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The Society of Lloyds v. Geoffrey George Twinn Gail Sally Anne Twinn [2000] EWHC Admin 308 (23rd March, 2000)
CHBKF 1999/0660/B3
IN THE HIGH COURT OF JUSTICE CHBKF
1999/0659/B2
CHANCERY DIVISION
Thursday 23rd March 2000
BEFORE:-
THE VICE-CHANCELLOR:
THE RT. HON. SIR RICHARD SCOTT
THE RT. HON. LORD JUSTICE CHADWICK
THE RT. HON. LORD JUSTICE BUXTON
B E T W E E N:-
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The Society of Lloyds
|
Appellant
|
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- and -
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|
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Geoffrey George Twinn
Gail Sally Anne Twinn
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Respondents
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_________________________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
_________________________
Mr J. Briggs instructed by The Society of Lloyds for the Appellant
Ms C. Mackenzie-Smith instructed by Geoffrey George Twinn and Gail Sally
Anne Twinn for the Respondents
_________________________
Judgment
As Approved by the Court
Crown Copyright ©
THE VICE-CHANCELLOR:
1. This is an appeal by the Society of Lloyd's (Lloyd's) against the judgment
of Jacob J., given on 11 May 1999. The respondents to the appeal are Mr and
Mrs Twinn. They are, or were, Lloyd's Names.
2. On 12 July 1998 Lloyd's served on Mr and Mrs Twinn statutory demands. A
separate statutory demand was served on each. The statutory demands called for
payment of sums said to be owing by them to Lloyd's under the so-called
Reconstruction and Renewal Agreement entered into between Lloyd's and each of
the Names who accepted the terms on offer. No application to set aside the
statutory demands was made. Nor was payment made. So, on 23 September 1998
Lloyd's petitioned for bankruptcy orders to be made against Mr and Mrs Twinn.
There was a separate petition against each of them. The petition against Mr
Twinn alleged an indebtedness to Lloyd's of £1,018,832. Paragraph 2 of
the petition said this:-
"2. The debtor is justly and truly indebted to us in the aggregate sum of
£1,018,832 being the amount due to us pursuant to the terms of Settlement
Agreement concluded between us and the debtor in 1996 and payable by Noon on 30
September 1996 whereby the debtor is deemed to be an "Accepting Name". By a
letter dated 27 June 1997 we demanded payment from the debtor of the sum of
£1,018,832 which said sum remains due and unpaid".
3. The petition against Mrs Twinn was based on an alleged indebtedness to
Lloyd's of £623,440. Paragraph 2 of the petition was in the same terms as
the corresponding paragraph in the petition against her husband, save that the
amount specified was £623,440 and the letter demanding payment was dated
13 October 1997. The two bankruptcy petitions came before Mr Registrar James
on 19 January 1999. He made a bankruptcy order on each petition. He gave a
brief ex tempore judgment at the time and gave his full reasons in a written
judgment some days later. Both Mr Twinn and Mrs Twinn appealed. The appeals
were heard by Jacob J., on 11 May 1999. He allowed the appeals and set aside
the bankruptcy orders. This appeal is against that order. Lloyd's seeks the
re-instatement of the bankruptcy orders.
4. The issues argued before the Registrar were, first, whether Mr and Mrs Twinn
had accepted the Re-construction and Renewal Settlement offer that had been
extended by Lloyd's to Names in July 1996. Had they become Accepting Names?
The Registrar held that they had; Jacob J., held that they had not. He held
that their purported acceptance had been so hedged around with conditions as
not to constitute an effective acceptance at all. A second issue was argued
before the Registrar. It was whether, if Mr and Mrs Twinn had accepted the
offer and become bound by its terms to pay the sums stated to be due, they had,
pursuant to section 271(3) of the Insolvency Act 1986, made an offer to
compound or secure their debts which Lloyd's had unreasonably refused. The
Registrar held that Lloyd's refusal of the offer that Mr and Mrs Twinn had made
was not unreasonable. There is nothing to indicate whether this point was
persisted in before Jacob J. Jacob J., said nothing about it and, since he
reversed the Registrar and decided the main point in Mr and Mrs Twinn's favour,
he did not need to. The point has not been raised before us.
