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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> JAS Financial Products LLP v ICAP Plc & Anor [2016] EWHC 591 (Comm) (18 March 2016) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2016/591.html Cite as: [2016] EWHC 591 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		18/03/2016

Mr Justice Knowles :

Introduction

1. The Claimant (JAS) is a business which supplies a variety of specialist services to the financial services industry.
2. The First Defendant is a broker. The Second Defendant is its subsidiary. For convenience I will use the term ICAP to mean either Defendant save where it is important to distinguish between the two.
3. It is common ground that in Autumn 2007 Mr Mark Yallop, then Chief Operating Officer at ICAP, contacted a former colleague, Mr Stuart Bray of JAS, to discuss Mr Bray's (in practice JAS's) possible engagement to provide "middle office support" to ICAP in respect of ICAP's Structured Products desk.
4. The desk had recently incurred significant losses. Mr Shaun Miell ran the Structured Products desk, and the losses had been incurred on his "watch". Mr Yallop was not content to leave the desk free to continue as before, and saw "middle office support" from JAS as a means to strengthen what Mr Yallop termed "our second line of defence". In essence this involved ensuring that there was a greater contribution to risk management, legal, operational and compliance.
5. Mr Gary Smith oversaw ICAP's Structured Products business. It is common ground that Mr Bray and Mr Smith discussed the terms on which JAS might provide services to ICAP, and that during those discussions JAS undertook work for ICAP in relation to one particular trade ("the German tax trade").
6. On 3 March 2008 JAS set out a proposal to ICAP in an email addressed by Mr Bray to Mr Smith.
7. It is common ground that there was a meeting on 13 May 2008 between Mr Smith and Mr Miell for ICAP and Mr Bray and Mr Rumit Shah for JAS. The major issue at this trial was whether a legally binding contract was made between ICAP and JAS on 13 May 2008, and specifically at or immediately after that meeting.

Approach

8. As to legal principle, both parties cited the decision of the Supreme Court in RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production) [2010] 1 WLR 753; [2010] UKSC 14. There Lord Clarke, giving the judgment of the Court, said at [45]:

"The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement."

9. Mr Jonathan Adkin QC for JAS also drew attention to the speech of Lord Hoffmann in Carmichael and Another v. National Power Plc [1999] UKHL 47; [1999] 1 WLR 2042. At p 2050D-2051B Lord Hoffmann said:

"On this basis, the ascertainment of the terms of the agreement was a question of fact …. The tribunal took into account the language of the letters … but they also took into account the subsequent conduct of the parties, some of which pointed to employment and some of which did not, and the evidence of both the respondents and Mr. Lovatt for the C.E.G.B. as to what they had understood their respective obligations to be. Ward L.J. said, at p. 1185G that was a mistake. The terms of the contract must be objectively construed. "What they thought they had achieved is of no consequence." Chadwick L.J. likewise said, at p. 1194B, that "the question was not what the parties thought their obligations were." This austere rule would be orthodox doctrine in a case in which the terms of the contract had been reduced to writing. But I do not think that it applies to a case like the present. In a case in which the terms of the contract are based upon conduct and conversations as well as letters, most people would find it very hard to understand why the tribunal should have to disregard the fact that Mr. Lovatt and Mrs. Carmichael both agreed that the C.E.G.B. were under no obligation to provide work and the respondents under no obligation to perform it. It is, I think, pedantic to describe such evidence as mere subjective belief. In the case of a contract which is based partly upon oral exchanges and conduct, a party may have a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief. As the Court of Appeal pointed out, the tribunal did not make any specific findings about what was said at the interviews or on any other occasion. But the terms of the engagement must have been discussed and these conversations must have played a part in forming the views of the parties about what their respective obligations were.

The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration. Evidence of subsequent conduct, which would be inadmissible to construe a purely written contract (see Whitworth Street Estates (Manchester) Ltd. v. James Miller and Partners Ltd. [1970] A.C. 583) may be relevant on similar grounds, namely that it shows what the parties thought they had agreed. It may of course also be admissible for the same purposes as it would be if the contract had been in writing, namely to support an argument that the terms have been varied or enlarged or to found an estoppel."

