TOC Investments Corporation v Beppler & Jacobson Ltd & Ors

A funding agreement must be construed in its contractual and commercial context. An advance by a secondary obligor may indicate an expectation of recourse, but it does not necessarily define an enforceable repayment obligation or its timing. Where the agreement forms part of wider court-ordered and insolvency arrangements, it should be read consistently with those arrangements unless clear words displace them. Subrogation may be available where the funder has discharged the primary obligor’s liability in substance, even though payment passed through an account in the primary obligor’s name. Contractual allocation of risk remains relevant to whether unjust enrichment has occurred.

TOC funded approximately £2.685 million of fees and expenses incurred by provisional liquidators appointed over Beppler & Jacobson Ltd. The funding was governed by an agreement between TOC, the provisional liquidators and the company. A prior court order provided that the provisional liquidators’ fees and costs were to be borne by the company, and the Insolvency Rules provided for payment or reimbursement from the company’s property.

After the petition was dismissed and the provisional liquidation ended, the issue was whether TOC was entitled to recover the sums advanced under the Funding Agreement, the court orders, the Insolvency Rules, or principles of subrogation. TOC also relied, as a last resort, on the principle in Ex parte James.

1. Construction. The word “advance” was ambiguous. In context it indicated that TOC did not intend to make a gift and expected recourse, but it did not itself specify the event or mechanism triggering repayment. The strict requirements for implying terms meant that the Funding Agreement could not be treated as containing the complex deferred repayment term advanced by TOC.
2. The Funding Agreement was not an exclusive, self-standing allocation of the parties’ rights. It had to be read with the court orders and Insolvency Rules 1986. Nothing in the agreement, including the entire agreement clause or the provision for repayment of surplus funds, displaced the obligation that the provisional liquidators’ fees and costs were ultimately to be borne from the company’s assets.
3. The relevant provision of the Newey Order remained effective notwithstanding that TOC was not represented when it was made, and the later Rose Order did not alter the allocation of liability. TOC could enforce the entitlement directly, or, if necessary, Caldero could enforce it on TOC’s behalf.
4. Alternatively, TOC was entitled to subrogation. In substance, it had discharged the company’s liability to the provisional liquidators at the company’s request. The fact that the funds passed through an account in the company’s name did not prevent that analysis. The court should examine substance rather than formal mechanics.
5. The contractual arrangements did not create an inconsistency preventing subrogation. The remedy was therefore available to prevent unjust enrichment. The court did not decide whether the principle in Ex parte James would independently assist TOC, but expressed considerable doubt that it would.
6. TOC was entitled to a declaration confirming reimbursement of the funded Fees under the Funding Agreement together with paragraph 21 of Schedule 1 to the Newey Order and/or Rule 4.30(3). Counsel were invited to agree the precise form of order.

First-instance decision. No appellate history was stated in the judgment.