5. Lloyd's Notices of Appeal, served on 23 June 1999, challenge Jacob J's
conclusion that Mr and Mrs Twinn had not effectively accepted Lloyd's
Reconstruction and Renewal settlement offer. As an alternative, the Notices
contend that Mr and Mrs Twinn should be held to be estopped from denying that
they accepted the offer. This estoppel plea was based on Mr and Mrs Twinn's
conduct and, in particular, on the correspondence, following their purported
acceptance. When the appeal was opened Mr Bannister Q.C., counsel for
Lloyd's, abandoned the estoppel point. In my view he was right to do so.
Whatever the merit of the point, it is hardly an appropriate basis on which to
issue a bankruptcy petition or a sufficient ground to support a bankruptcy
order.
6. Mr and Mrs Twinn served Respondent's Notices on 14 July 1999. They
constituted a response to Lloyd's estoppel point. With Lloyd's abandonment of
the estoppel point they have no further relevance save, later, when costs are
considered.
7. Shortly before the commencement of the hearing of this appeal, however,
those acting for Mr and Mrs Twinn indicated that permission would be sought to
serve a further Respondent's Notice raising a new point. The point is based
upon paragraph 38 of the Reconstruction and Renewal Agreement which, it is
said, constitutes a penalty or, alternatively, a forfeiture provision, and is
unenforceable. Mrs Mackenzie-Smith, counsel for Mr and Mrs Twinn, sought the
requisite permission at the commencement of the hearing. We said that we would
hear her arguments on the point at the same time as we heard her in response to
the appeal and would deal with the point in our judgment on the appeal.
8. The parties' submissions, both on the acceptance point and on the penalty
point, require a careful look at the nature, as well as at some of the terms,
of the Reconstruction and Renewal settlement offer.
9. The Reconstruction and Renewal settlement offer was intended to bring about
a global settlement of the difficulties afflicting the Lloyd's market, Lloyd's
itself, its underwriting agents, its Names and other parties such as auditors.
Legal proceedings had been commenced by Names against underwriting agents,
auditors, Lloyd's itself and others. The proposed settlement affected not only
non-professionals, such as the Names, but also professionals in the market and
certain outsiders.
10. One of the features of the proposed settlement was a proposal to provide
financial assistance to Names in meeting their accrued liabilities to Lloyd's;
another was the intention to provide Names, through re-insurance of their
on-going liabilities into Equitas, with certainty as to the extent of their
liabilities. These aims required that a fund be built up sufficient to provide
both the amount of the proposed assistance and the amount of the re-insurance
premium. The viability of the settlement proposal was dependent upon
sufficient acceptances being received from Names to enable this object to be
achieved.
11. The settlement offer was highly complex. It comprised a number of related
documents which were sent to the Names. Each Name was invited to sign an
Acceptance Form. The documents were sent under cover of a letter dated 30 July
1996 from Lloyd's Chief Executive. The opening paragraphs of the letter
said:-
"You will find enclosed with this document a form of acceptance for the
settlement offer and a finality statement setting your 1992 and prior
underwriting liabilities and the credits available to assist you in meeting
these liabilities.
I urge you to read this document very carefully and to take advice form your
lawyer, financial or other appropriate adviser on the terms of the settlement
offer and your finality statement as soon possible but, in any event, so that
you are able to meet the deadlines for acceptance and payment".
12. Under the heading "Acceptance" the letter specified 28 August 1996 as the
latest time for duly completed forms of acceptance to be returned to Lloyd's,
and warned that:-
"Names who do not accept the settlement offer by this time will lose their
entitlement to the allocations of debt credits, the litigation settlement fund
and the auditor settlement fund shown on their finality statements ... Such
Names will also be ineligible for the refund of their members' special Central
Fund contribution and will be required to pay all of their underwriting
liabilities in full... Moreover, unless sufficient Names accept the settlement
offer, the Settlement Agreement will not become unconditional and the
reconstruction plan will fail".
13. Under the heading "Payment", the letter said that payment of finality bills
would be required by 12 noon 30 September 1996 and warned that:-
"Any Name who fails to pay his finality bill as described in Chapter 5 by this
time will lose the benefits referred to above, even if he accepted the
settlement offer on or prior to 28 August 1996. It is therefore crucial that
Names should make arrangements to pay their finality bills in good time ..."
14. The documents which accompanied the 30 July 1996 letter included a 159 page
introductory document explaining the important features of the Settlement
Agreement. This warned again that:-
"To benefit from allocations from the settlement fund, Names must accept the
settlement offer, enter into the Settlement Agreement and pay their finality
bills".
and said that:-
"To accept the settlement offer, Names must complete and return a form of
acceptance to Lloyd's ... by 12 noon (London time) on 28 August 1996".
