Neutral Citation Number: [2008] EWHC 985 (Ch)
Case No: 7118/06
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 08/05/2008

Before :

MR JUSTICE BRIGGS
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Between :

	THE FUNDING CORPORATION BLOCK DISCOUNTING LIMITED	
Claimant	
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	LEXI HOLDINGS PLC (In Administration) 	Defendant	

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Mr Aidan Christie QC and Mr Martin Hutchings (instructed by Seymours, 75 Carter Lane, London EC4V 5EP) for the Claimant
Mr Philip Marshall QC and Mr Andrew Bruce (instructed by DLA Piper UK LLP, 3 Noble Street, London EC2V 7EE) for the Defendant

Hearing date: 30th April 2008
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Judgment

Mr Justice Briggs :
INTRODUCTION

1.	This is an application pursuant to paragraph 43(6)(b) of Schedule B1 to the Insolvency Act 1986 for permission to institute proceedings against Lexi Holdings plc (in administration) (“Lexi”).  The applicant The Funding Corporation Block Discount Limited (“TFC”) claims to be beneficially entitled to a fund in the possession of the Administrators representing the net proceeds of sale in the course of the Administration of certain properties in relation to which, prior to sale, TFC claimed a proprietary interest.  The sales in question took place pursuant to an agreed arrangement pursuant to which TFC’s proprietary claim has, in effect, been converted into a claim in relation to the proceeds of sale.  The fund arises from the sale of some ten properties, and the net proceeds of sale amount to a little more than £3 million.
2.	The claim which TFC seeks permission to pursue is that, by the time Lexi went into Administration on 5th October 2006, TFC was entitled, by virtue of a series of assignments from Lexi, to legal or equitable charges over each of the properties, such that enforcement of its consequential power of sale as mortgagee of each of them, would have entitled it to have received the whole of the net proceeds of sale, free from any claims by Lexi itself or by any other chargee of the properties.
3.	The principles on which the court exercises its discretion whether or not to permit proceedings to be brought against a company in administration are well known.  The leading authority in relation to them is Re Atlantic Computer Systems plc [1992] Ch 505, in which the relevant considerations (in relation to what was then section 11(3) of the Act) are set out in the Judgment of the Court of Appeal at pages 542 to 544.  That case was about permission to enforce a security, and the last of 12 guidelines was expressed by the Court of Appeal as follows:  
“In some cases there will be a dispute over the existence, validity or nature of the security which the applicant is seeking leave to enforce.  It is not for the court on the leave application to seek to adjudicate upon that issue, unless (as in the present case, on the fixed or floating charge point) the issue raises a short point of law which it is convenient to determine without further ado.  Otherwise the court needs to be satisfied only that the applicant has a seriously arguable case.”
4.	In the present case, TFC’s application for permission was in its primary form framed as an application to enforce an alleged security over Lexi’s property.  For reasons which I will explain in due course, it seems to me that TFC’s claim may better be regarded as one based upon an alleged beneficial ownership of property assigned to it by Lexi otherwise than by way merely of security, but in my judgment the “seriously arguable case” test is equally applicable.  Both Mr Christie QC for TFC and Mr Marshall QC for the Administrators eventually agreed, and likened the task before the court to that which would arise in relation to similar proceedings against a company not in administration, where the company made an application for defendant’s summary judgment under CPR Part 24, the test there being whether the claim has a real (rather than fanciful) prospect of success. I shall refer to this as the reality test.
5.	In that context Mr Marshall reminded me of the dictum of Moore-Bick LJ in ICI Chemicals and Polymers Ltd v. TTE Training Ltd [2007] EWCA (Civ) 725, at paragraph 12, as follows: 
“It is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it.  The reason is quite simple: if the respondent’s case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be.  Similarly, if the applicant’s case is bad in law, the sooner that is determined, the better.”
6.	Moore-Bick LJ continued, at paragraph 13:
“In cases where the issue is one of construction the respondent often seeks to persuade the court that the case should go to trial by arguing that in due course evidence may be called that will shed a different light on the document in question.  In my view, however, any such submission should be approached with a degree of caution.  It is the responsibility of the respondent to an application of this kind to place before the court, in the form of a witness statement, whatever evidence he thinks necessary to support his case.  Where it is said that the circumstances in which a document came to be written are relevant to its construction, particularly if they are said to point to a construction which is not that which the document would naturally bear, the respondent must provide sufficient evidence of those circumstances to enable the court to see that if the relevant facts are established at trial they may have a bearing on the outcome.”
As will appear, those observations are of direct relevance to the present case, provided that in the transposition from CPR Part 24 to paragraph 43(6)(b) of Schedule B1 to the Insolvency Act 1986 it is appreciated that for “respondent” (to a Part 24 application) it is necessary to read “applicant” (for permission to proceed).