JAS's position

10. JAS contends that a contract was indeed made on 13 May 2008. Its terms, says JAS, are accurately set out in an email of 16 May 2008 from Mr Bray to Mr Smith. That email contains (save only in respect of commencement date) text that mirrors the text of the 3 March 2008 proposal by email.
11. The text is as follows:

"Gary [Smith],

I have set out below the terms of the JV between ICAP and JAS Financial Products ("JAS") agreed in the meeting with you, Shaun Miell, Rumit Shah and me on Tuesday, May [1]3^[th]. Further to your discussion with Rumit on Wednesday, I am happy to sign whatever additional documents ICAP requires to record this agreement.

1. ICAP and JAS will establish a JV to pursue new lines of business to be agreed. The resulting profit will be split 50/50. JAS and ICAP will each keep all client and trade information confidential. All trades relating to the agreed and new lines of business will be executed in the JV.

2. ICAP and JAS will each continue to work on their existing lines of business outside the JV and retain 100% of the future profit so generated. However, ICAP and JAS may elect to pay market based fees ("Facilitation Fees") to be agreed between them for facilitating each others trades outside the JV.

3. JAS will provide middle office support ("Middle Office Support") between (i) Shaun's business in the front office and (ii) back office controls including tax, legal, accounting, operations and/or any other functions ICAP deems to be relevant to mitigate the risk for the business.

3.1 JAS will assist in obtaining appropriate tax, legal and accounting advice as well as research and facilitate the mitigation of risk in operations and/or other functions as required by ICAP.

3.2 ICAP will provide office space for JAS to facilitate the provision of the Middle Office Support as soon as practical.

3.3 JAS will not, without prior permission from ICAP, enter into trades utilising sensitive market information or technology which JAS will have obtained as a result of the Middle Office Support.

3.4 For the Middle Office Support, ICAP will pay JAS (i) £50 thousand plus Vat monthly and (ii) £2 million of credit for Facilitation Fees ("Facilitation Fee Credits") annually. The Facilitation Fee Credits can be surrendered to ICAP in lieu of cash JAS would otherwise owe to ICAP for ICAP's role in facilitating JAS' trades outside the JV.

3.5 This agreement will be in force for a period of 24 months beginning on June 1, 2008.

I look forward to hearing from you soon.

Best regards

Stuart [Bray]"

12. What is described as a "JV" or joint venture in paragraphs 1 and 2 of the email is not part of JAS's claim. It contends that what was described as a JV was in any event simply a profit share arrangement. In any event, argues JAS (and I accept), an agreement in relation to Middle Office Support was capable of being formed separately.

