:

"I reach this conclusion without reliance upon the absence of evidence from Mr. Tchigirinski. However, I consider that the lack of testimony from him to the contrary effect only reinforces my findings regarding the explanation of and purpose of the parties entering into the Derbent-Tatik Loan Agreement and the related Second Tatik Stock Pledge."

73. Underlying the detail of ground 1, but developed a little in Mr. Hunter's reply, was a general assertion that the judge's finding about Mr. Tchigirinski's and Mr. Haener's subjective intentions in August 2008 was procedurally unfair. He should, it was submitted, have put his mid-spectrum conclusion to the parties for their submissions before the end of the trial.
74. In my judgment there was no procedural unfairness of any kind. The burden of proof in relation to the sham issue lay squarely on the defendants. The available evidence, both documentary and oral, was investigated in minute detail, and the circumstances surrounding the making of the August Agreement were bound to lie at the centre of the forensic analysis carried out at the trial. I think it inconceivable that, even if the judge's mid-way conclusion had been provisionally ventilated, or if it had been positively pleaded by the claimants, further material could have become available to assist the defendants. Mr. Hunter relied in particular upon the possibility that examination of diaries and other materials might have enabled the defendants to demonstrate that Mr. Tchigirinski and Mr. Haener could have had no relevant discussion about the subject in August 2008. But the evidence was that they worked in the same building, albeit on different floors, and were in almost daily contact with each other about the detail of Mr. Tchigirinski's affairs. Furthermore the August Agreement was signed by both of them.
75. In any event, it seems to me purely speculative to imagine that the judge had formed any such provisional conclusion by the end of the trial. He had been presented with an immense quantity of written and oral evidence, together with submissions, about a long and complex history of dealings between businessmen in what he regarded as an alien commercial environment. It took him (and I make no criticism at all of this) several months to prepare his lengthy written judgment. The probability is I think that he had formed no views at all by the time of closing submissions, but wished to give the many complex issues before him mature and detailed reflection, before forming any views, one way or the other.
76. For all those reasons, I would reject ground 1.

Ground 2 – section 423

77. I can address this ground of appeal much more concisely than ground 1, not least because, like my Lords, I have at no stage found it at all persuasive, so much so that it was unnecessary for us to hear the respondents' oral submissions about it.
78. The judge rejected the defendants' case that the Assignment Agreement could be re-opened under section 423 because, in his view, it was not a transaction at an undervalue. By contrast, he found that the first limb of the statutory test was established, because the purpose of the Assignment Agreement was to place the benefit of Tatik's debt and related security beyond the reach of Sibir in any claims it might make against Derbent: see J 294. It was, in summary, a fraudulent preference. But section 423 does not apply to preferences, fraudulent or otherwise. On the contrary, sub-section (1) provides that:

"This section relates to transactions entered into at an undervalue;"

The fact that it was a serious fraudulent preference readily explains why the invulnerability of a transaction designed to defraud Sibir might appear at first sight to be a surprising outcome. Fraudulent preferences can of course be re-opened in specified circumstances under other provisions of the insolvency legislation, but the defendants do not suggest that they are applicable in this case.

79. This ground of appeal had the following four elements to it, each described as constituting errors of law and/or unsustainable findings made by the judge:

(a) That Derbent assumed a legal liability in May 2006 to "pay over the proceeds of the loan" to Mr Kruglov or his company Willow Tree;

(b) That Slocom assumed this legal liability at the time of the Assignment Agreement;

(c) That such assumption of liability formed part of the consideration for the assignment of the loan and security; and

(d) That such assumption of liability was of equal value to the loan and security assigned to Slocom.

80. Since that breakdown fairly reflects the judge's process of analysis, it is convenient for me to adopt the same structure.
81. As to (a), the judge's conclusion that, from the moment when it took over from Willow Tree as lender to Mr. Tchigirinski, Derbent assumed a legal liability to pay over the proceeds of the loan to Willow Tree or Mr. Kruglov's family was mainly a question of fact. It did not depend upon the construction of any particular written agreement or words used orally, but rather upon the judge's analysis of the basis upon which Mr. Haener structured and managed the investment of the Kruglov family monies, which I have already described.
82. There were plain and good reasons for the judge's conclusion that, when Derbent took over as lender from Willow Tree in 2006, it came under a legal obligation to account for the proceeds to Willow Tree or to the Kruglov family. For that purpose it does not matter whether or not Willow Tree remained in the revised structure as an intermediary between Derbent and the Kruglov family. What does matter is that the ultimate beneficiaries were Mr. Kruglov and three members of his family (i.e. the former sole beneficiaries of each of the four foundations) rather than just Mr. Kruglov himself.
83. The only possibilities as to the position of Derbent in relation to the proceeds of the loans from and after 2006 seem to me as follows:

(i) That Derbent was the beneficial owner without legal liability to anyone;

(ii) That Derbent was a trustee of the loans and their proceeds;

(iii) That Derbent was the borrower under a back-to-back lending structure with Willow Tree or the Kruglov family; or

(iv) That Derbent had a legal obligation to account, albeit not as a trustee.

