Case No: A2/2011/0107
Neutral Citation Number: [2011] EWCA Civ 1544
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
MR JUSTICE BRIGGS
[2010] EWHC 2914 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21 December 2011
Before:

LORD JUSTICE LLOYD
LORD JUSTICE PATTEN
and
LORD JUSTICE TOMLINSON
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Between:

	IN THE MATTER OF LEHMAN BROTHERS INTERNATIONAL (EUROPE) 
(in administration)

(1) STEVEN ANTHONY PEARSON (2) ANTHONY VICTOR LOMAS (3) MICHAEL JOHN ANDREW JERVIS (4) DAN YORAM SCHWARZMANN 
(5) DEREK ANTHONY HOWELL (joint administrators of Lehman Brothers International (Europe) 
in administration)	

Respondents	
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	LEHMAN BROTHERS FINANCE S.A.	Appellant	

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Gabriel Moss Q.C. and William Willson (instructed by Herbert Smith LLP) for the Appellant
Iain Milligan Q.C. and Daniel Bayfield (instructed by Linklaters LLP) for the Respondents

Hearing dates: 11 to 13 October 2011
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Judgment
Lord Justice Lloyd: 
Introduction
1.	This appeal is against a decision of Mr Justice Briggs in a judgment handed down on 19 November 2010: [2010] EWHC 2914 (Ch).  In the sequence of decisions arising from the collapse of the Lehman Brothers group, it is known as Rascals, for reasons that will become clear.  The judge had to decide the issue in question as between the joint administrators of Lehman Brothers International (Europe) (LBIE) on the one hand and each of several affiliates in the Lehman Brothers group on the other.  His decision was in favour of LBIE in each case.  Two of the affiliates did not appeal.  Two which did appeal settled their appeals with the administrators shortly before the hearing.  We were therefore left with one appellant, Lehman Brothers Finance S.A. (LBF), and a Respondent’s Notice by way of cross-appeal on the part of the administrators.
2.	The hearing before the judge took the best part of three weeks, and involved contested oral evidence.  He had to resolve similar issues on different facts as between LBIE and different affiliates.  He recorded at paragraph 110 of his judgment that, as Mr Milligan Q.C. for LBIE had put it to him in opening, the nature of the parties’ dealings was such as to give him the task of making the best sense of what was in some respects a mess.
3.	As will appear, I agree with the result of the judge’s decision in almost all respects, though not with all of his reasoning.  I would pay tribute to his masterly and clear exposition of the facts and the issues, which makes it possible for me to set out the relevant facts the more briefly.  Our task has been more limited, in that we have not had to concern ourselves with any appellant other than LBF.  The issues arising on LBF’s appeal and the Respondent’s Notice are, however, quite difficult enough.  I am grateful to Mr Milligan and Mr Bayfield, for LBIE, and to Mr Moss Q.C. and Mr Willson for LBF, whose well deployed written submissions and focussed oral arguments enabled us to grapple with the various issues arising in a hearing which was completed within 3 days.
The background to the dispute
4.	The dispute is about beneficial ownership, as between LBIE and LBF, of securities which LBIE had acquired from third parties (“the street”) for the account of LBF before the collapse of the group and which, so far as the outside world is concerned, remained and remain vested in LBIE.  The securities include both fixed income and equity assets, the vast bulk of them being in dematerialised form.  These are not represented by certificates, but rather by a chose in action represented by a credit in LBIE’s account (a “depot”) with a clearing house (usually Euroclear), depositary or custodian (collectively “depositaries”).  A small minority of the securities were represented by certificates, which might be either registered or bearer.  In each of these cases legal title was usually vested in a nominee, which may be regarded as a depositary for these purposes.
5.	LBIE acquired all the relevant securities in the course of a global settlement practice which had been a feature of the Lehman Brothers group’s worldwide operations since the 1990’s.  The group’s securities business was by then worldwide in scale and nature, operating in different markets and time zones, above all Europe, the USA and the Far East.  Under its global settlements practice the group identified one group company, known as a hub company, in each main time zone into which all securities acquired in that time zone were settled on acquisition and from which in turn such securities were transferred on eventual sale to the street.  LBIE was the hub company for securities bought and sold in Europe.  As such, securities bought in Europe were acquired in its name, whether the acquisition was for its own account or for that of an affiliate, situated anywhere in the world.  Thus, its entitlement to the securities, as against the depositary, was neutral as to whether the economic risks and rewards of ownership, as regards capital and income, were for its own benefit, where it bought as principal, or for that of an affiliate (or possibly for a non-affiliate client), where it bought as agent or broker.  The securities with which it dealt included both those bought as part of a trading strategy to yield profits directly and also those bought or sold so as to hedge the risks arising from a derivatives business.
6.	The group thus held securities between acquisition and eventual re-sale to the street.  It developed a policy of using these securities to raise finance for the group by lending them to the street in the meantime.  This short-term operation was also conducted by the relevant hub company, in this case LBIE.  Whereas LBIE accounted to the relevant affiliate for any capital benefit on the eventual resale of the securities, and for any income received, it did not account to the affiliate for the benefit obtained by this short-term use of the securities.
7.	The extensive use of hub companies in this way had many benefits for the group in terms of efficiency and economy.  However the scale and nature of the operation were perceived to pose potential problems for the hub company, particularly in terms of the requirements of the relevant local regulators.  The most acute of these, as perceived, lay with requirements of capital adequacy.  These requirements, then as now imposed on undertakings carrying on various forms of financial business which involve risks of over-exposure, among them investment businesses of various kinds, include an obligation for the undertaking to hold minimum levels of capital which is either equity or subordinated to ordinary debt, the amounts to be held depending on the extent of the undertaking’s exposure to various different risks.  This is referred to as a regulatory capital charge.  If the undertaking is owed substantial unsecured debts, the capital charge is higher than if the same debts are secured, and the charge may also differ according to how a debt is secured.  For this reason if LBIE paid the acquisition price on settlement for securities from the street, and had the benefit of only an unsecured debt from the affiliate for which it had bought them, it would face a much higher regulatory capital charge than if it were secured for the debt due from the affiliate.  In this context “secured” does not necessarily refer to a formal security such as a charge or pledge; if the creditor company held the beneficial as well as the legal title to the relevant asset the debt counted as secured.
8.	For this reason the extent of the operations of LBIE of this nature was seen as presenting a risk that LBIE would be exposed to a substantial regulatory capital charge, which could be as much as 100% of the unsecured debt.  The same was true of the US hub company, Lehman Brothers Inc.  This problem was identified within the group in the early 1990’s, together with two others.  One of these was that the hub company might be required to segregate securities acquired for the account of third parties (including affiliates) rather than, as was the group’s practice, to hold all securities acquired whether for itself or for affiliates in unsegregated house accounts.  The other was the need to ensure that, in order to be able to enter into effective transactions to raise finance on a short-term basis, the hub company had the absolute and unencumbered title which a transaction with the street would require, and that there was no risk that the title lay with the affiliate.
9.	The perception that the group’s practice as regards global settlements faced, or might face, these three problems led to a project being undertaken by a working party in order to find a solution.  This project was known as Regulation and Administration of Safe Custody and Global Settlement, or Rascals for short.  The same label was attached to the processes devised by the working party, adopted by the group and implemented from 1996 continuously until the collapse of the group.  The judge summarised the Rascals processes as sharing certain common features, in his paragraph 11, as follows:
“(i)	They were applied to large classes of securities acquired by LBIE, acting as hub company, for the account of affiliates.
(ii)	In each case the affiliate purported to confer upon LBIE its proprietary interest (if any) in the underlying security in exchange for monetary consideration in the form of a purchase price or the deposit of monetary collateral, leaving the affiliate with a contractual right against LBIE to recover its proprietary interest in equivalent securities, again for monetary consideration, at a future date.
(iii)	The commercial intent (albeit not contractual obligation) of the processes was usually that they should apply for the whole or substantially the whole of the period between the acquisition of the security from the street by LBIE and its eventual re-sale to the street.
(iv)	The intended effect of the processes (whether or not successful) was to replace an unsecured obligation by the affiliate to refund LBIE the purchase price for the acquisition of the security from the street with a secured obligation of the affiliate to pay for its re-acquisition from LBIE of an equivalent security under the Rascals processes, whether by paying the repurchase price under the off-leg of a repo [i.e. a sale and repurchase contract] or paying back the collateral lodged during the currency of a stock loan (repos and stock loans being the two types [of] transaction alternatively used by all the Rascals processes).”
10.	The Rascals process, as used between LBIE and LBF, took two different forms.  In some cases it was dealt with automatically; in the others it was processed manually.  Automatic Rascals applied to fixed-income securities, whereas the manual version was applied to equities.  The judge noted at paragraph 165 that because most of LBF’s business was in equity-based derivative transactions, most of LBIE’s acquisitions for LBF were of equities, so that most of the Rascals transactions as between LBIE and LBF were of the manual kind.  For convenience of exposition he dealt with automatic Rascals cases first, and I will follow his example. 
11.	Automatic Rascals, once initiated in respect of particular securities, was fully computerised and proceeded without human intervention unless and until the securities were sold back to the street.  I gratefully adopt the judge’s summary explanation of this process, as set out in paragraphs 13 to 18 of his judgment:
“13.	On the day of the settlement of LBIE’s acquisition of the security from the street, LBIE and the affiliate entered into a repo contract, providing for the immediate sale of the security by the affiliate to LBIE for a fixed price in fact equivalent to its value that day (“the on-leg”), followed by a sale back of an equivalent security by LBIE to the affiliate on the following day at the same price plus an interest charge or fee (“the off-leg”), with LBIE having the right of use of the security in the meantime.
14.	On the following day LBIE and the affiliate would enter into a replacement repo, in all respects identical to the first, save that the price would be fixed by reference to the marked to market value of the security on that day.  This process would then be repeated on every subsequent day of the period during which the security (or its equivalent) was held, until and including the day before the settlement of the eventual sale of the security back to the street.  Thus, the settlement of that sale would coincide with the off-leg of the last in the series of computer-generated repo transactions between LBIE and the affiliate.
15.	Pursuant to master agreements between LBIE and each of its relevant affiliates, the repo transactions under Automatic Rascals were on industry standard terms, pursuant to which title to the underlying security was not to pass either under the on-leg or the off-leg of the repo until payment.  … 
16.	It was not the intention of the designers of Automatic Rascals that the purchases and re-purchases constituted by the on and off-legs should be cash settled.  Rather, payment and repayment was intended to be achieved, in form by what I shall loosely call book entries, but in substance by a series of successive offsets.  Thus, the affiliate’s debt to LBIE for the acquisition price of the security from the street was largely offset by LBIE’s debt to the affiliate on the on-leg of the first repo.  The affiliate’s debt to LBIE under the off-leg of the first repo was in turn largely offset by LBIE’s debt to the affiliate on the on-leg of the second repo.  These offsets continued until the settlement of the sale of the security to the street, whereupon the affiliate’s debt on the off-leg of the last repo was largely offset by LBIE’s obligation to account to the affiliate for the proceeds of the sale of the security back to the street.
17.	I have throughout that summary used the phrase “largely offset” to reflect the fact that the cross debts were not necessarily, or even usually, identical.  Differences would arise from the constantly changing value of the underlying security, and the fixing of the repo prices by reference to its marked to market value from time to time.  Thus for example, a rise in the value of the security between the trade date and the settlement date of the acquisition from the street would mean that LBIE’s debt on the first on-leg would exceed the affiliate’s debt in relation to the purchase price, and vice versa.  Similar changes were caused by marked to market movements during the series of daily repos, and by any disparity between the sale price of the security on the trade date, and its marked to market value on the settlement date, back to the street.  Other differences would arise from fees and interest charges arising under the repos being added to the amounts payable.