15. The introductory document contained and explained the settlement offer.
Attached to it was a copy of the Settlement Agreement to which each Name who
duly signed and returned to Lloyd's a form of acceptance would become a party.
In section G the introductory document, under the heading "Collection of
Amounts Unpaid by Names", spelled out the consequence of failure of an
Accepting Name to pay his finality bill by 30 September 1996:-
"A Name who accepts the settlement offer but, nevertheless, fails to pay his
finality bill by 30 September 1996 ... will be subject to legal proceedings,
under the Settlement Agreement, by Lloyd's to recover the amount remaining
unpaid by him, together with any interest due ... . An accepting Name who
fails to pay by the 30 September 1996 deadline will be obliged to pay the
amount shown in the "total liabilities" line of his finality statement without
the assistance of any debt credit or litigation settlement fund allocations
...".
16. In the Settlement Agreement, under the heading "Obligations of Lloyd's",
clause 3.1 provided that:-
"... each Accepting Name will be entitled, in accordance with [the terms of
the Settlement Offer Document]:
(a) to have applied for his benefit such amounts, if any, as are set out in
his finality statement from the Combined Litigation Settlement Funds (excluding
Expenses Refunds) and/or the Debt Credits, provided he has paid, or otherwise
satisfied his obligation to pay, all amounts due from him in respect of his
Finality Statement...".
and, under the heading, "Obligations of Accepting Names", clause 4.1 provided
that:-
"... each Accepting Name agrees with Lloyd's to pay, or otherwise to satisfy
his obligation to pay, all amounts due in respect of his Finality Statement in
accordance with the terms set out in the Settlement Offer Document ..."
17. Clause 12(12) of the Settlement Agreement enabled Lloyd's to agree in any
individual case to an extension of time for payment by the Name of his finality
bill. Paragraph 32 of Appendix 2 provided that:-
"... an accepting Name will be entitled to receive the benefits set out in
clauses 3.1(a) and 3.3 of the Settlement Agreement if he has paid, in
accordance with paragraphs 42 to 48, by the Finality Payment Deadline, not less
than his Finality Amount".
18. Paragraph 38 of Appendix 2 contained the provisions at which the
penalty/forfeiture argument is directed. It provided as follows:-
"If an accepting Name fails to pay, in accordance with paragraphs 42 to 48,
his Finality Account by the Finality Payment Deadline, he will:
(a) be in default; and
(b) not be eligible for any refund of the members' special Central Fund
contribution; and
(c) not be entitled to have applied for his benefit the amounts, if any, as
set out in his finality statement from the combined litigation settlement funds
and/or debt credits save to the extent that he has any entitlement pursuant to
the terms of any Action Group Settlement Agreement".
19. Clauses 42 to 48 set out the manner in which payment by Names of their
respective finality bills was to be made.
20. The relevant definitions were contained in paragraph 31 of Appendix 2.
"Finality Amount" was defined by reference to a complicated formula many of the
ingredients of which were set out in the Name's finality statement. "Finality
Payment Deadline" was defined as "12 noon (London time) on 30 September 1996 or
such later time and date as Lloyd's may allow".
21. A finality statement was attached to the set of documents sent to each
Name. The figures in the finality statements sent to Mr and Mrs Twinn
respectively constitute the basis of the claims made in the Statutory Demands.
Let me describe Mr Twinn's finality statement. It begins with a section headed
"Underwriting liabilities" which, under eight sub-headings, sets out the sums
that, accordingly to Lloyd's, constituted Mr Twinn's underwriting liabilities
to Lloyd's. The total shown was £1,147,578.
22. The next section sets out a number of credits, including the settlement
credits to be allowed to Mr Twinn if the reconstruction and renewal proposals
were accepted. They amounted to £1,071,853. The total of the credits was
shown as £1,095,995.
23. The figures produced a debit balance of £51,583 which, ignoring a
£1 deduction, was described as "Finality (cost) surplus before
adjustments, taking into account funds at Lloyd's". After some minor
adjustments the finality statement showed £51,569 as the sum due to be
paid by Mr Twinn. The finality statement was accompanied by supporting pages
showing how the various sums specified in the statement were arrived at.
24. Mrs Twinn's finality statement was in the same form. The total of her
underwriting liabilities was shown as £684,769. The total of the credits
she was to be allowed was £623,883. The final sum shown as due from her
to Lloyd's was £60,612. This final sum was later reduced to £50,271
as a result of a further so-called "Tranche 4" credit that increased her
credits to £634,495.
