Rael Hodes & Anor v Jack Frankel & Ors

A loan agreement may be varied by conduct without a prescribed formality, but the court must identify objective agreement to the revised arrangements as a whole. Acceptance of interim payments or a proposed trust structure does not necessarily evidence agreement that the loan has been discharged.

For estoppel by representation, the representation must be clear, unequivocal, precise and unambiguous. A duty to speak arises only where the circumstances would lead a reasonable person to expect clarification. Estoppel by convention requires a shared assumption, communicated or adopted between the parties, reliance, subsequent mutual dealing and sufficient detriment or unconscionability.

The claimants advanced £650,000 to the first and second defendants under a personal loan agreement intended to bridge an investment in the third defendant company. Repayment was conditional on specified investment agreements being entered into.

The agreements were never fully executed. The defendants relied on subsequent distributions, alleged variation by conduct, discharge by payment or consent, and estoppel. The claimants sought repayment of the loan, while also advancing alternative claims concerning the investment structure.

The central issues were whether the contractual condition had been varied or satisfied by conduct, whether the loan had otherwise been discharged, and whether the claimants were estopped from seeking repayment.

1. Contractual condition and variation. The personal loan agreement contemplated that the loan would be replaced by a company loan, share subscription and related agreements once the defined condition was satisfied. The condition was never satisfied. An agreement to vary could in principle arise by conduct, and no particular formality was required. However, the alleged variation involved substantial changes, including undocumented trusts, the absence of executed shareholders and waterfall agreements, and an unwritten company loan. Objectively, the claimants had not agreed to those revised arrangements as a whole.
2. Payments and discharge. The distributions described as dividends did not establish repayment or consent to discharge. They were received in anticipation of finalising the investment arrangements and were contingent on satisfaction of the original or varied condition. The defences of discharge by payment, consent and conduct therefore failed.
3. Estoppel by representation. Applying the principles summarised in Spliethoff's Bevrachtingskantoor BV v Bank of China Limited [2016] 1 All ER (Comm) 1034, the claimants made no clear or unequivocal representation that the personal loan had been repaid and converted into an investment. Requests concerning the proposed company loan and interest were consistent with efforts to implement or clarify the original arrangements. The alleged duty to speak, considered by reference to Ted Baker Plc v Axa Insurance UK Plc [2017] EWCA Civ 4097, did not arise.
4. Estoppel by convention. The requirements summarised in Republic of India v India Steamship Co Ltd (No 2) [1998] AC 878 and Brierley v Otuo [2022] EWHC 1530 (Ch) were not met. There was no sufficiently shared and communicated assumption that the revised investment arrangements were complete.
5. Judgment was entered for Mr Hodes against Mr Frankel and Mr Dreyfuss jointly and severally for repayment of £650,000, subject to credit for sums received. The relevant shares were legally and beneficially owned by Waterpeak. The company loan agreement never came into effect.