THE FACTS
7.	Subject to two points, with which I will have to deal in some detail, there is little dispute or even uncertainty as to the relevant facts.  Nonetheless, in order to make intelligible the issue which counsel eventually agreed was decisive of the outcome of this application, it is necessary for me to set out an outline of them.  
8.	Lexi’s business, prior to administration, was the making of bridging loans, usually secured on real property.  By 2004 its source of funds for that purpose consisted mainly, if not entirely, of a syndicated credit facility provided by Barclays Bank, the Bank of Scotland and Lloyds TSB, for which Barclays was both the Agent and Security Trustee.  It was originally granted in November 2001, and subsequently amended and restated in October 2002, July 2003 and April 2004, before a final amendment and restatement dated 27th July 2005.  During the material time the syndicate’s lending was secured by a Deed of Charge dated 2nd April 2004 (“the Deed of Charge”) made between (1) Barclays as Security Trustee and (2) Lexi (then called Pearl Holdings (Europe) Ltd) particulars of which were duly registered at Companies House, in terms which (as was the case) gave due notice that Lexi’s book debts, including its bridging loans and any collateral security given in respect of them, were charged by a first fixed charge in favour of Barclays as Security Trustee.  The Credit Facility Agreement, at least in its form as amended on 27th July 2005 contained, at clauses 21.3 and 21.4, comprehensive provisions prohibiting Lexi from selling, transferring or otherwise disposing of any of its receivables on recourse terms, and from selling or otherwise disposing of any asset worth more than £10,000, without the lending syndicate’s consent, for which purpose, Barclays as Agent had authority pursuant to clause 24.1.2 to give the required consents.
9.	By a facility letter dated 3rd November 2004 (“the Receivables Facility Letter”), countersigned and agreed by Lexi, TFC agreed to offer Lexi a facility in the maximum amount of £5 million by means of the purchase at a discount of Lexi’s interest in loan agreements and associated security rights with its customers, pursuant to a Master Receivables Discounting Agreement (“the Master Agreement”) which was in due course entered into between TFC and Lexi on 1st December 2004.  In bare outline, the effect of the Receivables Facility Letter and the Master Agreement taken together was that Lexi would, from time to time, offer to sell to TFC “Contract Rights” (consisting of its rights under loan agreements with its customers, together with any associated security), and TFC was to be at liberty to purchase such Contract Rights for a maximum of 90% of their face value, payable up front in exchange for an assignment by Lexi of the Contract Rights to TFC.
10.	Clause 7 of the Master Agreement contained an indemnity by Lexi in favour of TFC in relation to any Loss (as defined) incurred in connection with the purchase of the Contract Rights, and clause 8 contained a guarantee by Lexi of payment to TFC by its customers of the Minimum Sum (being 90% of the face value of the rights assigned).  The Master Agreement was, notwithstanding those provisions, structured as an outright sale by Lexi to TFC of the relevant rights, rather than the conferring merely of a security interest, subject to an equity of redemption.
11.	As it happened, Barclays was also TFC’s banker, and TFC’s evidence is that it disclosed drafts of both the Receivables Facility Letter and the Master Agreement to Barclays in advance of concluding its facility agreement with Lexi.  The circumstances in which this disclosure was made is one of the two aspects of the evidence with which it is necessary for me to deal in detail.  
12.	In a witness statement dated 20th November 2007 and made in support of TFC’s application for permission, Mr Stephen Buckley, TFC’s Finance Director at the material time, said this:
“10.	…In fact Barclays were of course more than simply aware of our proposed funding arrangements with TFC, because at my specific request James Sackett of Barclays (who was at that time a Senior Relationship Manager with Barclays) reviewed TFC’s documentation (i.e. the receivables facility letter and Master Receivables Discounting Agreement) before those agreements were entered into.  I understood from my conversations with Mr Sackett that TFC’s draft lending documentation and proposed security was discussed and approved with the team at Barclays which was specifically responsible for Barclays’ credit facility with Lexi.  (The Lexi team were in the same department as Mr Sackett – which department was under the overall management of Mr Peter Richardson.)
11.	In addition Barclays was of course TFC’s own banker.  James Sackett was the manager responsible on behalf of Barclays for TFC’s credit facility with Barclays.  As appears from the extract of TFC’s revolving facility agreement which is at pages 34-35 of SB1, it was a condition of TFC’s credit facility with Barclays that Barclays had to approve any of TFC’s lending facilities over a sum of £5M.  For this reason my recollection is that I sent the draft funding agreements with Lexi twice to Mr Sackett – the second time specifically to get his approval to the proposed Lexi credit facility under the terms of TFC’s own facilities with Barclays.  Again I recall that verbal confirmation of Barclays’ approval was given to me by James Sackett prior to TFC formalising their arrangements with Lexi.
12.	There is absolutely no doubt in my mind that Barclays were thus fully aware of all aspects of our intended facility agreement with Lexi.  Barclays was aware and had copies of the relevant proposed agreements, and understood that the proposed facility concerned short term bridging funding arrangements up to an initial figure of £5M, with security being provided in the form of first legal charges over specific properties.”