25. The effect of these figures, in conjunction with the relevant clauses of
the Settlement Agreement, was that Mr Twinn, if he accepted the settlement
offer, would discharge his liabilities to Lloyd's if he paid £51,569 by 30
September 1996. If he failed to pay that sum by that date, then, subject to
any extension of time that he might be allowed by Lloyd's, he would lose the
benefit of the settlement credits and become liable to pay his underwriting
liabilities in full. Mrs Twinn, if she accepted the settlement offer, could
discharge her liabilities to Lloyd's by paying £50,271 (taking into
account the later Tranche 4 credit) by 30 September 1996. If she failed to do
so, then she would lose the benefit of the settlement credits and, like Mr
Twinn, become liable to pay her underwriting liabilities in full.
26. These features of the Settlement Agreement are those on which Mrs
Mackenzie-Smith's penalty and/or forfeiture arguments are based.
27. The documents sent to each Name included a form of acceptance. The form
was headed "Lloyd's Settlement Offer". Beneath the heading the following
explanation and warning was given:-
"This Form must be read in conjunction with your Finality Statement, the
accompanying guidance notes and the Settlement Offer Document, including the
Settlement Agreement set out and described therein. By signing and returning
this Form you irrevocably accept the settlement offer and become bound by the
terms and conditions of the Settlement Agreement ...".
28. Then followed a sub-heading, "Section 1. Acceptance of the settlement
offer" and beneath the sub-heading the following:-
"I have carefully read the Settlement Offer Document, including the Settlement
Agreement set out and described therein. In consideration for the mutual
covenants and agreements and other good consideration, I hereby irrevocably
accept the settlement offer, agree to be bound by the terms and conditions set
out in the Settlement Agreement, make all releases, waivers, assignments and
other depositions and grant all powers of attorney, authorities and
appointments there under".
29. The Form was to be "signed and delivered as a deed" in the presence of two
witnesses. The Form included a "Section 3. Payment Form" under which the
signatory was invited to state whether or not he intended "to return a Payment
Form".
30. On 23 August 1996 Mr Twinn executed the form as a deed. On 19 August 1996
Mrs Twinn executed the form that had been sent to her. In section 3 of his
form, Mr Twinn indicated that he did not intend "to return a Payment Form" and
added, in manuscript, "see covering letter". Mrs Twinn, too, in section 3 of
her form, indicated that she did not intend "to return a Payment Form".
31. The covering letter in question, written by Mr Twinn to Lloyd's, was dated
23 August 1996. Enclosed with the letter were the acceptance forms that Mr
Twinn and Mrs Twinn had executed. The contents of the letter is more than
simply the foundation stone of Mr and Mrs Twinn's contention that they never
accepted the settlement offer. It is the whole structure of their case. I
should therefore set it out in full.
"I enclose form of acceptance of the offer duly completed subject to:-
(1) the figure as set out in the finality statement being correct. This would
appear clear from the statement and the substantial accompanying documentation
but I have been awaiting a reply to correspondence from the financial recovery
department since April
(2) I have no money with which to make payment; the failure to reply has left
me in an impossible situation to consider arranging finance.
I also enclose my wife's acceptance which is subject to the terms of the
letter from the financial recovery department of 5th August.
It has been agreed that I shall be responsible for her payment and, from what
she has told me of her statement of means, there is no way she can pay.
However, this is academic as I have agreed to take responsibility to try to get
this matter settled. As you will have seen from her statement of means you are
probably more likely to get the money from me than her.
I have no liquid assets; nor does my wife. My wife has, however, agreed that
we combine what we own for this purpose so that Lloyd's can treat us as one
entity.
My bankers are already querying the adequacy of their security. I tried both
English and European banks for assistance when the Lloyd's situation started to
become apparent with no success. My member's agent approached every bank that
they could in 1993 with no success. The facility offered by the Abbey National
is no good to us; our London home has already been sold to go towards the money
paid under the guarantees and the above address was merely previously a holiday
flat with, as must appear from my wife's statement of means, inadequate equity
to be of help. All assets including this are already mortgaged.
Lloyd's has constantly said that no name should be prevented from accepting
the offer merely because he cannot pay.
Lloyd's must have more contacts and greater access to facilities than me.
Property in France is probably the best bet and, failing any other solution, I
am prepared to give a mortgage to Lloyd's
I look forward to hearing from you with your advice and assistance".