18.	I have in the same phrase used “offset” rather than set-off to record the fact that, in the parties’ accounting records, the nearly equal but opposite credits and debits between LBIE and each affiliate were not immediately cancelled by journals and replaced by a net balance.  I shall describe in due course how the opposing entries were in due course dealt with. …”
12.	The Automatic Rascals process applied to any securities which, when purchased, were treated as eligible for Rascals.  Securities which were not in that category might be dealt with in somewhat the same way, but rather more ad hoc, and by individual manual operation.  This was known as Manual Rascals.  The process was mainly used in relation to equities and involved open-ended stock loans rather than overnight repos.  The judge said of this process, at paragraphs 19 and 20:
“19.	… They provided for transfer by the affiliate of its title to the security back to LBIE in exchange for monetary collateral, with a right in the affiliate to reacquire title to an equivalent security upon payment of the collateral back to LBIE, with small adjustments for a stock loan fee and/or an interest charge in relation to the collateral and provision for margining adjustments to the collateral during the life of the stock loan, to reflect changes in the marked to market value of the security.  Manual Rascals therefore required no daily repetition of transactions between acquisition and resale of the security from and to the street.  Furthermore, the evidence does not enable it to be said with confidence that Manual Rascals was invariably or even usually applied to a security on the day of the settlement of its acquisition from the street.
20.	As with Automatic Rascals, it was not envisaged by the designers of the process that cash collateral would actually be delivered by LBIE on the making of the stock loan, or physically redelivered by the affiliate upon its termination.  Rather, payment was, again, to be recorded in book entries, but achieved by offset.  LBIE’s obligation to lodge collateral was intended to be achieved by an offset against the affiliate’s debt for the price of the acquisition from the street.  Similarly, the affiliate’s obligation to repay collateral at the end of the stock loan was to be offset against LBIE’s obligation to account for the proceeds of the sale of the security to the street.  Again, these offsets were not precise, due to movements in the value of the underlying security by reference to which the collateral was calculated, between the original trade date for the acquisition and the settlement of the sale, in each case with the street.”
13.	As the judge pointed out, reference to securities held by LBIE must be understood as referring to the title which LBIE held as against the relevant depositary.  As against the outside world, LBIE remained the holder throughout, and the Rascals process was entirely internal to the group.  Its consequences, or at least its perceived consequences, were reflected in the regulatory reporting of those companies within the group which were regulated, and in the published accounts of the relevant members of the group.
14.	The Automatic Rascals process continued to operate in relation to any given holding of securities, absent human intervention by way of a sale of the securities to the street.  When the group collapsed on 15 September 2008, nothing was done to stop the process in practice until 23 September, though LBF gave a notice on 16 September which, it contends, brought the process to an end as at that time.  According to the book entries generated by the system, the final off-leg on 23 September was settled by LBF, but it is common ground that no real money changed hands at that stage, any more than at any other stage of the Rascals process.  So far as securities subject to the Manual Rascals process are concerned, the transactions being open-ended and requiring manual operation, nothing happened to the relevant holdings of securities after 15 September 2008.
15.	The issue in the proceedings as between LBIE and LBF is which of the two companies has the beneficial title to the securities held (as against the street) by LBIE on 15 September 2008.  These were whatever was left of those which had been acquired for LBF and not yet sold back to the street, and which had not been sold by way of repo or lent to the street by LBIE and not yet bought back or returned.  Because LBIE was insolvent it was unable to recover such securities, not being able to pay the repurchase price under a repo or to return the collateral under a stock loan.  We do not know the size or volume of the securities at stake, but it is no doubt potentially very substantial, such as to justify this heavy litigation.
16.	As I say, the Rascals process was internal to the group, and while the group was trading it did not matter to anyone else, save that it enabled LBIE to present itself to its regulator in a way which required less rather than more capital by way of capital adequacy compliance.  The Rascals transactions were in one sense unreal or artificial.  No money passed either way.  According to LBIE, even if (contrary to its primary contention) title ever moved to the affiliate at all, it came back to LBIE at once under the first repo and stayed with LBIE continuously until a sale to the street.  The succession of repos, day by day, in effect refixed the price of the securities within the group, so as to avoid margin calls, but did nothing else.  According to LBF, the title came to it on the initial purchase, but it bounced between LBIE and the affiliate every day under the succession of repos, resting with LBIE overnight but with LBF for part of each day.  Real money was paid at the outset, on acquisition from the street.  Real money would be received on an eventual sale to the street.  In the meantime everything was dealt with by book entries.
17.	While the group was solvent and trading this did not matter.  Once insolvency supervened, it came to matter greatly, because the different group companies have different creditors.  It is therefore necessary to consider the effect of the transactions and dealings between the parties on a strict basis, recognising the different position and interests of the different corporate entities, while also recognising that the transactions and other dealings were undertaken in the course and context of group operations undertaken, broadly speaking, for the benefit of the entire group.  The judge said this at paragraphs 49 and 50 of his judgment:
“49.	The Group sought to present itself to the world, and to organise itself internally, as a single integrated business enterprise, rather than as a collection of separate legal entities all pursuing their own affairs in isolation from each other.  Nor were its separate legal entities confined to trading only in their countries of incorporation.  Many of them, including all but one of the parties to this application, carried on business activities on a global rather than merely national or regional basis.
50.	Nonetheless, the tendency of financial services regulation to operate on national lines, the differences in national fiscal systems and the requirements of those dealing with the Group as clients, customers or trading counterparties meant that, for numerous purposes, the identity of Group companies as separate legal entities with principal places of business in particular jurisdictions was of unavoidable importance, both as a matter of internal organisation and external dealings.”
18.	The ultimate parent company of the group was Lehman Brothers Holdings Inc. (LBHI), a Delaware corporation with headquarters in New York.  It provided a treasury function, including day to day cash management across the entire group.  It is a party to one of the agreements relevant to this appeal.  It commenced proceedings under Chapter 11 of Title 11 of the US Bankruptcy Code on 15 September 2008.
19.	LBIE, an unlimited company incorporated in England, was the group’s hub company in Europe and thus the principal trading company in Europe.  It traded in securities for its own account, for affiliates and for its own external clients.  It maintained depot accounts with depositaries, including Euroclear; these accounts included house accounts and segregated accounts.  All trades for affiliates, as well as those on its own account, were settled into house accounts.  It went into administration on 15 September 2008.
20.	LBF is a Swiss company whose core business was to enter into over the counter equity derivative transactions, either directly with the street or via other group companies on a back to back basis.  It carried on half of the group’s business of that kind by 2008.  However, it was a small organisation as such, with only three directors, all of them non-executive, and only some dozen staff exclusive to it.  Its day to day trading activities were carried out for it by group staff employed by and working elsewhere, mainly outside Switzerland and primarily at LBIE’s premises in London, on a non-exclusive basis.
21.	At all material times, LBF enjoyed a beneficial status under Swiss law, and it was a priority for it to preserve this.  It was not subject to regulation by the Swiss Financial Market Supervisory Authority, nor did it hold a banking licence.  Its customers included both other affiliates and also professional market participants from the street, all over the world.  Because it did not need to be regulated, it did not incur any regulatory capital charge.  It also enjoyed a valuable exemption from Swiss stamp tax in relation to its dealings in securities for hedging purposes.  Its hedging activities required it to take both long and short positions in securities from time to time.  These activities were undertaken for it by (relevantly) LBIE, using LBIE’s depots.
22.	LBF was placed into a Swiss bankruptcy process on 22 December 2008.
23.	Like the judge, we were assisted by a statement of agreed facts, from which I have taken some of the material already set out.  Since the business records maintained by the group played a significant role in the argument, I will quote the material in that statement which describes the relevant records:
“5.1	The book-keeping of the Lehman Group was largely automated.
5.2	The International Trading System (“ITS”) was the Lehman Group’s main securities trade settlement system for securities (both fixed income and equities) settled in Europe and Asia. Trades involving such securities were settled by LBIE for the Books of the Respondents and were recorded on ITS.  [“Books” is a defined term – see below.]
5.3	ITS recorded trades and settlements.  It generated trade tickets for acquisitions from the Street and included functionality to record the RASCALS process.  
5.4	Following each business day, ITS would commence its overnight “batch cycle”, the purpose of which was, amongst other things, to complete the processing and reporting of the trading activity booked during the day and to prepare ITS for the next business day.  Activities carried out within the cycle included the processing of the transactions booked into the system during that day and the passing of the ITS entries to the general ledger for the Lehman Group, known as DBS.  
5.5	At a certain point in the batch cycle, one business day would be effectively closed on ITS, and another one would be started.  During its operation, ITS created a series of accounting debit and credit entries.  In respect of any transaction, ITS would create entries relating to the trade date, the expected settlement date, and, finally, the actual settlement date.  Both the trade tickets and the accounting entries generated in ITS were generally accessible by any ITS user.  Each of the Respondents was an ITS user.
6.1	On the trade date of a trade to be settled by LBIE with the Street of a securities position for a Book of a Respondent, an entry was posted on the Respondent’s inventory account in respect of the securities position.  On the settlement date a corresponding entry was posted in the unsecured intercompany ledger which indicated that the Respondent was indebted to LBIE in respect of the purchase price for the securities position.”
24.	The word “Books” used in paragraph 5.2 of the agreed statement, quoted above, was defined in section 3 of the statement:
“3.2	The Lehman Group trading function was split across separate trading desks each of which specialised in trading a particular type of security or derivative product (“Desks”).  The Desks were not structured or labelled on an affiliate-by-affiliate basis.  Rather, each Desk was geared around investment expertise in a particular class of securities or derivatives.
3.3	Typically, each Desk would be further split into a number of specialist trading books (“Books”).  Each Book was allocated to a company within the Lehman Group.”
25.	Another important feature of the way in which the group organised its affairs was the treasury function operated by LBHI, through two branches, one in New York and the other in London.  Again, I quote the description of this operation from the statement of agreed facts.
“7.2	LBHI NY sat at the top of a funding chain for the entire Lehman Group and acted as the central “banker” providing daily funding for the other affiliates’ business activities across the globe in so far as required.  Generally, but subject to exceptions, cash funding was sourced from, and available cash surpluses were returned to, a single USD-denominated bank account, held in the name of LBHI NY with Citibank in New York (the “LBHI NY Account”).
7.3	The calculation and funding of cash requirements for affiliates transacting business in Europe were provided by LBHI UK, which in turn received funds to do so from the LBHI NY Account. 
7.4	LBHI UK operated and maintained its own USD bank account with Bank of America in New York (the “LBHI UK Account”).  In the event of available cash surpluses arising on the accounts in Europe at the end of each day, these were passed up the funding chain into the LBHI UK Account and from there to LBHI NY.
7.5	On a daily basis the LBHI NY Account would provide the required funding of the LBHI UK Account which, in turn, was used to fund part of the affiliates’ cash requirements in Europe.
7.6	An estimated amount of the funding required by LBHI UK would be notified the preceding day, typically by email, from Cash and Collateral Management (CCM) in London to CCM in New York.  Throughout the following business day, all of the expected and actual cash flows funded by LBHI UK Account would be aggregated in Global CCM.  By the end of the day, and on a net accumulated basis, the LBHI UK Account would have built up either a surplus or a deficit which CCM in New York would fund to a (near) zero balance from the LBHI NY Account.  In the event of an anticipated available surplus, typically such surplus would be transferred from the LBHI UK Account to the LBHI NY Account: if there were an anticipated deficit, there would be a transfer in the opposite direction. 
7.7	To assist this process, excess liquidity would generally be passed back up through the Lehman Group’s accounts towards the end of the European trading day: that is, available surplus cash amounts would be exchanged into USD amounts and transferred back to the LBHI UK Account, for subsequent transfer back to the LBHI NY Account.”
The issues on the appeal
26.	LBIE claims that it has the beneficial title to all securities to which the Rascals process was applied and which remained in its depots, to the exclusion of LBF, even though the securities were acquired for the account of LBF.  Conversely, LBF claims beneficial title to all such securities as were acquired for its account.
27.	LBIE contends, first, that the Rascals process was not intended to, and could not as a matter of law, transfer a beneficial title to the relevant securities to the affiliate.  The judge decided this in favour of LBF.  It is the subject of LBIE’s Respondent’s Notice.
28.	Failing that, LBIE argues that the beneficial title returned to LBIE under the first repo entered into under the automatic Rascals process, and that it remained vested in LBIE throughout thereafter, unless and until the securities were sold back to the street.  The issues arising on this part of the case are these.  