13.	Although the Administrators were appointed at the instance of Barclays, Mr Marshall told me that they had not thus far troubled Barclays with this claim, in the sense of seeking evidence or even comment from Barclays in response.  I thereby imply no criticism of the Administrators, whose attitude to this application has been to challenge TFC’s case as failing to pass the reality test, but upon the basis, if it does, that the further litigation of the claim is likely to take place mainly, if not entirely, between TFC and the Barclays led syndicate of lenders, being the only persons with any commercial interest in the relevant fund.  The result is however that this evidence stands thus far unchallenged, and must therefore be assumed to be potentially capable of proof at any trial. It is not suggested that it is inherently incredible.
14.	The evidence does not disclose what due diligence TFC made in relation to the security rights of the Barclays led syndicate over Lexi’s assets, but it is evident that TFC recognised the need to obtain Barclays’ consent before making any purchases pursuant to the Master Agreement of Lexi’s rights as secured lender under bridging loans with its customers.
15.	After a brief negotiation, in which both sides appear to have taken separate legal advice, Barclays executed a Deed of Release on 18th March 2005.  It was expressed to be supplemental to the Deed of Charge, and to be made by Barclays as Security Trustee thereunder.  It recited that Lexi (referred to as “the Mortgagor”) had charged the property described in the schedule and referred to as “the Released Property”, and continued as follows:
“1.  The Security Trustee as Mortgagee hereby surrenders and releases the Released Property to the Mortgagor or (if the Mortgagor should have conveyed the Released Property to a third party on or before the date hereof) to the person to whom the estate or interest of the Mortgagor in the Released Property which was charged by the Charges is now vested freed and discharged from the Charges and all claims and demands thereunder.
2.	If such conveyance by the Mortgagor shall have been completed on the date hereof the Deed shall take effect immediately after the completion of such conveyance.
3.	Nothing herein contained shall prejudice or affect the security of the Security Trustee under the Charges in respect of the remaining property comprised therein or the obligations of the Mortgagor or the rights of the Security Trustee thereunder.
The Schedule Above Referred To
Any bridging loans made after the date hereof by the Mortgagor to third parties which have been financed in full by The Funding Corporation Block Discounting Ltd pursuant to a facility agreement dated on or about the date of this deed of release.”
16.	Beginning in October 2005, TFC then proceeded to purchase Lexi’s purported rights under six purported bridging loans to purported customers, using the procedure set forth in the Master Agreement, for an aggregate purchase price of approximately £4.794 million.  I have used the word purported in that description to reflect the fact that, unknown to TFC at the time, it was thereby drawn into a small part of a massive fraud then being perpetrated by the Managing Director of Lexi, one Shaid Luqman, with the assistance of members of his family, in which the aggregate misappropriations exceeded £50 million, according to a default judgment obtained against Shaid, who is now serving a two year sentence of imprisonment for contempt of court for dishonest breaches of freezing and asset disclosure orders made on the Administrators’ application in those proceedings.  It is common ground before me that both the Barclays led syndicate and TFC are innocent victims of that fraud.
17.	The principal issue on this application is whether TFC has a real prospect of proving at trial that any of the assets purchased from Lexi pursuant to the Master Agreement in relation to the six purported bridging loans to which I have referred constitute Released Property within the meaning of the Deed of Release: i.e. whether they fall within the description in the Schedule to that Deed.  Although the outcome of that issue depends mainly on the true construction of the Deed of Release, it is necessary first to analyze the six purchase transactions in some detail, because they form the subject matter to which the definition of Released Property in the Schedule must be applied.
18.	I deal first with the purchase transactions as they appeared to TFC.  They share a number of common features.  Each of them was initiated by a letter from Lexi in standard form offering to sell the Contract Rights pursuant to the Master Agreement set out in a Listing Schedule appended to the offer letter.  Each schedule identified the essential particulars of a bridging loan offered by Lexi to a named customer, identifying the amount and duration of the loan, and the name of the customer.  The offer letters were accompanied by copies of Lexi’s bridging loan agreements with its relevant customers, signed by both parties and dated.  Those agreements were in standard form and identified the real property offered as mortgage security by the relevant customer to Lexi.  In five of the six cases a single property was offered.  In the sixth, five properties were offered as combined security for a single loan. 
19.	 Each offer letter to TFC was also accompanied by a Certificate of Assignment executed by Lexi in favour of TFC, purporting to assign the Contract Rights referred to in the Listing Schedule, and identifying the proposed purchase price payable by TFC to Lexi, being 90% of the amount of Lexi’s bridging loan to its customer.  Each offer letter stated that if TFC wished to accept the offer it should execute the attached Certificate of Assignment and return a copy to Lexi, and pay the purchase price by CHAPS transfer to Lexi’s solicitors, Howard & Howard.