84. The judge was in my view right expressly to reject (i), not only because, as he found, this would have created a large and unnecessary Cyprus tax liability in Derbent, but also because the beneficiary of any distribution of the proceeds by way of dividend would have been Mr. Kruglov himself as the sole owner of Derbent whereas the ultimate beneficial ownership of the underlying investments lay in Mr. Kruglov and three members of his family, for each of whom one of the four Liechtenstein foundations had originally been established.
85. No-one, at trial or on appeal, suggested alternative (ii). Derbent was a Cypriot company, with no connection with England or English law.
86. The judge was also correct briefly to reject any back-to-back loan agreement. This would, in order to avoid profits and losses arising in Derbent, have involved the creation of mirror loan agreements between Derbent and either Willow Tree or the Kruglov family, constantly monitored to reflect any changes or adjustments in the Derbent-Tchigirinski loan relationship. Nothing of that kind was ever done.
87. Thus the conclusion reached by the judge was the logical, and in my view inevitable, conclusion and involved no errors of law or unsustainable findings. It represented simple business-like common sense.
88. Although logically distinct, limbs (b) and (c) of this ground of appeal need to be taken together. They depend, from start to finish, upon the true construction of the Assignment Agreement, there having been no case advanced that Slocom undertook a legal liability in relation to the proceeds by means of some separate contract with Willow Tree or with the Kruglov family, forming part of the same transaction. On the contrary, there was no evidence that any member of the Kruglov family was consulted about the Assignment Agreement, nor any director of Willow Tree.
89. The defendants' case was that a Slocom liability to Willow Tree or the Kruglov family could not be identified as included within the Assignment Agreement by any process of construction or implication of terms. Mr. Hunter (with whom, again, Mr. Birt briefly concurred) submitted that the combination of clauses 2.1, 2.2 and the entire agreement clause 7.1, read together, were inconsistent and incompatible with any such obligation of Slocom. He acknowledged that an entire agreement clause does not, on its own, prevent the implication of terms, but he said that the effect of clause 7.1 was to constitute clause 2.2 a comprehensive and exclusive statement of the consideration given by Slocom for the assignment of Tatik's debt and security, and a comprehensive and exclusive statement of Slocom's obligations to Derbent.
90. I disagree. In my judgment, all that clause 2.2 of the Assignment Agreement does is to create a particular express obligation of Slocom to Derbent (namely to assume, perform and observe the Assignor's obligations in respect of the Loan made pursuant to and the security granted under the Finance Documents) and to describe it as consideration for the assignment. Clause 2.2 does not purport to identify the entirety, either of Slocom's obligations or of the consideration for the assignment on any exclusive basis, and nothing in clause 7.1 converts a non-exclusive provision into one that is exclusive.
91. The fact that nothing in the Assignment Agreement expressly prohibits the implication of the term identified by the judge does not of course mean that it should therefore be treated, without more, as implied. Whether or not it should be depends, of course, upon a reading of the agreement as a whole against its commercial background. In agreement with the judge, I consider that such a reading would make commercial nonsense if an obligation on Slocom to exonerate Derbent from any further liability to account in relation to the proceeds, either to Willow Tree or to the Kruglov family, were not to be implied. But Mr. Hunter's submissions were not really based on an attack on that commercial analysis but rather, as I have described, upon an attempt to make two plus two equal five by running together clauses 2.2 and 7.1.
92. Mr. Hunter made the additional submission that, in any event, no such obligation as that identified by the judge could be created upon Slocom otherwise than by way of a novation, which would have required the consent of Willow Tree or the Kruglov family, and (of course) none was sought or obtained, at least until a year later.
93. Again, I consider that this submission fails as a matter of contractual analysis. The buyer of an asset may contract with the seller to assume the seller's obligations to a third party in relation to that asset without any consensual novation with the third party. If the third party then sues the seller, the buyer will be obliged to pay or discharge that obligation either by paying the third party, if he will accept payment, or by indemnifying the seller for any payment or other liability discharged to the third party. Exoneration arrangements of this kind are commonplace in conveyancing transactions and, in fact, clause 2.2 of the Assignment Agreement operates in precisely the same way in relation to the exoneration of Derbent from any further liability under the Finance Documents (as defined) without any further need for novation.
94. Thus in my judgment the challenge to the judge's conclusions at limbs (b) and (c) are to be rejected. Slocom's obligation to exonerate Derbent from any further liability to Willow Tree or the Kruglov family in respect of the proceeds of the Tatik loan was an implied term of the Assignment Agreement, and part of the consideration for the benefits obtained by Slocom under it.
95. Mr. Hunter did not pursue the final limb of this ground of appeal with any enthusiasm in his oral submissions. In the skeleton arguments, the points were taken that the judge conducted no detailed comparative valuation of the relevant rights and obligations from Derbent's perspective, and some points of detail were made, which I found entirely unconvincing.
96. In my judgment the reality is that there was an obvious equivalence in value to Derbent between the value of the rights assigned to Slocom and the value of Slocom's obligation to exonerate Derbent from any further liability to Willow Tree or to the Kruglov family. The equivalence arises from the fact that the underlying accounting liability of Derbent to Willow Tree or the Kruglov family was, and had to be, equivalent at all times to the value of any incoming proceeds of the loan. Otherwise unwanted profits and losses would have arisen in Derbent. I consider that the equivalence in value to Derbent between the relevant rights assigned, and obligations received from Slocom, was sufficiently obvious to the judge, with his encyclopaedic understanding of the relevant history, for it to have been unnecessary for him to spell it out in detail.
97. The result is that, in my judgment, this ground of appeal also fails, so that the appeals should be dismissed. In consequence, the potentially complicated matters which might have arisen if either ground of appeal had succeeded do not arise.

Lord Justice Tomlinson:

98. I agree.

The Chancellor of the High Court:

99. I also agree.