32. The letter expressed Mr Twinn's acceptance to be subject to the
correctness of the figures in his finality statement but no point has been
taken on this appeal, or was taken below, on the figures. Mr Twinn does not
dispute that the figures are correct. Mrs Twinn's acceptance was expressed by
the letter to be subject to the terms of a letter of 5 August from Lloyd's
financial recovery department. No point was taken on this either. The letter
led to the increase of Mrs Twinn's credits and to the consequential reduction
to £50,271 of the net sum due from her. The point that has been taken is
based on Mr Twinn's assertion in the letter that neither he nor his wife would
be able to pay the net sums due from them under their respective finality
statements. This assertion, it is submitted, rendered the apparently
unequivocal acceptances, constituted by the execution of the acceptance forms,
equivocal and ineffective. Jacob J., in his judgment at page 9, posed the
following question:-
"... The question is, in short, does this letter of the 23rd of August 1996
amount to an unequivocal acceptance of the offer?"
33. I think, with respect, that this was the wrong question. The letter of 23
August was not, on any view, a letter of acceptance. The acceptances were
effected by the execution of the acceptance forms. The right question, in my
view, was whether the letter of 23 August, which accompanied the executed
forms, rendered the apparently unequivocal acceptances equivocal. I do not,
however, think that the reformulation of the question is critical. What is
critical is the true effect of the letter of 23 August.
34. The judge set out his conclusions on this critical issue in the following
passage:-
"I have come to the conclusion that that is not right. I think this letter is
saying "I would like to accept your offer but I cannot pay the money". It is a
much more reasonable way of reading the letter because, for someone to say "I
accept to do something which I cannot do" is a pointless thing to do. Although
it purports in one place to be accepting the offer with all the things that I
have read out about unequivocal, unconditional and so forth, it is also saying
"I am not going to do it". When a man says "I am not going to do it", it is
most unlikely that he is accepting an obligation to do it.
The letter conveys other indications of incomplete acceptance, together with,
of course, indications of acceptance. "I undertake to take responsibility to
try to get this matter settled" does not look as though he has not accepted.
This letter is more than simply a plea for indulgence after acceptance. It is
a statement that what he is supposed to be accepting he will not perform. It
is difficult to construe against that by the offeree saying he will not perform
an obligation as an acceptance of the obligation to perform"
35. I am afraid I do not agree with the learned judge's analysis. It seems to
me plain that Mr Twinn was following up unconditional acceptances with an
attempt to obtain concessions as to the means by which his and his wife's
payment obligations under the Settlement Agreement might be discharged. In
particular, the sentence in the letter "Lloyd's has constantly said that no
name should be prevented form accepting the offer merely because he cannot pay
"seems to me to show that Mr Twinn was doing just that. He was accepting the
offer although he could not pay. The ensuing correspondence between Mr Twinn
and Lloyd's seems to me to bear this out. Mrs Mackenzie-Smith protested that
subsequent correspondence could not be used to assist in construction of a
written contract. She is quite right, at least as a general proposition. But
subsequent correspondence, or subsequent statements by the parties, can be used
to cast light on the question whether a binding contract has been entered into.
The point is made in Chitty, Vol. 1, 28th edition, at paragraph 12-124:-
"Subsequent actions are therefore inadmissible to interpret a written
agreement, although they are admissible to show there was a contract and what
the terms of the contract were, either originally or by variation or as the
basis of an estoppel".
36. On 14 September 1996 Mr Twinn wrote to Lloyd's. He referred to his letter
of 23 August "which accompanied Acceptance forms which I know were received in
your office and treated as acceptances ...". He then said "I am concerned not
to have heard from you since, put in simple terms, I have to produce
£100,000 by the 30th September failing which both I and my wife would
appear to be in default and therefore treated as not having accepted the
offer".
37. These remarks show that he regarded himself and his wife as having sent to
Lloyd's valid acceptances and are inconsistent with the proposition that he did
not have to produce the £100,000 odd by 30 September.
38. On 11 October Mr Twinn wrote again to Lloyd's. He said". I am not asking
to reduce in anyway the amount payable by either my wife or myself ...". This
was clearly a reference to the net sums shown payable by the finality
statements. But if the settlement offer had not been accepted these would not
have been the sums that were payable.