20.	In each case, although the evidence does not show precisely when, TFC was supplied with Land Registry entries showing Lexi’s customer as the proprietor of the property or properties offered as security.  In one case (the one where five properties were offered for a single bridging loan) the registered owner was a company other than the borrower under the bridging loan agreement, for which the explanation appears to be that the borrower (Tinsett Asset Management Inc) was acting as agent for the real borrower and property owner, Serton International Corporation.
21.	In only two of the six cases Land Registry entries sent to TFC evidenced a first legal charge of the relevant property by Lexi’s customer to Lexi, as contemplated by each of the bridging loan agreements.  It appears that in each of the other four cases, no legal charge by the customer to Lexi was ever executed or registered.
22.	In each case TFC accepted the offer by executing the Certificate of Assignment, returning it to Lexi, and by paying the 90% purchase price to Howard & Howard.  On the face of it therefore, in each case TFC acquired Lexi’s rights as bridging lender to its customer, together with Lexi’s security over the properties named in the bridging loan agreements.  Where no legal mortgages were executed or registered, Lexi’s security appeared to consist of an equitable charge constituted by the customer’s promise to execute a legal mortgage in the relevant bridging loan agreement.  The Administrators advanced no challenge to TFC’s status as a bona fide purchaser from Lexi of the relevant rights.
23.	The following features of the transactions were all unknown to TFC.  First, all of Lexi’s purported customers other than one were companies owned, controlled or associated with Shaid Luqman.  The only exception was the purchase of a bridging loan to Beverley Holden, who was a Lexi employee, and Shaid Luqman’s personal assistant.  None of them were independent third parties, independent that is from Lexi.  None of the bridging loans were, therefore, arm’s length transactions.
24.	Secondly, all the properties offered as security other than, possibly, 23 Whitehart Gardens (offered by Beverley Holden) had been acquired by the relevant associated company customer from Lexi itself, usually selling as mortgagee in possession.  Some of them had been acquired some time earlier than the date of the bridging loan.    In other cases the acquisition was itself simultaneous with, and purportedly funded by, the bridging loan in question.  As a result, each of the associated company customers had only a voidable title to the properties in question, voidable because of Lexi’s right to set aside those transactions pursuant to section 320 of the Companies Act 1985.
25.	Thirdly, it does not appear (and Mr Christie does not suggest that TFC can prove it if it needs to do so) that the money actually paid by TFC to Howard & Howard as the purchase money for the Contract Rights was itself advanced by way of bridging loan to any of Lexi’s purported customers.  For their part, the Administrators accept that the money was all paid into a Lexi bank account by Howard & Howard, but they allege that it was then misappropriated by Shaid Luqman.  The evidence is silent as to whether the customers actually received bridging loans from Lexi, whether in the amounts referred to in the bridging loan agreements or at all.  In the cases where the customer’s purchase of the security property from Lexi was to be funded by the bridging loan, one might not expect to see any actual payment to the customer, since the loan advanced and the purchase price payable would naturally fall to be set off against each other.
26.	The fourth and final element in the fraud is that it is alleged that the transactions were all supported by fraudulent over-valuations of the relevant properties.  To some extent that is proved by the large discrepancy between the aggregate proceeds of the eventual sale of the properties by the Administrators and the aggregate of the valuations in question, but the truth or otherwise of that allegation is not material to the issues which I have to decide.
27.	TFC’s payments pursuant to the six transactions were made in October and November 2005 and in June 2006.  No payments by any of the bridging loan borrowers were ever received by TFC, either directly or, as contemplated by the Master Agreement, via Lexi acting as TFC’s collection agent.  Lexi was, as I have said, placed in administration in October 2006.
28.	It is sufficient for me to describe what has since occurred in bare outline.  In proceedings against Shaid Luqman, his brother Waheed, his father Mohammed, his sisters Monuza and Zaurian, and against a large number of companies associated with the Luqman family, the Administrators have achieved the following outcomes:
(a)	Default judgment against Shaid Luqman for £59 million plus interest.
(b)	Summary judgment against Waheed Luqman for £41 million plus interest.
(c)	Judgment for an account for breach of fiduciary duty as directors of Lexi against Monuza and Zaurian Luqman.
(d)	Judgment in default against all Lexi’s purported customers in the bridging loan transactions in issue, save for Beverley Holden.
(e)	The setting aside pursuant to section 320 of the sales by Lexi to the purported customers (Serton, Halfway Ltd and Charyn International SA) of all the properties purportedly offered as security for the bridging loans, save for 23 Whitehart Gardens, and the registration of Lexi as proprietors of those properties.
(f)	The sale of all the security properties relevant to this application for the aggregate sum which I have described, which now constitutes the fund in issue.