29.	Given that the terms of the repo were for payment against transfer of title, did LBIE pay the price on the on-leg of the first repo?  LBIE contends that it did so by offsetting against that price the debt owed to it by LBF in respect of the acquisition price paid by LBIE to the street.  LBF, however, argues that there was no such debt, for transactions after June 2000, because of the terms of an agreement entered into at that time between LBHI, LBIE and LBF.  LBIE disputes this and also argues that, even if this were strictly the case, LBF is estopped from saying so.  LBIE also relies, in the alternative, on estoppel as regards its payment of the on-leg price.
30.	LBIE further argues that, once title had passed back to it under the first repo, it remained vested in it throughout.  This was known below as the “cradle-to-grave” proposition.  On that basis, title was still vested in it at the end of the day, especially as LBF could not and did not pay the price under the final off-leg.  LBF denies that, pointing to the pattern of successive repos, with a gap (both in theory and in reality) between each, during which periods title, it argues, must have revested in it.  It contends that, at the end of the process, either title was in fact vested in it, because the critical moment occurred between the settlement of the off-leg of one repo and the opening of the next, or it became vested in it on the settlement of the final off-leg.  That settlement is shown as having occurred by book entries and, although it is common ground that no money passed at that time, LBF argues that actual payment was habitually waived on each successive repo, and that the same habitual waiver would have applied to the last off-leg just as much as to every previous one.
31.	LBF also argues (expressly by way of concession, but it is a contention as well as an admission) that LBIE would be entitled to a lien (or a right of that nature) for the unpaid acquisition price.  That point gives rise to a procedural complication to which I will refer later.
32.	Separate issues arise out of what happened after LBIE went into administration.  Briefly, the facts are these.  On the day of the administration order the administrators gave an instruction (referred to as the blanket instruction) to LBIE’s staff to the effect that no trades or other transactions were to be entered into without the consent of the administrators.  During the afternoon on 16 September 2008 LBF notified LBIE of the termination of all inter-company agreements.  LBIE was not authorised to act as agent for LBF after that.  However, the automatic Rascals process continued until 23 September because no action was taken to bring it to an end.  On that day, without prior reference to the administrators, an employee of LBIE changed the tags in respect of all securities which had been treated as eligible for the Rascals process, so that they were no longer so eligible.  The result was that, once the ITS system had recorded the settlement of all off-legs on that date in the ordinary way, no further repos were entered into thereafter.  The system therefore recorded unsecured liabilities of the affiliate to LBIE to pay the off-leg repurchase price to LBIE, with no offset in respect of LBIE’s liability to pay the on-leg price under the next repo, because there would be none.  One issue is whether the apparent settlement of the final off-leg is to be regarded as effective, in the absence of real payment.
33.	A separate issue, if 23 September 2008 is the relevant closing date, is whether the change of the status of the tags, with the result that I have described, is affected by paragraph 64 of Schedule B1 to the Insolvency Act 1986, as being the exercise of a management power without the consent of the administrators, and if so what are the consequences of that. 
34.	For securities which were subjected to the manual version of Rascals, the same issues arise as to the effect of what was done at the start of the process. Since the off-leg for the stock loans did not occur automatically, and no-one took steps to make it happen at the end, the dispute turns on the issues arising at the outset.
35.	Thus, the issues on the appeal can be divided into the following groups:
i)	First, the issues arising on the Respondent’s Notice, as to whether beneficial title ever reached LBF;
ii)	Secondly, the question whether LBIE paid, or is to be treated as having paid, the price on the on-leg of the first repo; this includes LBF’s argument that it never owed LBIE anything on the original acquisition, because of the 2000 agreement already mentioned, and the points as to estoppel;
iii)	Thirdly, the issue as to continuity of title;
iv)	Fourthly, the points arising specifically as to the final off-leg, which is affected both by the third point and also by the specific matters mentioned above as to the letter dated 16 September 2008 and as to what was done on 23 September 2008.
v)	The first two of these apply to the product of manual Rascals as well as to that of automatic Rascals; the third and fourth only apply to automatic Rascals.
Issues of lien
36.	It is convenient to mention the position as regards the argument about lien at this stage.  On 25 January 2010 the judge held a directions hearing in these proceedings.  As a result he made an order which included this paragraph:
“The Court shall not determine, on this Application, issues which would otherwise arise out of paragraphs 3 and 4 of the Application, going to whether or not LBIE or any other person has a lien over the securities which are the subject matter of the Application.”
37.	In the course of that hearing (of which we were shown the transcript) there was debate as to what issues concerning lien should be hived off from these proceedings and deferred to the hearing of other proceedings in which they would be raised.  Mr Milligan invited the judge to hive off points of construction on various documents on which there might be an argument about lien, but not what he called equitable lien, a point of legal principle not dependent on issues of construction.  However, the judge’s order did not distinguish between one kind of lien and another.  No such point is to be decided in the present proceedings, as the judge noted at paragraph 216 of his judgment.  We were told that there are other proceedings pending in which the lien issues depending on construction will be decided, but that these do not include any other argument about lien that might arise from the Rascals processes.
38.	The effect of the judge’s order of 25 January 2010 is that no issue of lien could be determined by the judge in the judgment from which this appeal is brought.  It follows that no such issue can be decided on this appeal either.  If such an issue were to be relevant to the outcome of the appeal, then it would be necessary to express only a contingent conclusion, subject to the resolution of the lien issue, and to refer or remit the proceedings back to the judge for that point to be decided.
The relevant agreements
39.	The documentary evidence before the judge included a number of papers about the Rascals project prepared in 1995.  The adoption of the process led to an agreement being entered into between LBIE and LBF called the Inter-Company Repurchase Agreement (ICRA) dated 15 March 1996.  It is a facultative agreement, regulating the routine making of repos and stock loans as between the parties.  It includes the following recitals:
“WHEREAS each Party may settle securities transactions at the request of the other Party and, as a consequence of these transactions, may hold securities on behalf of the other Party;
WHEREAS all parties wish to ensure that security and monetary balances arising between them from such settlement are properly secured;
WHEREAS the parties are or may become subject to capital adequacy and other regulations under the various jurisdictions in which they operate;
WHEREAS the parties wish to ensure both that there can be no doubt about adherence to regulations relating to the custody of assets and that there is no doubt about their treatment for regulatory capital purposes of the inter-company balances arising from these settlements;
WHEREAS the parties consider that the most appropriate way in which to resolve this is to enter into repurchase, sell/buy-back or stock loan transactions in respect of securities held by one party but owned by another.”
40.	It provided in clause 1 for the parties to enter into transactions of sale or loan of securities against the exchange of the payment of the purchase price or cash collateral, with a simultaneous agreement to sell back or to return the securities.  The Holding Party was to determine what form the transaction would take.  The latest version of the industry standard agreement would apply.  The clause continued as follows:
“Where a Party is holding securities (the “Holding Party”) on behalf of the other Party (the “Owning Party”), the Holding Party may, in its discretion and by notice to the Owning Party buy or borrow the Securities, in which case the Owning Party shall pass full legal and beneficial ownership in the securities to the Holding Party against receipt by the Owning Party of purchase monies (in the case of repurchase or sell/buy-back transactions) or collateral (in the case of stock loan transactions).  Both Holding Party and Owning Party agree that the Owning Party shall be obligated to repurchase or accept return of the Equivalent Securities, at a price to be agreed by the Holding Party and the Owning Party ...”
41.	Clause 4 provided for the Holding Party to pay to the Owning Party the amount of any income payment received during the term of a particular transaction.  Clause 5, headed Netting, was as follows:
“All parties hereto agree on an ongoing basis that all obligations of the Owning Party to Holding Party and vice versa shall be calculated on a net aggregate basis.  It is agreed that all securities and cash owed by Holding Party to Owning Party shall be set off against the obligations of Owning Party to Holding Party.  For the purposes of calculating the net aggregate exposure pursuant to this section the value of any securities purchased, lent or provided as collateral shall be the value determined by the Lehman Brothers ITS system.  The claims of the Owning Party to the Securities is to be set off against the claim of the Holding Party to the payment of money for the Securities.”
42.	The agreement was to remain in force until terminated on 7 days’ notice in writing.  It was governed by English law.
43.	That agreement had been in force for four years, governing the transactions entered into under the Rascals process during that time, when the next relevant agreement was made.  This is the Inter-Company Funding Agreement dated 5 June 2000, between LBHI, LBIE and LBF (ICFA).  It is a short agreement and it is not necessary to consider more than the recitals and clause 1.  The recitals are as follows:
“WHEREAS LBF is a Swiss Limited company trading in equity and other derivatives and investing in securities to hedge exposures arising from derivative transactions.
WHEREAS LBIE is a member of the Securities and Futures Authority and is authorized to carry on investment business in the United Kingdom under the Financial Services Act 1986.
WHEREAS LBIE acts as settlement agent for LBF in certain of the derivatives and securities transactions noted above.
WHEREAS LBHI can provide treasury services to any Lehman Brothers group company.”
44.	Clause 1 was as follows:
“1.	Funding and Settlement
LBIE agrees to settle such securities transactions as LBF requests it to: and LBHI agrees to provide funding to LBF to permit LBF to provide funds to LBIE to effect settlement transactions on behalf of LBF.  LBIE will hold funds provided by LBF on deposit for LBF as requested by LBF from time to time.
For the avoidance of doubt, any loans under this agreement are provided directly from LBHI to LBF and at no time will LBIE be regarded as lending to LBF.”
45.	This agreement too was to remain in force until terminated by 7 days’ notice, and it too was governed by English law.
46.	The judge accepted that LBIE acted as broker and settlement agent for LBF, by virtue of these and other agreements.  That is not in dispute as such on the appeal, but LBIE does argue that, in the particular circumstances prevailing in relation to the Rascals process, LBIE did not hold the title to the securities acquired on trust for LBF.  Although LBF was to enjoy the economic risks and rewards of ownership of the securities, this was to be achieved without actual ownership.  The judge put the point neatly at paragraph 27 as follows:
“[LBIE says] that the objective common intention of both LBIE and its affiliates was that the affiliates should obtain the economic risks and benefits of an owner of the underlying securities not by the transfer of ownership (in the sense of a proprietary interest) but by the creation of purely contractual rights and liabilities between LBIE and the affiliates having the same economic effect, as it were, synthetically.”
Dealings with the securities
47.	An important part of LBIE’s case is based on the way in which, with the consent of LBF, it dealt with the securities in question.  I have mentioned that it settled acquisitions into house accounts, where they were not segregated from other securities of the same type, acquired for other affiliates or for LBIE’s own account.  Having acquired them, it used them (until sale back to the street) freely as part of its own business assets, accounting to LBF, or any other relevant affiliate, for any dividend or coupon and eventually for the proceeds of resale, but not for any benefit obtained by short-term dealings in the meantime.
48.	As such it might use securities in a number of different ways.  It might lend them to the street by way of a repo or a stock loan.  Or it might use them to satisfy obligations under a sale contract, having already sold short for hedging purposes.  As the judge pointed out at paragraph 75, in an example oversimplified for illustration purposes, LBIE might on the same day acquire a given quantity of one security for LBF and sell the same quantity of the same security in order to satisfy an obligation of another affiliate under a short contract previously entered into.  It would not deny that it had acquired the securities for LBF, and that it was accountable (under contract) accordingly, but it would not, at the end of that day, in fact hold the securities in question at all in its depot.  The judge said that the position was no doubt much more complicated in practice, but the point remained that at the end of a given day LBIE would not necessarily hold in its depot all the securities that it had acquired for LBF and for other affiliates and had not yet disposed of finally on a resale to the street.  It would, however, have other rights, for example (in the case of a repo or stock loan) the right as against the third party to the return of the equivalent securities by way of the off-leg.  Such rights would represent the securities originally acquired.
