HT-2023-000016 - [2024] EWHC 1825 (TCC)

Because of the course that these hearings took, there was, in the event, a body of factual evidence as to ProMep’s and the Supervisors’ knowledge and intentions in respect of any claims by ProMep against Henry that were not already the subject of adjudications at the time of the Proposal.

The evidence of Mr Hough, of HQ Law, in his witness statement dated 10 May 2023,was that he was asked by the Supervisors to comment on the “smash and grab” adjudications, that is those brought on the absence of notices. On 2 September 2021, he attended a meeting with Mr Stevens, Mr Baluchi and Ms MacNamara of FRP for that purpose. At the meeting, the “smash and grab” adjudications and enforcement were discussed. Mr Hough also discussed the difficulties of bringing any further claims because ProMep would have to establish that they had been entitled to terminate and would face a claim from Henry that ProMep had wrongfully terminated. His evidence was that it was agreed, which I take to mean that there was a common understanding, that ProMep would not be in a position to make any further claims against Henry while it was in a CVA. Mr Hough pointed to an e-mail from Mr Baluchi following the meeting in which Mr Baluchi asked for “clarity on how legals are being funded in the event that resolution of adjudications goes beyond enforcement” as referring to discussions about further claims, although to my mind it seems more obviously to refer to the disputes that were already the subject of the adjudications.

Mr Hough said that he understood that, in answer to a query from creditors, Ms MacNamara passed a scheduled to creditors showing outstanding balances of over £12 million due to ProMep and he exhibited a copy of the schedule. Ms Stubbs recognised that she could not submit that this schedule had been sent to all creditors but it had certainly been sent to some. The schedule showed (in red) outstanding balances on a list of projects. This column was followed by a column headed “Reason for non-adjudication”. The reasons included “Payless Notice”, “Adjudication Won” and “Payless Notice & offset accepted by adjudicator”. The last column in the schedule gave figures for “Adjudication Win” totalling £683,371.41.

Mr Hough was then asked to attend the creditors’ meeting on 25 October 2021. His evidence was that at the meeting he was specifically asked by creditors whether ProMep would be making any further claims against Henry. His written evidence as to his response included the following:

Mr Hough also addressed an exchange of e-mails in May 2022 during the course of the CVA. On 18 May 2022, Mr Hough wrote to Mr Stevens:

Mr Hough then suggested some wording to make that clear. The e-mail dated 25 May 2022,setout above, was Mr Stevens’ response. Mr Hough’s suggestion was not accepted but Mr Stevens stated his view that clause 8.3 achieved the same effect and recounted solicitors’ advice that the insolvency set-off did not then apply.

In the context of these proceedings, FRP did not make any witness statement. FRP (Mr Stevens) wrote to HQ Law on 28 April 2023 to provide their input and stated that they considered that, as it provided their factual account as officers of the court, their letter should be disclosed to Henry, as indeed it was. At paragraph 7, Mr Stevens said:

Henry’s position was that any evidence of fact served in the Part 8 proceedings was irrelevant to the issue of construction and ProMep’s case in no sense depended on this evidence. I have reached my conclusion as to the construction of the Proposal without reference to this evidence but I refer to it for two reasons.

Firstly, it clearly shows that ProMep and FRP were aware that there might be further claims against Henry in the future. Subjectively, they had no intention that these should be compromised by the operation of the insolvency set-off in the CVA and that was the subjective intention of excluding all other assets from the CVA. That that view was held by the Supervisors is an indication that it was not a commercially unrealistic position in the CVA.

Secondly, and more importantly, the provision of the Schedule to the creditors itself demonstrates that (at least some of) the creditors were made aware that the sums which ProMep said were outstanding on various projects were significantly greater than the amounts which it anticipated recovering as a result of the adjudications which had been pursued or were on foot. This supports Mr Hough’s evidence as what he said at the creditors’ meeting. Objectively, the schedule alone would mean that creditors knew that they were being offered the monies likely to be received quickly and easily even though there were further claims that might be made by ProMep. Those creditors who attended the meeting had that further explained to them. It is improbable that the reasonable creditor with that knowledge would consider the intended effect of the CVA to be that ProMep was foregoing all of those potential claims. Rather it would seem that the purpose of the CVA was to protect ProMep from its creditors by distributing to its creditors the funds that could readily be realised and enabling ProMep to continue trading and possibly pursue further claims, if the funds were available to pursue the claims and if the risk was considered worth taking.