39. By November 1996 Lloyd's were corresponding with Gane Jackson Scott,
accountants acting for Mr and Mrs Twinn. The correspondence was conducted on
the footing that the sum Mr Twinn had to find was the net sum. The accountants
wrote on 15 November saying that Mr Twinn was "making some headway in raising
the necessary finance in France to repay both his and his wife's liability at
Lloyd's". The "liability" referred to was, plainly, the liability to pay the
net sum. By this time, of course, 30 September 1996 had come and gone. But
Lloyd's was evidently prepared for the time being to exercise in Mr Twinn's
favour its discretionary power to extend the time for payment.
40. By January 1997, however, Lloyd's was threatening to commence proceedings
against Mr and Mrs Twinn, and on 17 January Gane Jackson Scott asked Lloyd's to
confirm that the amounts that had to be paid were £51,500 for Mr Twinn and
£50, 000 for Mrs Twinn.
41. On 27 June 1997 Lloyd's wrote to Mr Twinn and, separately, to Mrs Twinn.
Each letter threatened legal proceedings. Each letter enclosed a document
described as a Finality Account. Mr Twinn's Finality Account began with the
net sum shown on his finality statement, £51,583, and, after some
adjustments, added £48,794.44 in respect of interest and £919,134
attributable to "Loss of Settlement Credits", producing an "Amount due" of
£1,018,832.31.
42. Mrs Twinn's Finality Account followed the same lines and showed an "Amount
due" of £624,607.91. It is clear that these Finality Accounts had been
drawn up pursuant to the provisions of paragraph 38 of Appendix 2 of the
Settlement Agreement.
43. The response to these letters was a letter dated 23 July 1997 from Gane
Jackson Scott. The letter said that:-
... when Mr Twinn submitted to you the acceptances of the finality figures
last summer, in his covering letter he made it clear that although both he and
his wife were accepting they were not in a position to make payment and would
need time to pay...".
44. This analysis by Mr Twinn's accountants of the position brought about by
the sending to Lloyd's of the executed acceptance forms and the 23 August 1996
covering letter is inconsistent with that adopted by the judge. It is
consistent only with an intention on Mr Twinn's part to accept the settlement
offer and at the same time to try and negotiate indulgences as to the manner in
which the payment obligations would be met.
45. Despite the terms of the letters from Lloyd's dated 27 June 1997, it is
apparent that Lloyd's were still willing to accept late payment of the net
sums. A letter from Lloyd's to Mr Twinn dated 14 July 1997 said this:-
"The net amount due to finality is therefore the amount of £51,261.99
being the "Finality (cost) after payments" as set out in your Finality
Account. This sum should be paid to Lloyd's within 21 days from the date of
this letter. Failure to pay by the due date will result in you losing your
benefits under the Settlement Offer and Lloyd's will commence recovery
proceedings for the full amount of your underwriting liabilities pursuant to
the terms of the Settlement Agreement, and as detailed at the foot of your
Finality Account".
46. Mr Twinn's response, by a letter to Lloyd's of 31 October 1997, did not say
that he and his wife had not accepted the settlement offer. Instead he said
this:-
"My wife and I accepted the pledges given by you and others for those
appropriate to consider accepting R & R. We were informed that, if we
accepted, assistance would be available but certainly nothing is being done for
those who, although trying to make arrangements to pay, have been unable to pay
under the timetable laid out. What is the point in withdrawing debt credits
when your department is aware that we are struggling to do what we can to make
arrangements to pay ...".
47. It seems to me that in the correspondence running from September 1996 to
October 1997 Mr Twinn was accepting (or Gane Jackson Scott were accepting on
his behalf) that he and his wife had signed and returned to Lloyd's valid
acceptances of the settlement offer. They were, at the same time, trying to
obtain indulgences from Lloyd's as to the manner in which and time at which
they would have to pay the net sums. There is no conceptual reason why an
offeree should not accept an offer but at the same time indicate doubt in his
ability to perform his part of the contract and ask for some indulgence. The
judge seemed to think it would be improbable that an offeree would ever do such
a thing. An offeree who doubted his ability to perform and wanted some
indulgence would be expected to make a counter-offer rather than to accept and
then try and negotiate more favourable terms. It may be that, in general, that
would be a reasonable expectation. But not, in my opinion, in the present
case. The settlement offer, if it were to be accepted, had to be accepted
before the end of August 1996. Strict time limits on acceptance had been
prescribed. Very valuable benefits, namely, the settlement credits, were on
offer. Mr and Mrs Twinn had every reason to want to accept while the offer was
still open for acceptance and then to make the best deal about payment that
they could.
