Avonwick Holdings Ltd v Webinvest Ltd and Another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison,Lady Justice Sharp,Lord Justice Burnett
Judgment Date17 Oct 2014
Neutral Citation[2014] EWCA Civ 1436
Docket NumberA3/2014/3297 A3/2014/3300

[2014] EWCA Civ 1436

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE CHANCERY DIVISION

(MR JUSTICE DAVID RICHARDS)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lewison

Lady Justice Sharp

Lord Justice Burnett

A3/2014/3297

A2/2014/3298

A3/2014/3300

Between:
Avonwick Holdings Limited
Claimant/Respondent
and
Webinvest Limited & Anor
Defendant/Appellant

Mr S Berry QC, Mr T SmithQC &Mr H Phillps (instructed by Dechert LLP) appeared on behalf of the Claimant

Mr P Marshall QC & Mr M Morrison (instructed by Fladgate) appeared on behalf of the Defendant

(As Approved)

Lord Justice Lewison
1

The underlying dispute in this action is a claim for money alleged to be due under a loan agreement and a guarantee. The money was lent by Avonwick to Webinvest with the intention that it should be lent on to a third party. The guarantor of the loan, a Mr Shlosberg, who is the moving spirit behind Webinvest says that the arrangement was subject to a collateral oral agreement to the effect that Avonwick will only be entitled to be repaid when Webinvest itself was paid by the third party; but that is hotly disputed.

2

The subject matter of the appeals are (a) an order made by David Richards J holding that certain correspondence marked, "Without prejudice" is admissible in evidence and (b) an order made by Her Honour Judge Walden-Smith relating to disclosure of documents leading up to the settlement of arbitration proceedings between Webinvest and the third party. It is accepted that the settlement agreement itself must be disclosed.

3

The appeals came on with great speed and a judgment is required immediately because the trial is due to start on Monday, which is the next working day after today. That means that this judgment will not contain a scholarly treatise on the law of "without prejudice" but will simply try to explain why I have reached the conclusions that I have.

4

The facts are set out with clarity in the judgment of David Richards J at paragraphs 6 to 7 as follows:

"(6) Interest payments totalling approximately US$9.63 million were made in the period up to April 2012 but Webinvest did not pay the principal and further accrued interest on 17 May 2012. In July 2012 Ms Mutieva sent to Avonwick a proposed loan agreement which would reschedule Webinvest's liabilities by capitalising the principal and outstanding interest, extending the maturity date until 17 May 2013 and reducing the interest rate to 15%. Avonwick was not prepared to accept these terms and required the provision of security. Offers of security were made in November 2012 and information provided regarding the assets which would be the subject of the security. No agreement was reached and there were further discussions between the parties from August 2013 and into 2014. The hiatus in discussions in the first half of 2013 was as a result of Mr Shlosberg's understandable pre-occupation with his son, who was suffering from terminal cancer and died in June 2013.

(7) On 3 April 2014, Avonwick served demands on Webinvest and Mr Shlosberg in accordance with the written terms of the Loan Agreement and the guarantee. These were followed by the service of statutory demands under the Insolvency Act 1986 on Webinvest and Mr Shlosberg. By agreement, the time for compliance with the statutory demands was extended, with the final extension expiring on 30 May 2014. On that day Webinvest issued an application to restrain Avonwick from presenting a winding-up petition and Mr Shlosberg issued an application to set aside the statutory demand served on him. These applications were supported by a witness statement of Mr Shlosberg dated 29 May 2014, in which he alleged that it had been agreed between the parties at the time when the loan was made that the obligation of Webinvest to repay it and accrued interest, and hence his own obligations under the guarantee, were conditional on the receipt by Webinvest of repayments of the loan made by it to the sub-borrower. This has been referred to in the hearing as the "pay when paid" term."