29.	In relation to the setting aside of the Lexi property sales to Serton, Halfway and Charyn, the Administrators did not make TFC a party to the proceedings in which those orders were obtained, or otherwise (so far as I am aware) notify TFC of the applications under section 320, so that TFC remained unaware that the purported customers’ title to the security properties was either voidable, or had been avoided, until after the relevant orders were made.  Furthermore, it was probably incorrect for the Administrators to seek, and for the court to make, orders vesting ownership of those properties in Lexi, merely because of the setting aside of the relevant sales under section 320.  Since most (if not all) of those sales appear to have been made by Lexi as mortgagee in possession, the consequence of setting aside the transactions should have been the restoration of the original mortgagor as proprietor subject to a first charge in favour of Lexi.  That additional complication is not material to the matters which I have to decide and, to date, it does not appear that any of the original mortgagors of those properties to Lexi have made any complaint about what happened.  It appears likely that as first mortgagee Lexi would have been entitled to the whole of the proceeds of the sales which were subsequently arranged by the Administrators, but this is a matter which, pursuant to an order which I made in related proceedings in April 2008, is to be the subject of a report to the court in due course by the Administrators.
ANALYSIS
30.	On the facts which I have described, TFC’s case is that, having received nothing pursuant to the assignment of Lexi’s rights as creditor under the six bridging loans, TFC was entitled to a proprietary interest in relation to each of the security properties, either as the assignee of a legal mortgage originally granted to Lexi (in the case of two of the transactions), or as the assignee of equitable mortgages of the remaining properties, by reason of the relevant borrowers’ contracts to grant legal mortgages to Lexi.  Now that the properties have been sold by the Administrators, under arrangements which included TFC’s consent without prejudice to its proprietary claims, TFC now claims an equivalent proprietary interest in proceeds of sale, sufficient to exhaust the whole of the fund.
31.	The Administrators, through Mr Marshall, challenge that claim on two broad grounds.  The first is that TFC never obtained assignments of rights in relation to any of the properties, or any other valid assignments pursuant to the Master Agreement, because its agreement with Lexi never became unconditional.
32.	The second challenge is that even if TFC received any such rights by way of assignment from Lexi, the Deed of Release was ineffective to release Barclays’ prior charge over Lexi’s interest in all those properties, because none of them fell within the true construction of the Schedule to the Deed of Release.  
33.	For present purposes, my task is not finally to adjudicate on the issues raised by the Administrators’ challenges, but to decide whether either of them are so obviously correct that TFC has no real prospect of establishing its alleged proprietary interest in relation to the security properties, and thus into the fund, at trial.  In short, the question is whether TFC’s claim fails the reality test in the light of the Administrators’ two challenges.  I shall take them in turn, but they are in fact closely related.
34.	The assertion that TFC’s receivables facility with Lexi never became unconditional is based upon paragraph 9 of the Receivables Facility Letter dated 3rd November 2004 which, under the heading “Conditions Precedent” identified six conditions precedent to the coming into force of a contractual facility on the terms of the Master Agreement, the sixth of which was as follows:
“deed of release from Barclays Bank plc in respect of a Deeds (sic) of Charge dated 6th December 2001 and 7th April 2004 (pro-forma to follow)”
35.	Mr Marshall submitted that for reasons set out in detail in relation to the Administrators’ second ground of challenge, the Deed of Release actually executed on 18th March 2005 was ineffective for that purpose, so that a condition precedent to the facility agreement between TFC and Lexi was never satisfied.
36.	In my judgment, that argument comes nowhere near depriving TFC’s claim of a real prospect of success.  First, a deed of release was obtained from Barclays Bank plc in respect of the Deed of Charge.  On the assumption (which is the central question under the Administrators’ second ground of challenge) that the Deed of Release was ineffective for its purpose, it seems to me quite unreal to suppose that, when Lexi thereafter proceeded to offer and TFC to pay the price for six bridging loans in aggregate amounts exceeding £4 million, expressed to be offered and accepted pursuant to the Master Agreement, the parties were proceeding otherwise than on the basis that all relevant conditions precedent had either been satisfied or waived.  In short therefore, this first ground of challenge adds nothing in my judgment to the Administrators’ second ground, to which I now turn.
37.	Mr Marshall submitted that it could be ascertained now, without the need for a trial, that none of the assets, including Lexi’s security rights over the relevant properties, assigned to TFC as part of the six purchase transactions between October 2005 and June 2006 fell within the Schedule to the Deed of Release properly construed, and that the question whether they did or not raised short points of construction which the court could and should resolve now, without the need for a trial.
38.	It will be recalled that the Schedule to the Deed of Release contained the following definition of “the Released Properties”:
“Any bridging loans made after the date hereof by [Lexi] to third parties which have been financed in full by [TFC] pursuant to a facility agreement dated on or about this deed of release.”
Mr Marshall took the following three short points.
(1)	The relevant facility agreement (namely the Master Agreement dated 1st December 2004) was not “on or about” the date of the Deed of Release, namely 18th March 2005.