48. The contractual principles of offer and acceptance that have to be applied
to resolve the acceptance issue are not in doubt. An offer must be accepted
unconditionally. A conditional acceptance is not an effective acceptance but
may be a counter-offer which, in turn, may or may not be accepted by the
original offeror. Jacob J., cited a passage from the judgment of Hirst J. in
Lark -v- Outhwaite (1991) 2LCR 132 at 135. The passage is as
follows:-
"The principles are elementary and very well established. The acceptance must
correspond with the offer and must be clear and unqualified and would fail to
take effect if it attempts to vary the terms of the offer or to add new terms.
On the other hand, statements which are not intended to vary the terms of the
offer or to add new terms do not vitiate the acceptance ...".
I respectfully agree that this passage correctly expresses the law.
49. Two situations must be distinguished from one another. An offeree who
purports to accept an offer must accept unconditionally. An acceptance which
adds a new term to the contract is not an unconditional acceptance. But there
is, conceptually at least, no reason why an offeree should not accept an offer
unconditionally and, at the same time, make a collateral offer to the original
offeror. The original offeror may or may not accept the collateral offer but,
whether he does or does not do so, the unconditional acceptance will stand as
having concluded the contract on the terms of the original offer.
50. Mrs Mackenzie-Smith submitted that a purported acceptance which asked for
some form of indulgence to the offeree would only be effective so long as it
was clear that the offeree was prepared to perform even if the indulgence was
not granted. She cited a passage from Chitty on Contracts, 26th Edition, in
support. I have not managed to find the comparable passage in the current
edition, the 28th, but, in any event, I do not think her submission accurately
expresses the law. An acceptance which seeks an indulgence will be effective
if it is clear that the offeree was unconditionally accepting the offer. In a
case where the terms of the offer held out a considerable benefit to the
offeree, the offeree might well want to accept notwithstanding that in some
respect or other he, the offeree, would not be able to perform. Suppose an
offer with a stipulation requiring performance by a specified date. That time
element might or might not be fundamental to the contract. It might or might
not be of the essence of the contract. Why should the offeree not give an
unconditional acceptance but, at the same time, try to agree an extension of
time, warning the offeror that his (the offeree's) performance would anyway
take place later than the specified date?
51. Whether an acceptance is truly unconditional, with the counter-offer being
collateral to the concluded contract, or whether the counter-offer is a
condition of the acceptance is an issue which will depend on the facts of the
particular case. The intended effect of a purported acceptance must be judged
objectively from the language used and the surrounding circumstances.
52. In the present case, the probabilities, having regard to the circumstances
in which the letter of 23 August was written, favour strongly, in my judgment,
the conclusion that Mr and Mrs Twinn's acceptances were unconditional. The
subsequent correspondence supports that conclusion and is inconsistent with the
proposition that Mr and Mrs Twinn were not accepting Names. In my judgment,
therefore, the judge was wrong to allow the appeal from the Registrar. I would
restore the judgment of the Registrar on the acceptance issue.
53. This conclusion makes it necessary for me to deal with Mrs
Mackenzie-Smith's penalty and/or forfeiture arguments.
54. She argued that paragraph 38 of Appendix 2, under which the settlement
credits were lost if the net sum shown due in the finality statement was not
paid by 30 September 1996, was a penalty and, as such, unenforceable. This
contention is, in my judgment, unarguable. A contractual provision the effect
of which is that a debtor who owes, say, £1,000 may discharge his
liability if he pays £500 by a specified date but if he does not do so
must pay the £1,000 is not a penalty provision. If the substance of a
contractual provision is as described it does not matter in the least that the
contractual provision takes a form under which, first, the liability to pay
£1,000 is replaced by a liability to pay £500, second, the £500
is to be paid by a specified date and, third, if the debtor fails to pay the
£500 by that date his liability to pay the £1,000 revives. In
considering whether a provision is a penalty, the law will look to the
substance, not to the form. The substance of the Settlement Agreement is that
the Name is offered a benefit, namely, the settlement credits, as an offset
against his underwriting liabilities, provided he pays the balance by a
specified date. If he does so, he discharges his liability. If he does not do
so, his original liability revives. That is the reverse of a penalty. It is a
conditional benefit. If, of course, the sum specified in the finality
statement as the amount of the Name's underwriting liabilities were an
arbitrary sum, the conclusion might be otherwise. It is clear, however, and
the contrary has not been suggested, that the underwriting liabilities sum
specified in the finality statement was a bona fide calculation of the amount
of the Name's underwriting liabilities to Lloyd's. Whether or not the sum was
agreed by the Name as being correct, it was the result of a genuine attempt by
Lloyd's to quantify the Name's current liabilities. The question of a penalty
simply does not arise.