5

The correspondence to which the application relates is again set out in the judgment of David Richards J from paragraphs 10 to 18 as follows:

"(10) The correspondence to which the present application applies began with an email sent on 3 April 2014 by an assistant manager at Pricewaterhouse Coopers in Cyprus on behalf of Avonwick. The email was addressed to Ms Mutieva and was headed "Without Prejudice & Subject to Contract". Draft heads of terms were attached. The covering email stated:

"Please find attached, without prejudice, the Heads of Terms, which set out the primary terms, subject to contract, upon which Avonwick Holdings Limited is willing to agree a restructuring of the obligations of Webinvest Limited and Mr Mikhail Shlosberg under the Loan Agreement and the Guarantee and is based on proposals already made by Mr Mikhail Shlosberg in his capacity as guarantor under the Guarantee as well as in his capacity as ultimate beneficial owner of Webinvest Limited."

(11) The attached Heads of Terms were also marked "Without Prejudice & Subject to Contract". They provided for the provision of security, the repayment of US$40 million by 15 May 2014 to be applied against accrued but unpaid interest, and the extension of the maturity date to 17 May 2015.

(12) The evidence filed on behalf of Avonwick states that its solicitors, Dechert LLP, were involved in drafting these Heads of Terms and it is clear that they have been professionally drafted. The reasonable inference is that the rubric "Without Prejudice & Subject to Contract" was included in the draft by Dechert. Judging by the terms of the covering email, I would think it likely that it too was drafted by Dechert but, whether or not that is so, the use of the same rubric in the email is likely to derive from the draft Heads of Terms provided by Dechert.

(13) On the same day, Pricewaterhouse Coopers on behalf of Avonwick also sent the demand for repayment of the loan, under cover of an email which was also headed "Without Prejudice & Subject to Contract". It is agreed that this was a mistake and that this email is on any basis not without prejudice. Again it is likely that it was included in the email because that is the phrase which Dechert had used in the draft Heads of Terms.

(14) The defendants' solicitors, Fladgate LLP, replied on their behalf in a letter dated 7 April 2014 which was also marked "without prejudice and subject to contract". They wrote:

"We also acknowledge receipt of your without prejudice and subject to contract proposals. Our clients are most grateful for your understanding and readiness to consider an amicable restructuring of the position."

(15) Dechert replied in a letter dated 10 April 2014 marked "Without prejudice & Subject to contract". They wrote:

"If your clients wish to avoid respectively being wound-up and made bankrupt they should now engage with us and our client to determine whether a restructuring of your clients' obligations can be achieved as outlined in the without prejudice heads of terms provided to you on 3 April 2014."

(16) The reply to this letter came from Ms Mutieva in a letter dated 13 April 2014 marked "without prejudice and subject to contract". The letter began:

"We acknowledge receipt of your letter of 10 April 2014 with enclosed copy Statutory Demands. Our solicitors Fladgate LLP will be responding separately in open correspondence in respect of those documents from Webinvest Limited and Mr Shlosberg respectively.

We are responding in this letter to the proposed restructuring of arrangements between Avonwick Holdings Limited and Webinvest Limited. Your letter raises specific questions on which we are answering.

We would like to assure you that we desire to achieve a settlement agreement as soon as possible. Since the overall structure of any settlement is not likely to differ substantially from your proposals, we would invite you to prepare draft documentation for our consideration."

(17) The letter continues by giving details of assets over which security could be given and comments on the draft Heads of Terms.

(18) There was also during April 2014 an exchange of correspondence between Mr Shlosberg and Mr Gayduk. This correspondence was not marked without prejudice but it is common ground that it forms part of the correspondence referred to above and, if that correspondence is to be treated as without prejudice and therefore inadmissible, so also is the correspondence directly between the parties. Mr Shlosberg also sent a more formal request in a letter dated 22 April 2014 marked without prejudice, requesting Mr Gayduk on behalf of Avonwick to extend the term of the statutory demand to 9 May 2014. Revised draft Heads of Terms were prepared on 9 May 2014. It is again agreed that these and a few other documents stand or fall with the main correspondence."

6

The judge took the view that at the time of that correspondence, there was no dispute about Webinvest's liability under the loan agreement or Mr Shlosberg's liability under the guarantee. The allegation of the collateral agreement came later on 30 May 2014. Having examined the underlying correspondence, I agree with the judge's evaluation of the facts. The question then is whether, as Avonwick submits and the judge held, it is a necessary condition for without prejudice privilege to attach to communications expressly marked, "Without prejudice" that there must be a dispute or issue in existence which the parties are trying to resolve; or whether, as Webinvest submits, parties made by agreement extend the without...

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