49.	As I have mentioned already, the vast majority of the securities dealt with in this way were dematerialised, not being represented by any certificate or other document.  Instead they were represented by rights as against the depositary, and were acquired or disposed of by way of changing the relevant entry in the depositary’s records.  Even in the small minority of cases where there was a certificate, it was, as like as not, held by a nominee so, again, the relevant rights were rights as against the nominee.  That, however, does not affect the arguments either way.  So long as it is understood that when one speaks of acquiring or disposing of securities in the context, one means dealing with rights as against a depositary (directly or indirectly) who holds the relevant securities, and indeed other securities of the same type, it makes no difference to the legal analysis.
The Rascals project
50.	The agreements from which I have quoted, and others, provided the framework for the implementation of the Rascals project.  The person within the group who was mainly responsible for devising the Rascals project was a Mr Oliver Backhouse, who has since died.  His supervisor at the time (1993-5) had been Mr Thomas Bolland, who gave evidence to the judge.  The nature of the plan and the motives and intentions behind it were disclosed also by a number of documents produced at the time.  The judge said of this contemporary written material, at paragraph 89:
“First, it demonstrates, at least from LBIE’s perspective, the problems which the Rascals processes were designed to address and at least LBIE’s purposive intention in constructing and then operating the Rascals processes.  Secondly, those documents demonstrate that LBIE’s thinking in this regard was sufficiently ventilated within the Group for it to be improbable that any affiliate which subsequently participated with LBIE in Rascals processing could have been unaware of LBIE’s purposive intention, or of the problems which the Rascals processes were designed to address.  Thus, the purpose or intent behind the Rascals processes may properly be described as having been mutual, even if they were processes aimed at dealing with LBIE’s particular problems as a hub company.”
51.	The judge went on to record at paragraphs 90 to 95 four particular points which he said emerged from the documents.  The following summary borrows largely from the judge’s own words.
i)	The documents display a clear underlying assumption that one effect of LBIE’s settling the acquisition of a security from the street for the account of one of its affiliates was to confer upon the affiliate beneficial title to the security, even though LBIE invariably settled it into one of its un-segregated house depot accounts.  Mr Bolland said he was of that view, though some colleagues considered that title would not pass to the affiliate except upon actual payment of the acquisition price by the affiliate to LBIE.
ii)	A primary purpose of the Rascals processes was that the affiliate should thereby confer absolute title to the underlying security upon LBIE, to the exclusion of any continuing beneficial interest of the affiliate.  This was perceived as essential if the problems thrown up by the global settlement practice were to be satisfactorily addressed.  Full title to the underlying securities was necessary to give LBIE an effective security as against its affiliate so as to avoid the capital charge problem.  Without it, neither the segregation problem nor the financing problem would be resolved.  In fact, the latter two problems were probably less real than they were thought to be, not least because the segregation point was covered, until about 2007, by an exception for inter-group dealings.  Capital adequacy had not been a problem, but it would become so at the beginning of 1996 when the European Capital Adequacy Directive came into effect.  The objective behind Rascals was to bring about a continuous beneficial interest of LBIE in the underlying security, to the exclusion of the affiliate, for as long as the security was the subject matter of a Rascals process, whether by a stream of daily repos or by an open-ended stock loan.
iii)	As a matter of purpose and intent, the Rascals processes were conceived of as effecting a transfer of beneficial title from the affiliate to LBIE despite payment for the first repo (or collateral for the stock loan) not being effected by cash settlement as between LBIE and the affiliate.  Payment was to be effected by book entries, coupled with offset against the affiliate’s unsecured debt to LBIE for the original acquisition price of the security from the street.  That this was to be the method of payment is spelled out in the contemporaneous documents.
iv)	The contemporaneous material provides no guidance as to subjective intent in relation to beneficial ownership in the event that the Rascals process should be terminated, not by the eventual resale of the security to the street, but by events triggered by the insolvency of one or both of the parties to the Rascals transactions.  This is not surprising, but it is inherent in the capital charge problem, and in the solution that LBIE should become in effect a secured creditor of the affiliate, that a purpose of the Rascals process was to confer security upon LBIE in the form of beneficial title to the underlying stock in the event of the affiliate’s insolvency.
52.	As regards the implementation of the Rascals project as between LBIE and LBF, apart from the relevant agreements to which I have referred, the judge described what happened in practice at paragraphs 162 to 186.  Again I can set out a summary with quotations or near quotations.
53.	When LBIE acquired securities from the street for LBF’s account, ITS would generate two trade tickets on the trade date (i.e. the date of the contract to purchase the securities): a ticket recording the essential terms of the contract with the street counterparty, and another recording a back-to-back sale of the same amount of the same securities by LBIE to LBF with the same settlement date and the same price.  This led to entries being made within ITS in the books of LBIE and LBF.  LBIE’s stock inventory system would show a (momentary) long position in the securities with a corresponding unsecured debt due but not yet payable to the street counterparty.  LBF’s stock inventory account would show a long position in the securities, with a corresponding unsecured debt due but not yet payable to LBIE in its pending transactions inter-company account, for the same amount.
54.	On the settlement date, LBIE had to pay cash to the street counterparty.  That payment was recorded in LBIE’s books, which thereafter showed LBIE as the holder of the securities.  Disregarding the Rascals process, for the moment, the accounting records of LBIE and LBF showed LBF as owing LBIE an unsecured debt for the acquisition price, due and payable, which had been transferred from the pending transaction inter-company account to the unsecured inter-company account.  LBF’s stock records showed it as having a long position in the relevant securities; LBIE’s showed its long position as allocated to its inter-company account with LBF.
55.	If the securities acquired were within the category of those tagged on the computer system as eligible for Rascals processing, the ITS system would, on acquisition (thus, on the settlement date), generate a deal ticket setting out the essential terms of a one day repo, and separate trade tickets for each leg of the repo.  These two trade tickets led to further entries in ITS.  The on-leg showed an unsecured debt owed by LBIE to LBF, the amount being the marked to market value of the securities on that day.  This was booked to the same account as showed LBF’s debt owed to LBIE for the acquisition price.  The off-leg was represented by a secured debt owed by LBF to LBIE for the repurchase price, payable on the next day, the amount being the same as that of the on-leg plus an interest charge payable by LBF.
56.	Thus, overnight at the end of the settlement date, the accounting entries as regards inter-company debts showed (1) an unsecured debt from LBF to LBIE for the acquisition price (2) an unsecured debt from LBIE to LBF for the price payable on the on-leg of the repo (the marked to market value on the securities on that day, which might or might not be the same as the acquisition price) and (3) a secured debt from LBF to LBIE for the price payable (the next day) on the off-leg of the repo, being the same as the on-leg plus the interest charge.  If, as it happened, the marked to market value was the same as the acquisition price, the two unsecured debts would match exactly.  If the value had gone up between trade and settlement, the debt payable to LBF would exceed the acquisition price and so the debt payable the other way, and vice versa if it had gone down.
57.	On the next day, on which the off-leg of the first repo was to be settled, as the judge said at paragraph 170: 
“accounting entries were made to reflect the settlement of the off-leg of the first repo, the settlement of the on-leg of the second repo, together with the secured liability of LBF to pay LBIE for the settlement (on the following day) of the off-leg of the second repo.  Any change in the marked to market value of the security would be reflected in the prices payable and repayable under the second repo and, again, the off-leg purchase price would have added to it a one day interest or financing charge payable by LBF.”  
58.	I will not attempt to paraphrase or summarise his description of the position thereafter:
“171.	Thus, LBF’s obligation to pay for the settlement of the off-leg of the first repo was transferred from secured to unsecured inter-company account, where it would be largely offset by LBIE’s obligation to pay for the on-leg of the second repo, differences in marked to market values being reflected in a corresponding change in the unsecured inter-company balance between LBIE and LBF.  LBF’s secured liability to pay for the off-leg of the second repo would be recorded in the secured inter-company account.  Viewed as at midnight at the end of the second day, LBF’s secured liability to LBIE (in respect of the off-leg of the second repo) would therefore have changed from the amount shown as a secured liability at the end of day one, in line with any change in the marked to market value of the security.
172.	Accounting entries reflecting daily repos of the type which I have described continued to be made throughout the period between the acquisition of the security from the street and its ultimate re-sale to the street.  It is unnecessary to describe them in any detail. Their overall effect was to show LBIE as the secured creditor of LBF, albeit in constantly changing amounts, in respect of the continuous succession of off legs.
173.	On the trade date for the re-sale to the street, a short position would be recorded in LBF’s inventory account, off-setting the original long position recorded on the trade for the acquisition.  Daily repos would continue between the trade date and the settlement date for the re-sale to the street.  No new repo would be entered into between LBIE and LBF on the settlement date.  Thus, on that day, LBF’s secured liability to pay for the last off-leg would be transferred to unsecured inter-company account and largely off-set by LBIE’s obligation to account for the proceeds of sale received from the street counterparty, subject to movements in the marked to market value of the security between trade date and settlement date.”
59.	In the case of securities which were not eligible for automatic Rascals, but to which the manual version of Rascals was applied, a somewhat similar process was undertaken, except that, because the stock loans were open-ended, the system was applied once, at the outset, and what happened at the end does not matter for present purposes.  The manual version was applied on the settlement date in some cases, but not always, so the judge had also to consider the position if it was applied significantly after the settlement date.  It is not necessary to go into the details of this at this stage.
60.	What is important, for this purpose as well as for the automatic process, is the monthly pay-down.  LBF had no relevant bank account of its own with which to settle unsecured inter-company balances.  The judge described what happened as regards such balances at paragraph 184:
“At the end of each month, temporary journal entries were made reflecting a netting, as between LBIE and LBF, of all unsecured inter-company balances, and the novation of the resulting net balance to LBHI.  By that I mean that LBHI was interposed between LBF and LBIE, so that any net debt on the unsecured inter-company account owed by LBF to LBIE was replaced by a debt from LBF to LBHI, and a debt from LBHI to LBIE.  If the net balance was owed the other way, LBIE would owe LBHI, and LBHI would owe LBF.”
61.	This month-end process settled any unsecured balances as between LBIE and LBF, either way.  It did not settle what were recorded as secured balances, e.g. LBF’s debt to LBIE on the off-leg of any open repo or stock loan.
Did beneficial title to the securities remain vested in LBIE?
62.	Logically, the analysis should start with the issues raised by the Respondent’s Notice, to the effect that the beneficial ownership of the securities, which passed to LBIE on acquisition from the street, never left LBIE thereafter in favour of the affiliate.  Two grounds are advanced: first that there was no intention that title should so pass, and secondly that, even if there was, it could not do so effectively because the trust under which LBIE would hold the benefit of the securities for LBF lacked the necessary certainty of subject-matter.
63.	The judge started his analysis by considering the position as it had been before the Rascals system was introduced.  He held, at paragraphs 266 and 274, that at that stage, even though LBIE was acting as agent or broker, not as principal, the basis on which LBIE acquired and dealt with securities for the account of affiliates was not such as to give the affiliates proprietary interests in the underlying securities.  I do not need to go into his reasons for those conclusions.  No party challenged them.
64.	That finding was an important element in Mr Milligan’s argument that nothing changed in this respect when the Rascals system was introduced.  Of course, if it had not changed, and if that position had been appreciated by all concerned, the worry about capital adequacy would have been seen to be unnecessary.  If LBIE retained the absolute beneficial title throughout, from acquisition from the street until resale, then there was no capital adequacy issue because LBIE would be a secured creditor of the relevant affiliate for the acquisition price.  Mr Milligan submitted that the Rascals process was applied only on an “in case” basis, to make doubly sure that the feared problem did not arise, and that the sequence of contracts involved in the automatic Rascals process should be seen as contingent and, in his word, “synthetic”, rather than representing the legal and intended reality of the situation.
65.	The judge rejected that argument, and so would I.  So far as understanding and intention is concerned, the prevailing assumption in LBIE was that the affiliate did acquire a beneficial interest, even before Rascals, the uncertainty being as to whether that acquisition was conditional on payment.  The agreements relevant to Rascals show no uncertainty as to whether the affiliate obtained a proprietary interest in the securities.  On the contrary, the fact that the affiliate did obtain such an interest, and then disposed of it back to LBIE under a repo or stock loan was of the essence of the Rascals scheme. 