(2)	None of Lexi’s purported customers under the assigned bridging loans were “third parties” since they were neither independent of Lexi nor parties to arm’s length loan transactions, but rather connected parties engaged in a fraud.
(3)	None of the bridging loans to Lexi’s purported customers were “financed in full” by TFC since: (a) TFC never paid more than 90% of the amount of the bridging loan and (b) TFC’s money was not made available to any of the purported borrowers by way of bridging loan.
39.	Before addressing each of those points in detail, I must record an over-arching submission made by Mr Marshall in relation to the appropriate general approach to the construction of the Deed of Release, as a matter of what he described as commercial common-sense.  Barclays was, by the time the Deed of Release was sought, already beginning to be concerned about the lending syndicate’s exposure to Lexi.  It had received an auditor’s report suggesting an act of dishonesty on Shaid Luqman’s part, and had already decided not to fund further bridging loans by Lexi.  Furthermore, the amendment to the Credit Facility Agreement made on 27th July 2005 contained an obligation on Lexi (at clause 5.4) to use reasonable endeavours to obtain alternative and/or additional financing with another lender, and permitting it to do so without Barclays’ consent “provided that such obligations do not prejudice the security granted pursuant to the Security Documents”.  Whereas it might reasonably be supposed that Barclays would have welcomed the introduction of another lender, whether or not TFC, prepared to commit to 100% of further bridging lending by Lexi, Mr Marshall submitted that it was unreal to suppose that Barclays would have been content to consent to the reduction of its own first charge security in connection with any re-financing of part, rather than the whole of any such further bridging loans, with the unattractive consequence that the balance not so financed would be at the risk of the Barclays syndicate, without corresponding security.
40.	It followed according to Mr Marshall that it should not be assumed that the facility contemplated by the Schedule to the Deed of Release was intended by Barclays to be the 90% facility constituted by the Master Agreement, which provided for only 90% funding of bridging loans, and which had been made more than three months prior to the date of the Deed of Release.  On the contrary, Mr Marshall submitted that, on its face, the Schedule contemplated some later and different facility between TFC and Lexi.
41.	For his part, Mr Christie submitted that if (as now appears to be common ground) Barclays had become concerned about its syndicate’s exposure to Lexi, it was perfectly understandable that Barclays would consent to a 90% financing arrangement, treating the remaining 10% as substantially at risk in any event, in circumstances where, absent further bridging loans, additional real property security would not be forthcoming in any event.  
42.	Furthermore, all Mr Christie’s submissions as to construction were based upon the evidence of Mr Buckley which I have set out in full, to the effect that the Deed of Release was negotiated after disclosure in draft by TFC to Barclays of the precise  90% facility which it was contemplating entering into with Lexi.  Evidence that Barclays knew of the terms of the relevant facility was, Mr Christie submitted, admissible background material for the purposes of construction of the Deed of Release, since it was, in the language of Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR 1381 at 1385, evidence of the genesis or objectively the aim of the transaction constituted by the Deed of Release.
43.	Mr Marshall’s response was, first, to categorise Mr Buckley’s evidence as nothing more than his subjective belief, secondly to submit that it was inadmissible because it constituted evidence of the negotiation of the Deed of Release, and thirdly to suggest that it was in any event insufficiently precise or detailed, because Mr Buckley had failed to exhibit or describe the precise terms of the draft documents recording the facility which were submitted by TFC to Barclays.
44.	I am not persuaded by any of those submissions of Mr Marshall to treat Mr Buckley’s evidence as either inadmissible or irrelevant (within the meaning of Lord Hoffmann’s analysis in BCCI v. Ali [2002] 1 AC 251 at 269, in paragraph 39), for the purposes of construing the Deed of Release.  Mr Buckley’s evidence is that the draft TFC/Lexi facility documentation was shown to Barclays not merely, or even primarily, for the purposes of negotiating a Deed of Release, but because Barclays was also TFC’s banker, and TFC wished Barclays to know about and approve a dealing by TFC with a major customer of the Barclays syndicate.  It is at least well arguable that disclosure of the draft documentation did not constitute part of the negotiation of the Deed of Release so as to render it inadmissible for the purposes of construction. 
45.	Nor am I persuaded that the disclosure of the draft facility documentation is irrelevant to the construction to the Deed of Release.  On the contrary, in the absence of any evidence that the release was negotiated in contemplation of some quite different transaction between TFC and Lexi than the facility reflected in the drafts, and at present there is no such evidence, it seems to me that the disclosure of the drafts to Barclays is, at least arguably, highly relevant to the construction to the Deed of Release, as revealing the genesis and objective aim of the release transaction. 