55. The penalty argument was raised by Lloyd's Names in two cases, Jones
-v- Lloyd's and Standen -v- Lloyd's which were tried together by Rattee
J. He gave a judgment on 16 December 1999 rejecting the argument. The
judgment has not yet been reported but we have been supplied with a transcript.
At page 20 Rattee J., referred to and cited from Thompson -v- Hudson
(1869) 4 H.L.1. The citation included the following passage from the
speech of Lord Westbury, at page. 27:-
"A penalty is a punishment, an infliction, for not doing, or for doing
something; but if a man submits to receive, at a future time and on the default
of his debtor, that which he is now entitled to receive, it is impossible to
understand how that can be regarded as a penalty".
56. Rattee J's conclusion was that:-
"... similar reasoning applied to the Settlement Agreement leads to the
conclusion that the provisions of paragraph 38 of Appendix 2 to the Settlement
Offer Document do not give rise to a penalty. They preserve the Name's
original underwriting liabilities without deduction of, in particular, Debt
Credits in the event of the Name failing to comply with the new settlement
provisions for payment of a lessor sum by a specified date".
I entirely agree.
57. Mrs Mackenzie-Smith suggested, alternatively, that paragraph 38 represented
a forfeiture provision, under which the credits contributed in respect of the
Name by other parties to the Reconstruction and Renewal Agreement became
forfeited in the event of non-payment by the Name by the due date. She
submitted that, in the event that Jacob J's judgment were reversed, Mr and Mrs
Twinn should be granted equitable relief from forfeiture. This point, too, was
argued before Rattee J in Jones -v- Lloyd's and Standen -v-
Lloyd's".
58. Rattee J. accepted the submission made on behalf of Lloyd's that the
doctrine of relief against forfeiture was applicable only where the alleged
forfeiture was of some proprietary interest (page 22 of his judgment). Basing
himself on paragraph 9 of Appendix 2 to the Settlement Agreement which provides
that "... no Name or other person will have an interest of any type in any part
of the Settlement Fund ...". Rattee J. held that the doctrine of relief from
forfeiture could have no application to a Name's loss under paragraph 38 of the
benefit of the Settlement Fund deductions (p. 23).
59. I agree with him. But there are two other reasons in particular why, in my
opinion, forfeiture can have no part to play in a case like this. First, the
structure and financial viability of the Reconstruction and Renewal plan was
based upon the premise that accepting Names would pay their finality bills by
30 September 1996. The benefit of credits from the Settlement Fund was
available to them only if they did so. If a Name fails to do so, nothing is
forfeited. The Name simply does not fulfil the contractual condition upon
which his entitlement to the credits depends. Second, equitable relief from
forfeiture is always on terms that the applicant comply with the contractual
term the breach of which has led to the forfeiture. There has been no tender
by Mr and Mrs Twinn of the net sums that, under the finality statements, were
payable by 30 September 1996. In her skeleton argument dealing with her
forfeiture contention Mrs Mackenzie-Smith said that her clients "are able to
secure for the net amount and have offered to do so". That is not good enough.
Lloyd's were entitled to payment, not to some form of security.
60. In my judgment, neither the penalty nor the forfeiture point, neither of
which was raised before Jacob J., is of any substance. Since, however, we have
given the points full consideration I would propose to allow Mr and Mrs Twinn
to file a respondents' notice raising the points.
61. I have had the advantage of reading in draft the judgment of Lord Justice
Chadwick, I agree with him that the various points raised by, or on behalf of,
Mr and Mrs Twinn in contesting their indebtedness to Lloyd's on which the
bankruptcy petitions were based, ought to have been raised on applications to
set aside the statutory demands. Lord Justice Chadwick has pointed out the
possible difficulties that may follow the re-instalment of the bankruptcy
orders; difficulties that would have been avoided had the challenge to their
indebtedness been raised by Mr and Mrs Twinn in the manner envisaged in the
1986 bankruptcy code, namely, by applying to set aside the statutory
demands.
62. In the event, however, all the points on which Mr and Mrs Twinn rely being
bad points, the appeal must be allowed and the bankruptcy orders against Mr and
Mrs Twinn must be reinstated.
Order: Appeal allowed. Permission to appeal to House of Lords
refused. Costs order as per agreed minute of order.
(Order does not form part of the approved judgment)
© 2000 Crown Copyright
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