66.	Mr Milligan criticised the judge for failing to give proper weight to words in the ICRA which, he argued, showed that it was contingent, and was intended to resolve doubts.  I have set out the relevant recitals in the agreement at paragraph [39] above.  It is true that the word “may” appears in them on a number of occasions.  Mr Moss submitted that all this shows is that which is not in doubt, namely that the agreement is facultative.  It provides for what is to apply if advantage is taken of it.  Mr Milligan relied particularly on the second recital as showing that even if one party does settle securities transactions at the request of the other, it “may”, as a consequence of those transactions, hold securities on behalf of the other, rather than that it will do so.  I accept Mr Moss’ submission on this point, that all this shows is that the effect of the particular transactions will depend on the terms of those transactions, not on those of the ICRA alone.  I find nothing in the arrangements as regards Rascals that casts doubt on the judge’s conclusion that a beneficial title was to pass to the affiliate, which would then be passed back to LBIE by way of the repo or stock loan.
67.	Before I move to the argument about certainty, which is the second of the grounds in the Respondent’s Notice, I must also refer to a variant of it which Mr Milligan prayed in aid in support of his argument as to lack of any common objective intention that there should be a trust.  Because LBIE was to be free to deal with the securities as if they were its own property (while remaining liable to account to the affiliate for any income and for the eventual capital proceeds on a sale back to the street), there might be severe problems of identification and accounting, especially if some or all of the securities of the particular class held by LBIE had been used to meet short positions of LBIE’s own or of another affiliate in the meantime.  There might well be a shortfall, at any given moment, and he argued that it was entirely unclear on what basis any shortfall was to be borne as between (a) LBF, for example, and first (b) any other affiliate for whom LBIE had held such securities and secondly (c) LBIE itself if it had held some for its own account.  As Mr Milligan said in his skeleton argument, “if nothing else, the complexity and unusual nature of the trust found by the judge is another indication that it was not the common objective intention of the parties to create one”.  In oral argument he showed us some passages from the evidence which emphasise the complexity of the situation on the ground, so to speak, as it might be from time to time, in order to show how difficult and therefore unrealistic was the proposition that a trust was intended.  
68.	It is clear that the case of a trust under which the trustee is free to, and does, use the trust assets for its own benefit, in certain respects at least, without accounting to the beneficiary for such dealings, is unusual.  It is also clear that in the present circumstances there are likely to be practical problems in unravelling the entitlement of relevant parties under such a trust, once the music stops.  Nevertheless I agree with the judge in declining to hold that this factor is sufficient to show that there was no trust at all because there was no common objective intention that there should be one.  For the reasons given by the judge it seems to me that the common objective intention was the other way, namely that the affiliate should acquire a beneficial interest.  The practical problems may not have been appreciated, particularly because, so long as all went well, they would not arise. 
Certainty of subject-matter
69.	The other ground in the Respondent’s Notice is that the trust which would be required for LBIE to hold the securities for the affiliate as beneficial owner lacked the necessary certainty of subject-matter.  Mr Milligan relied on cases such as Re Wait [1927] 1 Ch 606, Re London Wine Co (Shippers) Ltd [1986] BCC 121 and Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 to show that, in general, proprietary rights do not attach to an unappropriated part of a larger mass, as, he submitted, the particular holding of securities would almost always have been.  The judge relied on Hunter v Moss [1993] 1 W.L.R. 934 and [1994] 1 W.L.R. 452, where the court held valid and effective a declaration of trust as to 50 shares in a company with 1000 issued shares of which the person making the declaration of trust held 950.  It did not matter that he had not specified 50 particular shares, nor had he segregated them in some way from the rest of his holding.  Mr Rimer Q.C., at first instance, held that the principles applying to a trust of tangible assets (as in Re Wait or London Wine Co) were not the same as applied to a trust of intangibles.  He held that the test should be whether, immediately after the declaration of trust, the court could, if asked, make an order for the execution of the trust, which it could only do if the subject-matter of the trust is identified with sufficient certainty.  He then held that a declaration as regards a definite number of shares, forming part of a larger holding, was valid, just as a declaration as regards the corresponding proportion of the shares held would have been.  He accepted that the trustee’s subsequent dealings with the larger holding might leave doubt as to whether the dealings were with his own retained assets or with the trust assets, but said that such uncertainty would not be as to whether a trust had been validly created, but as to whether the obligations to which it gave rise had been properly discharged.  The Court of Appeal upheld his judgment with rather briefer reasoning.  In principle, on that basis, LBIE could validly constitute itself a trustee of a particular quantity of a particular security, on its acquisition for the account of LBF, even if it held other quantities of the same security for one or more other affiliates, and whether or not it also held some for its own benefit.
70.	The judge derived from this case the following proposition, set out in his paragraph 225:
“A trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary’s proportionate share of it is not itself uncertain.”
71.	The judge referred to some other cases in which Hunter v Moss has been considered and followed, and observed that the correct approach underlying the decision has not always been identified in the same way.  He said that he favoured the analysis that the trust worked by creating a beneficial co-ownership in the identified fund, an approach formulated in White v Shortall [2006] NSWSC 1379 and by Professor Sir Roy Goode Q.C. in an article “Are Intangible Assets Fungible?”, [2003] LNCLQ 379.
72.	As before the judge, Mr Milligan did not challenge the principle itself, but he argued that it could not apply in the present case where LBIE is free to deal with the securities as it pleases and to mix them with others held for other affiliates or for its own benefit.  As the judge said at paragraph 234:
“At the heart of Mr Milligan’s submissions based upon subject matter uncertainty lay the undoubted fact that, at any moment in time, the supposed trust fund consisting of LBIE’s house depot account in respect of a specific type of security (such as ordinary shares in ICI) might consist either of shares originally acquired, equivalent shares subsequently acquired by the exercise of rights under a repo or stock loan with the street, or simply shares subsequently acquired by LBIE to make good a shortfall caused by using shares to settle its own or other affiliates’ short positions.  Furthermore, the fund could (for reasons already explained) consist at a particular moment in time of no securities at all, where all had been used to settle short positions, or all had been lent to the street, so that the only identifiable trust property consisted of LBIE’s personal rights to obtain equivalent securities in the future, for example by calling in stock loans or enforcing the off-legs of repos, as against street counterparties.”
73.	The judge considered that the complexity of the pattern of holding that might exist at any given moment, with securities having been lent to the street or used to settle short positions on behalf of other affiliates, would make life difficult in terms of working out the respective entitlements, for practical reasons, but did not undermine the fundamental position that, when LBIE acquired a given holding of securities for LBF, it held its rights in respect of that holding as a trustee for LBF.  Its duties as such trustee were more limited than those of an ordinary trustee, because it did not have to keep the holding segregated, and could not only mix it with other assets, with different beneficial ownership, but could deal with it, on a short-term basis, for its own benefit or that of others than LBF.  However, its trusteeship was constituted at once, and difficulties in accounting as a result of what happened later do not subvert the proposition that the securities were held on trust from the time of their first acquisition.
74.	On appeal Mr Milligan relied particularly on two points as casting doubt on the judge’s conclusion in this respect.  The first is that the securities held at any given time by LBIE might well bear no relationship to those in respect of which LBF’s beneficial rights were to subsist, even if rights to delivery of securities by the street or by other affiliates were taken into account.  He pointed out that the short sale might be by LBIE for its own account.  I do not see that this makes any difference.  LBIE would have to account to LBF for its dealings with the relevant shares.  If those included dealings on its own account, that would be part of the accounting.  Presumably even if there were no rights against third parties (to recover the shares on the off-leg of a repo, for example) there would be proceeds of the disposal which were or had been in the hands of LBIE.  Quite how that would impact on LBIE’s liability, as a result of the accounting, is not a question that we have to, or could, decide.
75.	The same answer can be given to Mr Milligan’s other point, based on uncertainty of timing within a given day.  Difficulties of analysing what happened during a particular day, and of identifying the order of events, do not seem to me to show that there is any uncertainty at the starting point, which is the moment at which LBIE acquired relevant securities from the street for the account of LBF.  At that moment, LBIE owned the securities so acquired (as against the depositary), and it held the relevant rights on trust for LBF.  It might have been more sensible, bearing in mind the practical problems of sorting out this aspect of the situation at the moment when the music stopped, to have adopted a different approach under which the common objective intention, supported by the relevant paperwork, was that LBIE retained the absolute title to all relevant securities throughout, accounting to affiliates only in contract for the relevant economic benefits, and leaving the affiliates with no beneficial entitlement to the securities at any stage.  That would have solved the capital adequacy problem in a much simpler way than was adopted by way of Rascals.  It would also have solved the segregation and title questions.  There might have been issues as regards margins, to which a different solution would have been needed.  However, this is not what was done, and it seems to me clear that, first, an approach involving the use of a trust binding on LBIE in favour of the affiliate was adopted and, secondly, that despite practical difficulties to which the introduction of the Rascals system could give rise on this basis, there is no ground for saying that the trust could not take effect in law because its subject-matter lacked certainty.
76.	Of course, once the automatic Rascals process was under way in relation to particular securities, the system of successive repos was intended to ensure, and to show, that LBIE had absolute title to the securities as purchaser under the repo, free from any beneficial title in the affiliate. But that does not dispense with the need to ascertain the position before the first repo was put in place.
77.	For the reasons given above I would dismiss the Respondent’s Notice.
Did beneficial title to the securities pass back to LBIE under the first repo?
78.	Thus, when LBIE acquired relevant securities for the account of LBF, it held those securities on trust for LBF.  It had paid for the securities, and LBF was bound to repay to it the acquisition price under the back-to-back purchase contract entered into at the same time as LBIE contracted to buy the securities from the street.  The next thing that happened, in a case to which automatic Rascals applied, was the first repo, involving a sale by LBF back to LBIE, at the marked to market value on that day, to be settled by LBIE, followed by its repurchase by LBF the following day at the same price plus a financing charge.  LBIE’s case involves the proposition that it re-acquired beneficial title to the securities under the on-leg of the repo.  It is common ground that, on the standard form terms which applied to the repos, the passing of title was dependent on payment of the price.  One of the issues, therefore, is whether LBIE is to be treated as having paid the price under the on-leg of the first repo. 
79.	On behalf of LBIE, Mr Milligan argued, as he had before Briggs J, that LBIE was to be so treated because the price so payable was to be set off against the sum payable the other way, by LBF to LBIE, for the acquisition of the securities.  Those two figures might be the same, but they might well differ if the marked to market value of the securities had changed since the trade date of the acquisition.  If it had gone up, the price payable on the on-leg would be more than the amount payable in respect of the acquisition, so there would not be an exact match, and the whole amount payable on the on-leg could not be off set by reference to the acquisition price.  In that event, as I have already described, there would be an unsecured amount due on the on-leg. Leaving that aside, however, Mr Milligan’s point was that the amount due one way was to be off set against the amount due the other way, and that this showed that by the end of the day, LBIE was not indebted to LBF, or at most only for an amount referable to the increase in value of the securities.  That amount was to be left outstanding as an unsecured liability, adjusted as necessary day by day, and paid at the end of the month in the course of the monthly pay-down.
80.	Mr Moss challenges this on two grounds.  First he argues that the effect of the ICFA is that LBF owed LBIE nothing in respect of the acquisition, and that any debt in that respect was owed to LBIE by LBHI.  Secondly, he contends that, if there were mutual debts, there was no set-off of one against the other and that nothing short of actual set-off amounts to payment for this purpose.  I will take the argument about the ICFA first.
