Spring Finance Ltd v HS Real Company LLC

This was a first instance commercial claim for 1.5 million plus interest under a guarantee given by HS Real in respect of amounts due under a Loan Note Instrument. The defendant relied on an alleged oral agreement to defer enforcement for five years and on various estoppel doctrines (promissory estoppel, estoppel by representation and estoppel by convention).

The court found there was no concluded oral agreement to defer enforcement. The Memorandum of Understanding signed on 11 December 2008 was expressly headed "Subject to Contract" and did not create binding obligations. The judge made detailed credibility findings about witnesses and concluded that the defendant had not acted in detrimental reliance such as would establish any form of estoppel. The claim therefore succeeded and judgment was entered for the claimant.

Background and parties: The claimant (Spring Finance Limited) acquired CIF's interest in a Loan Note Instrument under which CIL owed 3 million; 1.5 million remained unpaid and HS Real had guaranteed payment. Spring sued for 1.5 million plus interest after non-payment. HS Real admitted liability arose in August 2008 but defended on the basis that the parties had agreed to defer enforcement for five years or were estopped from enforcing the guarantee for that period.

Nature of the claim / relief sought: Recovery of 1.5 million plus interest under the guarantee; the defendant sought to avoid immediate enforcement by asserting (i) an oral variation or agreement to defer enforcement for five years and (ii) promissory estoppel, estoppel by representation and estoppel by convention.

Procedural posture: The case was tried in the Commercial Court over four days following a rejected summary judgment application. The judge heard viva voce evidence from principal witnesses and received documentary evidence including successive draft MOUs and a final MOU headed "Subject to Contract".

Issues framed by the court:

• Whether the parties reached a binding oral agreement to defer enforcement of the guarantee for five years;
• Whether any estoppel (promissory estoppel, estoppel by representation or estoppel by convention) prevented Spring from enforcing the guarantee during that period;
• Related questions as to the effect of the words "Subject to Contract" and whether an oral variation would be effective despite any written requirement for variation.

Courts reasoning and findings: The judge made extensive credibility findings, preferring the evidence of Springs witnesses (Epstein, J. Margolis and Sher) over that of Halpern. He concluded there was no concluded oral agreement at the meetings relied upon by HS Real. The Final MOU signed by some parties on 11 December 2008 was plainly headed "Subject to Contract" and was not intended to be legally binding. The court considered the limited scope for estoppel in pre-contractual negotiations and found that, even allowing for the subsequent 22 December 2008 email proposing an alternative structure, the defendant had not shown the "very strong case" of obvious and sustained detrimental reliance required to convert a subject-to-contract negotiation into an enforceable obligation. The solicitorsadvice and later Loan Facility Agreement developments demonstrated that the proposed restructuring was explored as an alternative solution rather than as an executed binding waiver. On those facts the estoppel arguments failed.

Subsidiary findings: The judge found HS Real had assets and could have paid if it chose; that Volkomens actions were broadly influenced by Springs representatives; and that there was no practical takeover of control by Volkomen that altered the parties positions in a way that created detriment sufficient for estoppel. The claim was therefore allowed and judgment entered for the claimant.

Judgment for the Claimant. The court found there was no binding oral agreement to defer enforcement and no estoppel (promissory estoppel, estoppel by representation or estoppel by convention) preventing enforcement. The signed MOU was expressly "Subject to Contract" and did not create legal obligations; the defendant had not established the strong, obvious and sustained reliance required to convert subject-to-contract negotiations into an enforceable promise.