46.	There is some force in Mr Marshall’s submission that if TFC was to rely upon on it as relevant background, Mr Buckley should have produced or provided sufficient particulars of the form of facility transaction proposed between TFC and Lexi at the time when, on his evidence, drafts of the documentation recording it were sent to Barclays.  But taking the passage from Mr Buckley’s witness statement which I have quoted in full as a whole, it seems to me that, subject of course to the process of disclosure and cross-examination, Mr Buckley is to be taken as asserting that the drafts of the facility documentation were sufficiently similar to the Receivables Facility Letter and Master Agreement as eventually completed for it to be proper for him to say that there was “no doubt in [his] mind that Barclays were thus fully aware of all aspects of our intended facility agreement with Lexi”: (paragraph 12).
47.	I therefore approach the detailed analysis of the points of construction of the Deed of Release raised by the Administrators on the basis that TFC has a real prospect of establishing at trial that, by the time it came to the negotiation of the Deed of Release, Barclays was broadly aware of the terms of the TFC/Lexi facility, as the result of the disclosure of its terms in draft, in the manner described by Mr Buckley.  Although at trial the admissible and relevant background may be shown to be different, I must address those points of construction upon the hypothetical basis that the background described by Mr Buckley may be proved.
48.	In the light of that background, I am not persuaded that there is real substance, let alone decisive consequences, in the point based upon the phrase “facility agreement dated on or about the date of this deed of release”.  If the only facility agreement shown to Barclays prior to the execution by the Deed of Release was the draft described by Mr Buckley, it seems to me that the parties’ use of the phrase “on or about the date of” by no means amounts to a contractual exclusion of the Master Agreement merely because it was executed some three months before the Deed of Release.  It is in my judgment well arguable that the formula was merely a convenient, if sloppy, way of referring to the only facility actually in the contemplation of the parties.
49.	Nor am I persuaded by Mr Marshall’s submission based upon the phrase “third parties”, which he suggested necessarily imported both the concept of independence and the concept of an arm’s length transaction.  It forms part of the larger phrase “bridging loans made after the date hereof of the Mortgagor to third parties …”, in a situation in which there is no reason to suppose that Barclays, still less TFC, had in mind the need specifically to exclude potentially unlawful related party transactions of the type which, unknown to either of them, were in fact the subject of all (or all but one) of the subsequent bridging loans.  Furthermore, the Master Agreement which I must provisionally assume was disclosed to Barclays by TFC in draft had its own definition of “Third Party” as follows:
“Third Party… means with respect to any Agreement, any person who is a hirer, buyer or borrower under such Agreement;”
Within that phrase, “Agreement” means, or at least included, the bridging loan agreements in question.
50.	In my judgment Mr Marshall’s construction, while arguable, would place a due diligence burden upon TFC to investigate the precise circumstances of proposed bridging loans to an unusual and uncommercial extent, in circumstances where neither of the parties to the Deed of Release had any obvious reason to require such due diligence.
51.	Much the most formidable of Mr Marshall’s points was the last one, based upon the phrase “bridging loans … which have been financed in full by …” TFC.  The ordinary meaning of “financed in full” would not be satisfied by some partial level of financing, even by a 90% financing, with the consequence that no bridging loan financed by TFC pursuant to the Master Agreement could by definition have fallen within the terms of the Schedule to the Deed of Release.  This is because the Master Agreement identified the Purchase Price for the Contract Rights by reference to the Receivables Facility Letter, which itself defined the purchase price as “a maximum of 90% of the net Advance”.
52.	If however the Schedule to the Deed of Release is construed in the light of a prior disclosure of the Receivables Facility Letter and Master Agreement in draft to Barclays, the background gives rise at the very least to a real suspicion that the parties cannot have intended the phrase “financed in full” to have its ordinary meaning, since if the Deed of Release was intended to permit transactions under the Master Agreement it would altogether fail in its purpose.  It is a case in which, adopting the words of Lord Hoffmann in ICS v. West Bromwich Building Society [1998] 1 WLR 896 at 913:
“The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words of syntax:”
And later:
“The “rule” that words should be given their “natural and ordinary meaning” reflects the common-sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.”
53.	If “financed in full” in the Schedule means 100% financed, then it seems to me well arguable that something did go wrong with the language on the hypothesis that the aim or objective of the Deed of Release was to enable TFC to purchase bridging loans made by Lexi for 90% of face value.  After all, TFC’s very name implied that its business consisted of financing at a discount.  Mr Christie submitted that in the relevant context, “financed in full” meant financed by TFC alone, rather than in conjunction with some other lender.  In my judgment that alternative (and by no means ordinary) meaning of the phrase is one which might be established at trial, if the background put forward by Mr Buckley’s evidence were proved.
54.	Mr Marshall’s final point was that since TFC’s money was never in fact paid (in any traceable) sense to any of the purported bridging loans customers, TFC did not finance any bridging loans at all.  On the contrary, he submitted that on the available evidence all that TFC financed was a series of fraudulent misappropriations by Mr Luqman.  