The effect of the ICFA
81.	Mr Moss’ principal argument is founded on the last sentence of clause 1 of the ICFA.  I have quoted the clause at paragraph [44] above, but the last sentence is this: “For the avoidance of doubt, any loans under this agreement are provided directly from LBHI to LBF and at no time will LBIE be regarded as lending to LBF”.  From that he argues that the parties agreed that LBF was not to be regarded as a borrower from or otherwise indebted to LBIE in respect of anything falling within the scope of the agreement, and that therefore there was no debt from LBF to LBIE on the acquisition which was available to be set off against the debt which LBIE clearly did owe to LBF on the repo on-leg.  As to the scope of the agreement, Mr Moss pointed out that it could hardly be wider in relation to transactions relating to securities.  LBHI agreed “to settle such securities transactions as LBF requests it to” and “to provide funding to LBF to permit LBF to provide funds to LBIE to effect settlement transactions on behalf of LBF”.  Any transaction under which LBIE acquired securities for the account of LBF after June 2000 must be regarded as within the terms of those phrases.  Therefore, he argued, the last sentence applied with overriding effect, and LBF could not be said to have owed LBIE anything in respect of the acquisition of any such securities.
82.	We were not told of any evidence as to why the ICFA was entered into, and the judge referred to none.  On the case put forward for LBF this agreement caused a fundamental change in the application of the Rascals system, but there is no evidence that this was realised even as a possibility, or that its possible implications were addressed within the group.  Nevertheless, the agreement says what it does and it is apparently general in its terms.
83.	The judge held that clause 1 of the ICFA did not apply to the acquisition from the street of securities which were then subjected to automatic Rascals, because such an acquisition did not require funding from LBF at all, still less from LBHI in substitution for LBF (see paragraph 333).  He said that the acquisition was in substance self-funded by LBIE since it used LBF’s unsecured obligation to pay for the acquisition from the street as an offset against its own obligation to pay the purchase price on the first repo on-leg, and the secured debt which arose on the part of LBF to LBIE under the repo was not to pay the price of the acquisition from the street but to buy the securities back under the repo.
84.	With respect to the judge, I cannot follow him in this reasoning.  The acquisition of the securities from the street undoubtedly did require funding.  Real money changed hands on that acquisition; someone had to produce the funds to be paid to the street.  When LBIE paid those funds to the street, it was using the money to effect the settlement of the transaction on behalf of LBF.  Although this was followed, within the day, by the on-leg of the first repo in an automatic Rascals case, that process did not provide the funds used for settlement, both because it was too late for that purpose, and because no funds in fact changed hands at that stage.
85.	Mr Milligan submitted that LBIE used its own money, in hand from other transactions, to settle the acquisition price.  That is not the basis on which the judge decided the case in favour of LBIE, and it does not seem to me that it is open to us to decide the case in that way.  No doubt from time to time LBIE had the funds in hand at the relevant moment with which it could settle the acquisition price.  Whether it always did so must be questionable.  Moreover, since the spare cash in affiliates including LBIE was swept into LBHI at the end of each trading day, and funds were then made available to affiliates, including LBIE, by LBHI the following day as needed for particular purposes, the identification of the source of any given funds used at some stage to pay for an acquisition from the street might well go straight back to LBHI.
86.	I would therefore hold that the ICFA did, on its true construction, cover the settlement of acquisitions effected by LBIE on behalf of LBF, including those to which the automatic Rascals process was then applied.  On the face of it, therefore, the ICFA had the effect that LBIE was not to be treated as a lender to LBF in respect of the transactions since June 2000.
The position shown in the book-keeping records
87.	It is, however, clear that, whether or not the parties applied their minds to this at all, it made no difference to the way in which the transactions were recorded in the accounting records of LBIE and of LBF (and of LBHI).  On that footing Mr Milligan argued that the position as between LBIE and LBF which would otherwise have prevailed under the ICFA was varied or waived, and the previous position continued unchanged.
88.	It is clear that the accounting records of the relevant companies showed that nothing had been advanced by LBHI to LBF, nor by LBHI on behalf of LBF, to enable LBF to pay the acquisition price.  Mrs Greenway gave evidence to this effect on behalf of LBIE, stating in terms that the accounts as between LBHI and the various affiliates showed no entries such as to indicate a loan by LBHI to the affiliate of the acquisition price of the securities.  Evidence relevant to this was also given by Mr Kirkland, a witness for LBF who had been part of the LBHI treasury function team from 2003 until early in 2006 when he moved to become financial controller of LBF, until March 2008.  He referred to the ICFA in his witness statement, and said that his understanding was that LBHI provided the necessary funding on behalf of LBF on an unsecured basis.  However, he also stated that the general ledger (DBS) of the group recorded the purchase of securities on the basis of LBHI providing funds to LBIE, but that when LBIE bought the securities on behalf of LBF, an intercompany debt was shown as owed by LBF to LBIE for the acquisition price of the securities.
89.	He was cross-examined on this evidence.  He confirmed that the bookkeeping entries showed that the acquisition was funded by LBIE, not by LBF, and that there was no record of a debt from LBIE to LBHI in respect of the money so used.  Debts to LBHI only arose at the stage of the month-end pay-down of any outstanding unsecured liabilities.  He also confirmed that LBF’s financial statements were prepared on the basis of the bookkeeping records, treating them as correct.  To the question: “So far as the intercompany balances and pay-downs were concerned, everybody proceeded on the assumptions that the balances shown in the intercompany accounts were correct?” he said this was correct.  Then there was the following sequence of questions and answers:
“Q.	When there was a repo or a stock loan, when the transaction was executed in the sense of when the trade was done, the books recorded that there was a secured payable due from LBF to LBIE in respect of either the repo repurchase price or the payable in respect of the return of collateral for the stock loan?
A.		That is correct.
Q.		Those secured payables were recorded in ITS?
A.		They were.
Q.		They fed through DBS and ultimately into the financial statements of LBF?
A.		Correct.
Q.		Everybody proceeded on the assumption that those records were correct and that those sums were secure?
A.		Correct.”
90.	That passage was not qualified by anything said in re-examination.
91.	On that footing Mr Milligan submitted that Mr Kirkland confirmed that, first, the accounting records were consistent with the prior position and not with that which would have been correct if the ICFA had been applied and, secondly, that the accounting records were treated by all concerned as being correct.  On that basis he argued that it was not open to LBF to go back on that shared assumption and understanding, so as to alter LBIE’s position retrospectively.
92.	Mr Moss accepted that, in terms of the accounting records, what happened before the ICFA as regards Rascals continued to happen thereafter.  However, he argued that there was no evidential basis for a contention that the parties at any stage agreed to vary or to waive the contractual provisions of the ICFA as regards the acquisition of securities within the Rascals system.  It seems to me that there may be some force in that contention as such.  The parties may simply have overlooked the relevance of the ICFA to Rascals transactions, and therefore have ignored it in documenting the transactions.  That might not be enough to amount to a contractual variation or waiver.  However, it could suffice to give rise to an estoppel, and in my judgment it does.  The question of estoppel also requires discussion in respect of the treatment of the repos, to which I now turn.  I will come to estoppel at paragraph [105] below, and I will explain why I consider that LBF is estopped from denying that it is and was LBIE’s debtor in this respect, despite the ICFA, at paragraph [124] below.
Did LBIE pay the price on the on-leg of the first repo?
93.	For the moment I assume in favour of LBIE that, despite the ICFA, LBF owed a debt to LBIE in respect of the acquisition price of the securities.  In turn, LBIE owed to LBF the price on the on-leg of the first repo.  Under the terms of the repo contract, title passed on payment, so that in order for LBIE to show that it acquired title from LBF, it must show that it paid the price.  The judge held that it did so by way of offset of the debt owed by LBF in respect of the acquisition price.  Mr Moss criticised this as heretical: there was no set-off, and he argued that there was no such thing as offset which could amount to payment, short of a true set-off.  
94.	I must therefore deal with the issue of “offset”: both what it refers to in terms of the accounting records and also what it amounts to (or not) in legal analysis.  
95.	From some sample or illustrative material in the evidence, it can be seen that, in respect of each series of entries (equivalent to ledgers) for each relevant company, what happened was that each event was noted in the appropriate way in succession, but that what did not happen, within the ITS system, was the drawing of a balance as between two different ledgers, one showing a credit and the other a debit as between the same entities.  We were told that the net effect was shown in the DBS system, but the ITS system showed an ever lengthening sequence of successive entries in different ledgers.
96.	On that basis Mr Moss’ argument was that there was never any set-off of a credit against a debit, such as of the acquisition price of the securities against the purchase price under the on-leg of the first repo.  Instead the books showed each entry separately (in separate ledgers) and successively.
97.	Such entries could not, in his submission, amount to payment of anything.  Only if there was an actual set-off of one against another could either be treated as having been paid.  “Offset”, according to him, is not a term of any legal significance.  The judge used the word offset explicitly on the basis that no net balance was struck at any given stage: see his paragraph 18, cited at paragraph [10] above. At paragraph 329, having referred to that position in the bookkeeping records, he said this:
“But that comes nowhere near displacing a conclusion that the parties intended that the offsetting of those two obligations should have the effect, pro tanto, of paying both debts.  Where in a single account two parties record successive mutual credits and debits there is in reality only a net debt owing, one way or the other between them, at any particular moment in time: see Wood on English and International Set-Off at paragraph 3-3.  This normal conclusion may of course be displaced by a contrary intention where for some reason the parties wished to preserve the opposing debts, but in the present case the evidence as to intention is all one way.  Witness after witness agreed with Mr Moss in cross-examination that payment under the repo structure of Automatic Rascals was to be by book entry rather than by cash.  A book entry which merely records an unpaid debt pays nothing.  But book entries which record offsetting debts and credits sufficiently evidence payment if, but only if, there is an offsetting credit available for that purpose.”
98.	Mr Moss challenged this conclusion as being a misapplication of Mr Wood’s proposition which, he argued, was only propounded in relation to a current account at a bank.  That is a fair comment in itself.  If the ITS entries are those to which regard should be had, it seems to me that Mr Moss is right about this.  
99.	However, Mr Milligan advanced a different argument, to the effect that there was a set-off.  He relied on Mrs Greenway’s evidence as showing that net balances were indeed struck, but at the stage when the relevant entries were fed into DBS, the next level up, so to speak, in the group’s accounting and record-keeping system.  We were shown a passage in paragraphs 65 to 68 of her third witness statement in which this point was made by reference to a sample series of transactions.  Mr Moss’ response on that point was that this might be the case in DBS but it is noticeable that there was never any balance struck in ITS, not at any stage (so far as the evidence shows), and that this must put into question the significance of the entries in the separate DBS system.  He accepted that, for accounting purposes, one would strike a balance, and argued that DBS was used for the purposes of reconciliations and the preparation of accounting statements, but he drew a distinction between accounting treatment and legal treatment.  The fact that the separate ledgers within ITS continued to be prepared without any reference to any balance as having been struck should, he argued, carry greater weight as showing that the various entities intended, for the time being, to preserve the separate indebtedness on each account without treating one as having been paid off by the application of a credit on another account.
100.	I have set out at paragraph [23] above the agreed statement of facts as to the significance of ITS and its relationship to DBS.  ITS was the main securities trade settlement system for securities settled in Europe and Asia.  Overnight the system would complete the processing and reporting of transactions booked during the day.  This would include feeding the relevant entries to DBS which was the general ledger for the group.  On this basis, Mr Milligan argued that the relationship between these two sets of records was such that the striking of a balance in DBS, by the recording of net entries, could properly be seen as a setting-off of the relevant credits and debits.  This was not affected by the fact that the ITS system continued to show the underlying entries unaffected by the netting off effected in DBS.  
101.	On the face of it, this argument offers a basis for a finding that successive entries were indeed set off against each other in the records of each of the relevant group companies.  If that were correct, it would provide a simpler and more orthodox way to hold that LBIE did pay the price on the on-leg than that adopted by the judge.
102.	This approach is not reflected in the judge’s judgment, for the simple reason that Mr Milligan did not advance it at that stage.  That is apparent from his opening skeleton argument at trial, which is with the appeal papers.  Nor did the point feature in the Respondent’s Notice, as an alternative reason for reaching the same conclusion as the judge did, nor in LBIE’s skeleton argument on the appeal.  Mr Moss was, understandably, taken by surprise when Mr Milligan promulgated this point for the first time on the second day of the hearing of the appeal.  Mr Moss did not object, as such, to the raising of a brand new point on the appeal, and he sought to meet it by submissions on the merits.