Evidence and findings at trial

13. Although witness statements had been made by each of Mr Bray, Mr Shah, Mr Miell and Mr Smith, at my request their evidence-in-chief in relation to the meeting on 13 May 2008 was taken orally at the trial. It was then tested in oral cross examination in the normal way. I have still had regard to the witness statements.
14. I have taken careful and individual account, as best I can, of the impact of the considerable passage of time from 2008 to 2016 on the recollections of all witnesses at trial.
15. Of course the passage of time can blur or erode recollection. In addition however, in a case such as the present, where there is a considerable and opposing strength of feeling on the part of individuals on each side, the passage of time can cause the recollection that an individual believes he or she has to be affected by the individual's sense of where the ultimate merits lie.
16. Having heard and read the evidence, and considered the documents and submissions, I set out my key findings in the next paragraphs. I emphasise that I do not set out everything from the trial. Rather, in the next paragraphs I concentrate on the matters that in the present case are, in my judgment, the most material.
17. The meeting on 13 May 2008 had been proposed on 30 April 2008. Mr Yallop was still clear there had to be further oversight of Mr Miell's desk. Mr Smith had reached the point at which he considered Mr Bray suitable for that role.
18. For Mr Smith the purpose of the meeting was now "to push [JAS as] the external adviser upon [Mr Miell's] desk" and foster the beginning of a relationship, primarily and necessarily between Mr Bray and Mr Miell. The proposed involvement of JAS would to some extent be intrusive on freedom previously enjoyed by Mr Miell, and (as the email indicated on 3 March) the involvement contemplated was for as long as two years.
19. Mr Bray recalled that on 30 April 2008 he asked Mr Smith if he was in a position to "agree" then and Mr Smith had answered yes "but for one last step", referring to Mr Smith wanting Mr Miell "to buy into it". Mr Smith accepted that what he was saying was that "the way [he] wanted to move it forward was by … having Shaun meet with Stuart to discuss the proposal".
20. On 13 May 2008 Mr Bray, Mr Shah, Mr Miell and Mr Smith gathered first at ICAP's offices. From there they went on to Corney & Barrow, a wine bar in Broadgate Circle.
21. There, Mr Smith took out a copy of the 3 March 2008 email and went through it with the others, point by point. Apart from the date at which 24 months duration would expire, no change was made to what was written in the 3 March 2008 email. Handshakes followed. Mr Bray said at one point in his evidence that it "was very clear we had accomplished something". I accept that, but the key question remains the question of what had been accomplished.
22. The group of four left Corney & Barrow and started to head back to ICAP's offices.
23. Mr Miell characterised the meeting they had just had as "just a high level meeting", with an email "with some ideas on", and a meeting at which "we were chewing the fat". I did not regard this evidence as reliable. It was clear to me that Mr Miell had never had any enthusiasm for the engagement of Mr Bray, or perhaps anyone else, to provide Middle Office Support and that was colouring his evidence. Mr Smith recalled that it did not go down well with Mr Miell when Mr Bray said he wanted to sit with Mr Miell on the desk itself.
24. Mr Bray, Mr Smith and Mr Shah recall Mr Bray saying on 13 May 2008 that the parties were "done" or words along those lines. Understandably given the area of business they were each in, each regarded the word "done" as significant, and as bearing on the subject of whether a binding agreement had been reached. There was a considerable difference between them as to what happened once the word was used.
25. Mr Bray's evidence is that this word was accepted. Mr Shah's evidence is that the handshakes followed the use of the word, but generally I was not persuaded his recollection of events that day is reliable. Mr Smith's evidence is that he was not happy to hear the word and he challenged it. He said things had next to go to "Duncan" (Mr Duncan Wales, then General Counsel EMEA and Asia Pacific at ICAP) or to lawyers.
26. Generally, and specifically on this crucial point, I found Mr Smith's evidence the more reliable. Like all witnesses in this case his memory was affected by the severe lapse of time, but I accept his evidence in preference to that of Mr Bray and Mr Shah. I am quite sure that he did not allow the word "done" to pass unchallenged.
27. I am also quite sure that his challenge made it clear to all, and would make it clear to an objective observer, that although all points had now been agreed in the sense that no issues remained outstanding, the stage of a legally binding agreement had not been reached and until that point the parties were not bound to each other for the next 24 months. Another way of putting things is that agreed non-binding heads of terms had been achieved, but the parties had not yet entered into a binding legal agreement.
28. As the group headed back from Corney & Barrow to ICAP's offices Mr Bray recalls that he volunteered that Mr Shah would make a record, and this was thought a good idea. I accept that evidence but I do not accept that Mr Bray's recollection is accurate where he suggests that the record to be made by Mr Shah would be of "the fact that we had reached agreement". In the event Mr Shah did not make a record, and instead Mr Bray sent the email of 16 May 2008.
29. Mr Adkin QC referred back to 30 April 2008 to emphasise that Mr Smith had then said there was "one last thing" to be done (i.e. Mr Miell) not two (i.e. Mr Miell and Mr Wales). That is correct, but these two things are of a different nature. Mr Miell was the final hurdle to the possibility of an agreement, but then there was the question of how a binding legal agreement would be framed and entered into.
30. At no stage in my view did the parties contemplate, or appear to contemplate, that a legally binding agreement would be entered into orally. Reference was made at trial to trades in ICAP's area of business being concluded orally. This was not such a trade. It was a proposed 24 month hiring of services to enhance oversight and control risk.
31. And at no point did the parties enter into an agreement in writing. Even if the terms of the 3 March 2008 and the 16 May 2008 emails were capable of acceptance, by, for example, an email in response or by signatures applied on 13 May 2008 to the 3 March 2008, so as to create a legally binding contract, they were not so accepted. The parties might not have contemplated elaborate documentation, but in the email of 3 March 2008 a confirmatory reply was the minimum contemplated by Mr Bray.
32. Mr Bray acknowledged by witness statement that Mr Smith had said there should be some "paper". In the email of 16 May 2008 Mr Bray contemplated additional documents being signed. He then used the term "to record this agreement" but that does not persuade me that there was already a binding agreement and it simply needed a written record. In an email of 23 May 2008 he used the term "for this agreement". In a telling exchange in cross examination by Mr Guy Morpuss QC for ICAP Mr Bray was asked why he later had spoken of trying to "market" to Mr Wales if there was already a binding legal agreement: Mr Bray did not have a convincing answer.
33. A suggestion of celebratory drinks was raised on 13 May 2008 and, on Mr Bray's evidence, all agreed that these should be set up some time later. I do not consider this evidence, which I accept, takes matters further. There was something to be celebrated - an agreement in principle would be a fair description - but that did not mean that the stage of a legally binding agreement had been reached.