55.	Attractively though this argument was presented, I have not been persuaded by it, to the necessary extent.  Leaving aside the question of fraud, which it is not suggested was contemplated either by TFC or Barclays as something needing to be specifically excluded by the definition contained in the Schedule, the point may be tested by asking whether, if TFC’s purchase price was received by Lexi at the same time as it made a bridging loan advance to a customer, but not actually used for that purpose (because it was placed in a different account or applied for some other legitimate purpose of Lexi) Barclays could later argue that the loan had not been financed pursuant to TFC’s facility.  In my judgment a commercial construction of the Deed of Release points away from that conclusion.  It would I think be extraordinary to conclude that TFC only financed a bridging loan if its money was actually used for the purpose of the loan in the sense of being paid direct to Lexi’s borrower or if it was capable of being traced into the hands of Lexi’s borrower.  It would in my judgment be a perfectly normal part of the meaning of “financed” if TFC’s money merely swelled Lexi’s cash-flow at the same time it was correspondingly reduced by a payment from its available resources to its customer.  In that context it is to be borne in mind that the TFC/Lexi facility contemplated the purchase of an existing bridging loan by payment from TFC to Lexi, rather than the purchase of rights including an obligation to make the loan in the first place to Lexi’s customer.  It would I think impose an unusual due diligence burden on TFC to treat the Schedule to the Deed of Release as requiring TFC to do anything more than make its purchase money available to Lexi’s authorised recipient, in the present case its solicitors Howard & Howard.  The internal process of verifying the transmission of the money through Howard & Howard’s client account, and through any number of relevant Lexi bank accounts before transmission to Lexi’s customer would be both extraordinary and, in my judgment impracticable.
56.	It follows that none of the Administrators’ points of construction amount in my judgment individually to grounds for concluding that TFC’s claim fails the reality test.  I have of course asked myself whether nonetheless they do, taken collectively.  Again, I have concluded that TFC’s case still passes the reality test, albeit not necessarily by a large margin.  In reaching that conclusion I am in particular influenced by the fact that, at present, Barclays has neither been approached by the Administrators for its comments on TFC’s case, nor advanced any challenge of its own to TFC of the type now put forward by Mr Marshall on the Administrators’ behalf.  If there was simply no answer to Mr Marshall’s submissions as to the true construction of the Deed of Release, that concern would be of no account.  But for the reasons which I have given, I am not persuaded that the Administrators’ case as to construction is established to the extent which renders TFC’s case fanciful.  On the contrary, on the hypothesis that Mr Buckley’s evidence as to the background may be proved, it seems to me to have a real prospect of success.
57.	I must briefly mention another ground of challenge to TFC’s proprietary claim advanced by the Administrators, albeit not pursued by Mr Marshall with any particular enthusiasm at the hearing.  This is that the effect of the setting aside of the sales to Serton, Halfway and Charyn of the relevant security properties pursuant to section 320 avoids those companies’ title to the security properties, with the consequence that TFC cannot have acquired any proprietary rights at all in relation to them, by a chain which, as a matter of analysis, necessarily starts with a legal or equitable mortgage of those properties by each of those companies to Lexi.
58.	The short answer to this problem is that section 320(2)(b) prevents a transaction being set aside pursuant to section 320 if:
“Any rights acquired bona fide for value without actual notice of the contravention by any person who is not a party to the arrangement or transaction would be affected by its avoidance.”
If TFC had otherwise acquired proprietary rights as a result of the assignments made by Lexi pursuant to the Master Agreement, in relation to any of the properties whose sales by Lexi to Serton, Halfway and Charyn infringed section 320, then those rights ought not to have been adversely affected by the avoidance of those sales.  TFC was not, as I have said, a party to the proceedings by which the Administrators obtained the setting aside of those sales and would, on the face of it, be entitled to have those orders set aside, having been made without regard to TFC’s rights and without prior notice to TFC.  In the present circumstances TFC does not suggest that it is now necessary to reinstate those transactions, with all the attendant complications and inconvenience which that process would entail.  It would be sufficient simply to recognise TFC’s rights as reflected in a claim to the proceeds of the sales achieved by the Administrators.  I agree, and Mr Marshall did not seriously suggest otherwise.
59.	It follows that in my judgment this is a case in which TFC has a real prospect of establishing a proprietary claim in relation to the fund currently held by the Administrators.  It is not suggested that any particular inconvenience or obstruction to the due process of the administration would be entailed by permitting TFC to litigate this claim.  On the contrary, as the Administrators sensibly acknowledge, if it is to be pursued then the real opposing party in interest will be Barclays, or the Barclays-led syndicate.  In particular it is not suggested that Lexi or its unsecured creditors have any realistic commercial interest in the outcome, since the fund is not sufficient to pay TFC in full, and since it appears overwhelmingly likely that there will be a substantial shortfall in the amount available to satisfy the Barclays-led syndicate creditors, however successful the Administrators’ vigorous pursuit of remedies against the Luqman family turns out to be.
60.	I therefore propose to permit TFC to litigate this claim, and will hear submissions as to appropriate case management directions.