103.	This argument on the basis of an actual set-off is therefore inconsistent with the way in which the matter was put to the judge and the way in which he decided the case.  It was not foreshadowed in any preparatory materials at trial or on the appeal.  It emerged like a rabbit out of a hat during oral argument for the respondent on the appeal.  As such, the point must be treated with a degree of scepticism and caution.  It does not seem to me that enough is known about the relationship between ITS and DBS and the details of the functions of the latter for it to be safe to decide this case by accepting the argument that there was, after all, a true set-off every night, when the DBS system was brought up to date.  Not least, I do not think that the court can be sure that, if LBIE had been contending for an actual set-off at trial, it would not have affected in some way the course of the evidence.  It seems to me that, if there had been an application to amend the Respondent’s Notice by introducing this point (as would have been the proper course) it would by no means necessarily have been allowed.  For that reason I am not prepared to decide the case on the basis of Mr Milligan’s argument that there was a set-off.
104.	Absent a true set-off, it seems to me that Mr Moss is right in contending that an “offset” is not enough to show payment.  No reliance was placed on the terms of clause 5 of the ICRA, quoted above at paragraph [41], as being relevant to this issue.
Estoppel
105.	The judge considered, in the alternative, Mr Milligan’s case based on estoppel by convention, in case he were wrong to conclude that the repo on-legs were effective to transfer the beneficial title to the securities to LBIE from LBF on the basis of payment by offset.  This argument is relevant both to this particular point and to the argument about the application of the ICFA and its consequences, already mentioned.  I will address the point first as regards the suggested convention relating to payment by LBIE of the on-leg price.
106.	The judge adopted as a summary of the principles relevant to establishing an estoppel by convention one which he had set out in an earlier judgment, HMRC v Benchdollar Ltd [2009] EWHC 1310 (Ch), as follows:
“(i)	It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way.  It must be expressly shared between them.
(ii)	The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it.
(iii)	The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter.
(iv)	That reliance must have occurred in connection with some subsequent mutual dealing between the parties.
(v)	Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”
107.	This was not criticised as such in the submissions before us, and I am content to use it for present purposes.  Mr Moss challenged the judge’s conclusion on the basis that there were too many different versions of the convention said to have been established by the estoppel, and that the evidence did not allow the conditions about express sharing of the assumption and assumption of responsibility to be found to be satisfied. 
108.	As regards the first of those points, the judge said this at paragraph 345:
“The convention alleged by the Administrators has been variously put in written and oral submissions and in position papers, either that LBIE paid for the repo on-legs or that, in any event, the repo on-legs were effective to confer absolute title to the underlying securities on LBIE.  Since the only challenge to the effectiveness of the repos for that purpose is the alleged absence of payment by LBIE for the on-legs, the two conventions amount in substance to the same thing.”
109.	Mr Moss said that several versions had been put forward on behalf of LBIE below: in written submissions “that the financial statements and records were right”, and in oral argument, first, “that that which was recorded as a secured payable was indeed a secured payable”, then “that LBF was estopped from denying that LBIE had paid the on-leg price”, or later “from saying that LBIE was required to pay either in full or other than by offset as a condition precedent for receiving title under the repo or stock loan”.
110.	Mr Milligan contended before us that the common assumption was, at the lowest level, that the intercompany accounts correctly reflected the relationship between the parties, in particular in showing LBIE as a secured creditor of LBF and, at the highest level, that the Rascals process was effective to transfer title to LBIE.
111.	Mr Moss had a different point about the presentation of the position as being that LBIE was a secured creditor, by reference to an argument that LBIE had a broker’s lien (or its equivalent) over the securities until they had been paid for.  That, he argued, would have justified the presentation of LBIE as a secured creditor, even though there would still have been a difference in terms of regulation, because protection by a lien attracts a capital requirement greater than that of an unsecured loan but less than that which applies if the creditor has the full title security coming from holding the beneficial as well as the legal title.  If that were critical, it would make it necessary to decide whether LBIE did have a lien, or any right which could be so described, and for reasons already described that could not be decided on the appeal but would have to await a future decision at first instance.
112.	In my judgment, the judge was entitled to reach the conclusion which he set out at paragraph 345 quoted above as to the common assumption or convention.  He was right to say that the two formulations in that paragraph amount to the same thing.  The first of them was one of the ways in which LBIE put its case to him.  It seems to me that, in the circumstances of the case and on the evidence – in particular that of Mr Kirkland referred to at paragraph [89] above - he was entitled to accept LBIE’s case in this respect.  The judge’s conclusion is also supported by what he had said about the objective of the Rascals processes, an intention shared by all relevant group companies, at paragraphs 89 to 95 of his judgment, summarised at paragraphs [50] and [51] above.
113.	Mr Moss also contended that LBIE had prepared the records, and said that LBF had no responsibility for them.  Mr Milligan did not accept that, and showed us evidence to the effect that the ITS system was developed and maintained by the group’s global ITS technology team, based in a number of countries, providing services to the entire group and not linked to any particular company.  That point is fairly made.  I do not accept that the conclusion as to whether the requirements of estoppel are satisfied should be affected by attributing responsibility for the record-keeping to LBIE rather than to anyone else within the group.
114.	The judge’s reasoning on the first two points in the summary set out above at paragraph [106] appears in paragraphs 346 and 347 of his judgment:
“346.	By the time that any of the securities the subject matter of this application were acquired from the street, LBIE and LBF had for many years been engaging in a Rascals process of daily repos in relation to eligible securities of the same type.  The mutual book entries resulting from those repos uniformly describe their effect as making LBIE a secured creditor of LBF in respect of the off-leg purchase prices under every repo.  To LBF’s knowledge (and with its acquiescence) LBIE had constructed the Automatic Rascals process in relation to those securities as a way of legitimising, from a capital adequacy, regulatory and street lending perspective, the basis upon which it carried out its acquisition, holding, and exploitation of such securities for LBF’s book, and on the express basis that this necessitated the conferral upon LBIE of absolute title to the underlying securities, to the exclusion of any proprietary interest of LBF.  LBIE’s status as LBF’s secured creditor appeared both in LBIE’s and LBF’s accounts, and constituted the basis upon which LBIE considered itself able properly to satisfy compliance with the capital adequacy regime introduced pursuant to the Directive.  Both LBIE and LBF benefited from the conduct of the Automatic Rascals process on that basis and, in so far as it was intended thereby to confer the requisite capital adequacy upon LBIE, so did LBIE’s unsecured creditors stand to benefit in the event of its insolvency.  The conduct of the Automatic Rascals process on an assumption that the on-legs thereby conferred absolute title on LBIE was part of a course of dealing which both preceded and followed the acquisition of the securities which are the subject matter of this application.
347.	In those circumstances I consider that the legal requirements for the establishment of an estoppel by convention are satisfied.  Having for many years obtained the benefit of LBIE’s acquisition from the street for securities for its book, without paying cash up front but on the assumption that LBIE became by the Rascals process a secured creditor, I consider that it would now be unconscionable for LBF to resile from that convention as to the effect of the on-legs of the Automatic Rascals repos.  The requirement that the conventional understanding was sufficiently shared between LBIE and LBF, and that LBIE assumed an element of responsibility for it seem to me fully satisfied by their adoption of a mutual system of book-keeping which recorded LBIE as a secured creditor, and by LBF’s acquiescence in circumstances where, but for the effective transfer of beneficial title, LBIE would have been unable to satisfy itself that it could continue to act as LBF’s agent or broker in the acquisition of securities from the street, consistent with its capital adequacy and regulatory obligations.”
115.	 Mr Moss submitted that, even on its own terms, this formulation did not meet the requirements set out by the judge, because it did not show that LBF assumed responsibility for the conventional understanding, but only that LBIE did so.  Literally this is correct.  However it seems to me that in the third sentence in paragraph 347 the judge’s reference to LBIE assuming responsibility must be an inadvertent error, for a reference to LBF.  A reference to LBIE as assuming responsibility does not make sense in the context.  First, the judge had set out the principles in terms which showed that it was necessary to show that LBF did assume responsibility for the convention.  It would be very odd if he then ignored that requirement in his process of reasoning, when setting out the requirement itself as a preliminary to explaining that it was satisfied.  Moreover, the third sentence of paragraph 347 goes on to explain the basis for the judge’s finding.  It speaks of “their adoption of a mutual system of book-keeping”; that must refer to the adoption of the system by both LBIE and LBF.  It then refers to LBF’s acquiescence in the circumstances described.  That must have been stated in order to make good the proposition that LBF not only shared the conventional understanding, but assumed responsibility for it.  As the judge said, it was the basis, and the only basis, on which LBIE could continue to act as broker for LBF in acquiring securities from the street, consistently with its regulatory obligations.  I therefore conclude that the third sentence should be read as follows:
“The requirement that the conventional understanding was sufficiently shared between LBIE and LBF, and that LBF assumed an element of responsibility for it seem to me fully satisfied by their adoption of a mutual system of book-keeping which recorded LBIE as a secured creditor, and by LBF’s acquiescence in circumstances where, but for the effective transfer of beneficial title, LBIE would have been unable to satisfy itself that it could continue to act as LBF’s agent or broker in the acquisition of securities from the street, consistent with its capital adequacy and regulatory obligations.”
116.	It is not altogether surprising that there should be a slip as between two rather similar acronyms in the course of a judgment running to 430 paragraphs.  It is not the only one: in paragraph 342 there is a reference to LBSF which is clearly intended to be to LBF.  I proceed on the basis that the judge did find that LBF not only shared the conventional understanding, but also assumed responsibility for it.  
117.	Mr Moss also showed us paragraph 410 of the judgment, which is part of the passage dealing with estoppel in relation to different affiliates.  There the judge said this:
“Issues as to whether a person alleged to be subject to an estoppel by convention has sufficiently “crossed the line” as to make itself responsible for the conventional understanding in question normally arise between persons dealing with each other at arm’s length.  In the exceptional circumstances constituted by the fact that all the potential parties to the convention estoppel here relied upon are co-subsidiaries or sub-subsidiaries of the same holding company, doing business for the benefit of common shareholders, using a common accounting and book-keeping system, and sharing the services of individuals employed on a non-exclusive basis, it seems to be that the necessary sharing or acquiescence is capable of being established by those features rather than, as would be necessary in an ordinary case, by some specific “crossing of the line” between persons dealing at arm’s length.  Accordingly, although with rather less confidence than in relation to LBF and LBSF, I have concluded that if it had been necessary for the Administrators to rely upon a convention estoppel for the purpose of preventing LBCCA now from denying that the Automatic Rascals on-legs were effective in relation to any proprietary interest of its own in the underlying securities (whether because of want of title or non-payment by LBIE), the Administrators’ case in that regard ought to succeed.”
118.	Mr Moss argued that this passage is revealing of the judge’s reasoning on estoppel also in relation to LBF.  Mr Milligan challenged that, pointing out that the proposition is clearly different from those set out in the judge’s reasoning as regards LBF, and that the judge distinguished expressly between the case which he was discussing at that point in the judgment and the case of LBF.  I accept that submission, and I disregard this passage as irrelevant to his reasoning in relation to LBF. 
119.	Mr Moss urged upon us the importance, once insolvency exists, of respecting with care the position of different entities within a group structure.  He showed us the abbreviated report of Ford & Carter Ltd v Midland Bank Ltd, House of Lords 23 May 1979, in the New Law Journal for 31 May 1979 at page 543.  In that case the issue was whether a mutual guarantee given by certain group companies to the bank had become binding on another company which had joined the group later.  It was evidently the intention that that company should be so bound.  Lord Wilberforce, however, said this, on which Mr Moss relied:
“… intention is one thing, obligation is another.  When creditors become involved, as they do in the present case, the separate legal existence of the constituent companies of the group has to be respected.  In the absence of some contractual act or document they cannot be bound to the bank.”
120.	That supports a theme which ran throughout Mr Moss’ submissions, that it was all very well to suppose that those who implemented and operated the Rascals system intended certain objectives to be achieved, but it by no means follows that they accomplished what they intended.  It also supports, more specifically, the proposition, which is not in doubt, that once some or all of the companies in question are insolvent, the position has to be looked at quite differently from how it may appear when all are solvent and trading successfully.