Ms Stubbs also submitted for a further reason on the facts that the evidence demonstrated why a CVA of this nature was not as commercially improbable as Henry sought to suggest:

Ms Stubbs, therefore, submitted that Henry’s claims were dealt with in the CVA, and at full value, as a matter of expediency and there was no lack of commercial sense in ProMep’s claims surviving. Whilst this factual background does support ProMep’s position and subjective intentions, it in no sense involves matters that were known to the creditors generally and it is not, in my view, factual evidence that should be taken into account in construing the terms of the CVA.

For completeness, I would also add that, as a result of the directions given in the Part 8 proceedings, the parties’ positions were pleaded out in the manner of Part 7 proceedings. In its Defence, ProMep referred to the Supervisors’ report filed on 7 October 2021 and averred that in that report the Supervisors informed creditors of the prospect that ProMep would, in the future, engage in further litigation against Henry, the proceedings of which would not be caught as assets within the CVA. Henry denied that the report had been provided to creditors. I cannot, in any case, see any basis on which the report could be construed as saying what is alleged by ProMep. The closest is a passage in section 2 which states that “the Company is not currently in a position to fund further litigation” and that is given as a reason for the proposal that the contributions from adjudications and retentions are to be time limited.

The evidence of fact was also relied on for ProMep’s alternative case that the Supervisors had (i) exercised their discretion under clause 7.3 of the CVA to determine that there was an apparent conflict between clause 8.3 and paragraphs 29 – 31 of the standard terms and/or an ambiguity in and/or lack of clarity in the interplay between these provisions and clauses 8.3; (ii) that on or about 13 June 2022 when they adjudicated upon Henry’s proof of debt they did so without assessing ProMep’s claims, without applying insolvency set-off and with the intention that there would be no impact on ProMep’s claims; and (iii) that in doing so they concluded, again in the exercise of their discretion under rule 7.3, that IR rule 14.25 did not apply. ProMep relied on the e-mail dated 25 May 2022.

This alternative case does not arise but, if it did, I would not have determined this issue in ProMep’s favour. The e-mail of 25 May 2022 expressed a view on the meaning of clause 8.3 and consistent solicitors’ advice on the operation of the set-off. It did not identify a conflict or ambiguity; it did not purport to resolve anything; and, as Henry pointed out, the Supervisors did not report any exercise of discretion.

ProMep submitted that objectively there was an exercise of discretion in that e-mail. FRP were aware that ProMep had substantial claims against Henry (in particular from the schedule) only a small proportion of which were the subject of the “smash and grab” adjudications. It is inherently unlikely that in the period of the CVA, the Supervisors had assessed and adjudicated upon all those claims and they did not claim to have done so. It follows that they must objectively have determined any conflict between clause 8.3 and the standard terms in favour, so to speak, of clause 8.3 even if, subjectively, that was because Mr Stevens did not consider there was a conflict. That submission does not hold water. An exercise of discretion necessarily involves a recognition that there is an issue to be decided and a decision on the issue, exercising the relevant discretion. That was not what the 25 May e-mail said or implied.

FRP’s letter of 28 April 2023 stated expressly that they did not agree with the relevant paragraphs of ProMep’s Defence as to the exercise of their discretion. That letter prompted a letter from Henry’s solicitors, Archor, to FRP posing various questions. Amongst other things, Archor said:

A response to that letter was sent by Addleshaw Goddard (on 15 May 2023) on behalf of the (Former) Supervisors. The letter confirmed that the Supervisors did not consider that they exercised any discretion pursuant to clause 7.3 and that, accordingly, no notification had been given to creditors.

I note that the letter also stated that, during the time when Henry’s claim was considered by the Supervisors, ProMep did not inform the Supervisors of “any ongoing litigation or other claims between them”. I do not regard that as contradicting the evidence given to the effect that the Supervisors were made aware that ProMep might bring claims against Henry in the future as it seems to me to refer to litigation underway or claims being pursued at the time.