Conclusion

34. In my judgment no legally binding contract was made between ICAP and JAS on 13 May 2008, and specifically at or immediately after the meeting that day.
35. I have some sympathy for Mr Bray's position. His ability to do this work is not in question: Mr Yallop's evidence showed that Mr Bray had a lot to offer. Shortly after 13 May 2008 ICAP changed its mind about this area of business, and ICAP chose not to proceed to conclude a legally binding contract with JAS. Mr Bray's time and goodwill were consumed and ultimately wasted by ICAP. But that is the chance he took, and the business stakes were high.
36. The reality is that the transaction was not closed. My assessment is that over time, as he has thought about events about which he feels very strongly, details have appeared more developed and specific to Mr Bray than they in fact were.
37. In a supplementary written submission following provision to the parties of a draft of this judgment, Mr Adkin QC invited me to consider further an argument he had made in closing that a binding legal agreement had been concluded at the stage on 13 May 2008 described at paragraph 21 above, whatever may have happened after that on 13 May 2008. I respond to that invitation because JAS is entitled to clarity that there is not a loose end. Given what happened on 13 May 2008 I do not see it as realistic in the present case to treat parts of the events of that day in isolation from others. But even if one did, the point at paragraph 30 above would, for example, have to be included and is, with respect, fatal to Mr Adkins' argument. And whatever approach is taken, I wish to make clear that in my judgment the objective view of what had been "accomplished" by the point on 13 May 2008 when handshakes followed the review of the 3 March 2008 email was not a legally binding agreement, but agreed non-binding heads of terms or an agreement in principle.

Other matters

38. ICAP also argued that Mr Smith did not have authority to conclude a legally binding agreement. This issue is ultimately not material, but had it been, my conclusion would have been that he did, in the circumstances of the case.
39. Another argument advanced by ICAP was that an agreement with the limited detail of the Middle Office Support part of the email of 3 March or 16 May would not have been sufficiently certain for a legally binding agreement. I was not persuaded by this argument. The absence of further detail might have been unwise, but there would have been enough to hold the parties to their bargain had they made (which in my judgment they did not) a legally enforceable bargain.
40. It is then common ground that JAS rendered invoices to ICAP for fees of £50,000 (and VAT) per month for each of June, July and August 2008. ICAP paid the June invoice, but says it did so as a goodwill gesture in recognition of the work done by JAS in relation to the German trade. ICAP paid the July invoice, but provides evidence that it did so by mistake.
41. I accept that the first was paid as goodwill and the second by mistake. The second is repayable to ICAP: an argument on change of position was not made out, in my judgment, on the evidence. A payment by ICAP in relation to the August invoice was successfully recalled by ICAP through the banking system.