Rivertrade Ltd v EMG Finance Ltd & Ors

Documents agreed as a contractual package must be read together and, where possible, consistently. Clear provisions directed specifically to a transaction are not displaced by general provisions addressing other repayment arrangements.

An estoppel by convention arises where parties proceed on a communicated common assumption, or one party acquiesces in another’s assumption, and it would be unjust to permit departure after reliance. The estoppel may bind parties to an interpretation which the agreement would not otherwise bear, although it does not create an enforceable right where none previously existed.

A term may be implied where reimbursement represents the parties’ obvious but unexpressed intention, including where expenditure was incurred for their contemplated common benefit and could not reasonably have been intended as a gift.

The respondent lender advanced money to companies in a corporate group. The loan documents purported to give it security over receivables arising from a Malaysian contract, although earlier intra-group assignments meant that the named borrower did not hold the receivables. The lender also financed Malaysian proceedings which recovered the receivables.

Mann J, in [2013] EWHC 3745 (Ch), held that the whole receivable secured the loan. He found that the relevant group companies were estopped by convention from denying the effectiveness of the security. He also held that the lender could reimburse itself from the recovered proceeds for the litigation expenditure.

The appellants challenged the extent and effectiveness of the security, the adequacy of the pleadings supporting the estoppel, and the implied reimbursement terms.

1. Appeal dismissed. Kitchin LJ delivered the judgment, with which Ryder and Moore-Bick LJJ agreed.

2. The four documents constituting the June agreement had been agreed as a package and had to be read together. The facility letter and assignment letter specifically and unequivocally assigned the whole Malaysian receivable as security. References in the other documents to a 35% distribution concerned different loans or the distribution of other transaction proceeds. They did not restrict the security over the receivable. A reasonable person would understand that the whole receivable secured the loan: paras 28–41.

3. The amended pleading, as elaborated in closing submissions, adequately supported estoppel by convention. It alleged the relevant participation, knowledge, expectation, advancement of funds and preclusion from disputing the assignment. Any objection that the submissions departed from the pleading should have been raised at trial. A further amendment would in any event have caused no prejudice: paras 42–45.

4. The formulation of estoppel by convention in Republic of India v India Steamship Co Ltd [1998] AC 878, cited with approval in ING Bank v Ros Roca [2012] 1 WLR 472, was applied. The parties had proceeded on the communicated common assumption that effective security would be granted over the whole receivable. The lender relied on that assumption by continuing to lend and by financing the Malaysian proceedings. It would be unjust to permit any relevant group company to resile from it: paras 47–51.

   The estoppel did not create an enforceable right where none had existed. The relevant companies were parties to an agreement intended to transfer the benefit of the receivable. The estoppel therefore bound them to an interpretation which the agreement would not otherwise have borne: paras 48–50.

5. The agreement contained implied terms requiring the company in whose name the Malaysian proceedings were brought to reimburse the lender for the expenditure and permitting reimbursement from the proceeds. The expenditure benefited the corporate group and could not have been intended as a gift. The terms represented the parties’ obvious but unexpressed intention and satisfied the officious bystander test: paras 52–55.

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 1295, unanimously dismissed the appeal and upheld the material conclusions of Mann J.
2. High Court, Chancery Division: Mann J, in [2013] EWHC 3745 (Ch), held that the whole receivable secured the loan, that estoppel by convention prevented the relevant group companies from denying the effectiveness and priority of that security, and that the lender was entitled to reimbursement of its Malaysian litigation expenditure from the proceeds.