121.	It seems to me that the judge did not err in that respect in coming to his conclusions about estoppel at paragraphs 346 and 347, if the latter is read with the correction indicated above.  There was evidence on which he could find that LBF as well as LBIE was aware of the position as shown in the records, as he describes in paragraph 346.  In particular it was open to him to hold that LBF knew of and acquiesced in the setting up of the automatic Rascals system for the reasons of regulatory compliance already described, and that this required LBIE to hold the beneficial title in the securities.  He was also entitled to find that both LBIE and LBF benefitted from the use of the Rascals process in this way.
122.	Mr Moss argued that it would not be unconscionable for LBF to resile from the common convention at this stage, now that regulatory compliance is no longer required.  It seems to me that this argument is fallacious.  Of course, if an estoppel is established as regards a continuing situation, it may be open to one party to withdraw from the common (but inaccurate) assumption for the future, so that future transactions have to be conducted on the correct basis.  However, if the estoppel is established, it is not open to one party to withdraw retrospectively, even if the need for the common assumption, on which the estoppel was based, is no longer in place.  It would be unconscionable for that party to seek to redefine the basis on which past transactions had been conducted.  Accordingly I agree with the judge in his paragraph 347, as corrected above, for the reasons he gives there.
123.	On that basis, although I do not accept the judge’s conclusion that LBIE paid the price on the on-leg of the first repo by offset against LBF’s debt for the acquisition price, nor do I accept Mr Milligan’s new argument for a set-off, I would hold that LBF is estopped from denying that LBIE had paid that price by virtue of the estoppel by convention which I have been discussing.
124.	For similar reasons, I would also hold that LBF is estopped from denying that it owed LBIE the acquisition price for the securities, and from asserting that that price was owed to LBIE by LBHI by virtue of the ICFA.  The records common to all three parties were inconsistent with LBHI being the debtor rather than LBF.  Those records were treated by all parties as correct, as Mr Kirkland confirmed.  If LBHI had been the debtor it would have been an unsecured debt for regulatory purposes, and the objective of the Rascals system would not have been achieved.  That would make it unconscionable for LBF to go back on their adhesion to the conventional understanding or assumption with retrospective effect.
125.	Mr Moss argued that to allow the accounting records to prevail over the ICFA and to produce a result inconsistent with that which would follow from the agreement involves ignoring the last words of clause 1 of the agreement, by virtue of which the agreement was to prevail whatever the records might show.  I agree that this is its effect, but I do not accept the submission that this is not legitimate.  The application of normal principles of estoppel by convention cannot be excluded by the use in the contractual documents of a provision that the document will prevail whatever may be done in practice.  Such a provision may be relevant to a consideration of the issue, but it cannot be conclusive.  In the present case it seems to me to carry far too little weight to prevail over the evidence as to the common assumption and therefore to preclude the establishment, on ordinary principles, of the estoppel by convention.
126.	Thus, on the first issue arising on the Appellant’s Notice, whether title passed to LBIE because it did pay the price on the on-leg under the first repo, I would hold that it did.  Although the ICFA, if applied in practice, would have led to a different result as regards securities acquired after June 2000, it seems to me that the parties proceeded on the basis of a convention that LBF was the debtor to LBIE, rather than LBHI being indebted, and that LBF cannot go back on the assumption of that position, being bound by an estoppel by convention.  Secondly, LBF is estopped by convention from contending that LBIE did not satisfy its liability to LBF for the price on the on-leg, for the reasons given by the judge at paragraphs 346 and 347 and discussed above.
What happened next? The cradle-to-grave proposition
127.	If therefore the beneficial title to the securities passed to LBIE on payment in respect of the on-leg of the first repo, the next question is what happened at the next stage of the process, namely the off-leg of that repo.  Mr Moss relied heavily on the fact that, as regards the few days for which we have the detailed evidence, the off-leg was shown as settled at about 2pm and the next on-leg did not open until about 7.30 in the evening that day.  So, he said, there was a period of over 5 hours during which title had reverted to LBF.  That, however, depends on whether LBF had paid the off-leg price.  It is common ground that it did not at any stage pay cash, so the question is whether its obligation was satisfied in some other way, and if so when, or waived, it being common ground that, for both legs of a repo, payment and transfer of title were to be simultaneous.
128.	LBF cannot point to anything which happened at the time when the book entry was made showing the off-leg as having been completed which could constitute payment.  In practice, LBF’s obligation to pay would only be satisfied once it could be offset against LBIE’s obligation under the next repo on-leg.  Accordingly I agree (in effect) with the judge at his paragraphs 340 and 341 that once LBIE had acquired title to the securities on the first repo on-leg, it kept it continuously through the automatic Rascals process.
129.	Mr Moss argued that this was inconsistent with the book entries as regards when the repo was settled, and that to ignore those entries would not stand well with the judge’s preference for the accounting records over the legal agreements between the parties.  He said that the judge’s reasoning involved having it both ways.  I reject that criticism.  The parties regarded the accounting records as correct as between the companies, not the details of transaction entries one by one during a given day, of which LBF, at any rate, may have had no knowledge.  They are bound by those records by an estoppel by convention; the estoppel does not extend to the details of the transaction entries.  Accordingly it is open to LBIE to rely on the fact that, even though the off-leg was recorded as having been settled in the afternoon, LBF had not in fact paid the price on the off-leg, nor had anything else happened or been done which could amount to payment of that price.  Absent payment, or an equivalent, LBF could not successfully assert its title against LBIE on the basis of settlement of the off-leg.
130.	Mr Moss also criticised the theory that LBF only paid the price under each off-leg by way of offset against the price payable by LBIE on the on-leg of the next succeeding repo.  He submitted that this meant that one repo could not be closed until after the next had opened, which was not only inconsistent with the book entries but also logically impossible.  I disagree.  To make an entry showing the settling of the off-leg was a normal and natural process, to be done in the ordinary course of the management of the Rascals operation.  However, for such an entry to be made did not of itself show that payment had been made at that time.  Until and unless payment was made, title was not transferred back to LBF.
131.	In fact, payment could not be made, or even treated as made, until and unless a new repo was opened under which LBIE owed LBF the price under the new on-leg.  Thus the book entry was legitimate by way of record-keeping but potentially misleading, if it were thought to show that the price had been paid on the off-leg, so that title had reverted to LBF, before the next repo was opened.  
132.	In my judgment, the price under an off-leg could not be, and was not, treated as paid until the next repo opened.  At that moment the two liabilities were treated as set off against each other, so that the first repo was closed, on payment by LBF, but simultaneously the next repo was opened, on payment by LBIE.  As a result, title to the securities, which had been vested in LBIE under and during the previous repo, and until the opening of the next repo, remained so vested by virtue of the next repo.  That analysis seems to me to be correct and to justify the judge’s conclusion in favour of the cradle to grave proposition.  In particular it explains and justifies his observation at paragraph 328 that it was “concerned not with continuity of contracts but with continuity of absolute title”.
133.	I therefore agree with the judge’s conclusion as to the way in which the automatic Rascals process operated.  LBIE was treated, by common convention, as paying the price on the on-leg of the first repo, by way of set-off against LBF’s debt to it for the acquisition price.  LBF was treated as paying the price on the off-leg of the first repo when, and not until, the next repo opened.  At that time the price was treated as set off against LBIE’s new obligation under the on-leg of the new repo.  By the same token, LBIE was treated as paying the on-leg price under that repo at the same moment.  Beneficial title to the securities passed to LBIE under the on-leg of the first repo, and remained vested in LBIE throughout the Rascals process until a resale to the street.  
134.	There is no legitimate basis for the argument advanced by Mr Moss that payment on the off-leg was habitually waived.  That would have been inconsistent with the shared objective of the Rascals system.  What was habitually waived, also an inherent part of the agreed basis on which the Rascals system was to operate, was payment (either way) of any amount arising (a) from changes in the marked to market value of the securities between the trade date and the settlement date, or from one day to the next during the series of repos, and (b) the application of the interest charge payable by LBF.  Those amounts were left to be settled at the end of the month.
135.	The judge rejected the submission that, for this reason, unless the payment due from LBIE was the same as or greater than that due from LBF, LBIE did not acquire title under any relevant repo because it had not satisfied the obligation of payment upon which transfer of title was conditional at his paragraph 330.  I need say no more than that I agree with the judge on this point.
136.	Mr Moss also pointed to the fact that, as is common ground, LBF was entitled to any dividend or coupon payment on the securities while they were within the Rascals system.  He showed us a memorandum by Mr Backhouse, in September 1997, in which he said that he took the view that the Rascals repo lasted for 23 hours 59 minutes and 59.999 seconds, and that “if a dividend arises that happens in the 0.001 seconds that the stock is back in ‘custody’.  Thus we are collecting rather than manufacturing the dividend.”  That supported his argument that the securities had to be and were regarded as in the beneficial ownership of LBF for part of the relevant time, rather than continuously in the beneficial ownership of LBIE.
137.	I do not accept that submission.  If relevant securities were held by LBIE over an income payment date, then clause 4 of the ICRA obliged LBIE to pay over to LBF an amount equal to (and in the same currency as) the income payment.  Clause 5 of the Global Master Repurchase Agreement was to the same effect.  I am not aware of any respect in which it could matter whether LBF was entitled to the dividend as such or rather to a payment from LBIE equal to the amount of the dividend, which is what Mr Backhouse referred to as a manufactured dividend.  Mr Backhouse’s opinion is no doubt entitled to respect, but he was not a lawyer and his subjective view as to the operation of the scheme which he helped to devise is not conclusive and may not even, strictly, be relevant.
138.	This factor does not cause me to alter the view I have reached, namely that once the beneficial title to relevant securities had become vested in LBIE under the on-leg of the first repo, it remained so vested throughout the operation of the Rascals process.  For those reasons I accept Mr Milligan’s submissions in favour of the “cradle-to-grave” analysis.
Manual Rascals
139.	I have dealt with the points arising so far only in relation to securities which were the subject of the automatic Rascals process.  I must now cover the same points, so far as relevant, in respect of securities which were processed manually in a version of Rascals.  In these cases the securities might not be subjected to the Rascals process until some time after their acquisition.  Once they were so processed, it was done by way of stock loan, rather than repo, but that does not make any difference of substance in itself.  Moreover the loans were open-ended, rather than only ever lasting overnight.  That makes more of a difference in practice.
140.	The reasoning which I have set out above in relation to the effect of the ICFA applies to these securities as well as to automatic Rascals.  In principle, on its true construction, the ICFA would have applied to the funding of the original acquisition of the securities after June 2000, but in practice all parties behaved otherwise, and LBIE and LBF are bound, by an estoppel by convention, to the proposition that it was LBIE who advanced funds to LBF for the acquisition, not LBHI.
141.	As for what happened thereafter, as I have mentioned, there was a monthly pay-down of unsecured amounts due between the affiliates.  As regards automatic Rascals this covered only the sums payable by way of differences in the marked to market value and repo charges.  These were the only sums that were treated as unsecured.  
142.	In argument before us, securities subject to manual Rascals were treated as falling into two categories.  Where the application of the manual Rascals system occurred on the same day as settlement of the acquisition from the street, no distinction was drawn (as regards that stage of the operation) between these cases and those subject to automatic Rascals.  That seems to me to be logical and correct.  
143.	However, the manual application of Rascals might well not occur on the same day as the acquisition, and it might not occur until weeks or even months thereafter.  It is this latter category of cases, which I will call late transaction manual Rascals cases, that requires separate analysis. 
144.	As regards this category of securities which were subjected to manual Rascals, two stages have to be considered: first upon the acquisition of the securities and secondly upon the making of the stock loan under the manual Rascals system.  At stage one, LBIE acquired the securities for the account of LBF and paid the acquisition price on its behalf.  LBIE was therefore a creditor of LBF for that amount at that stage.  LBF was the beneficial owner of the securities.  Until stage two nothing happened to give the beneficial title to LBIE.  If the position had not changed by the end of the month, then LBF’s unsecured debt to LBIE for the acquisition price was paid down at that time, together with any other such unsecured indebtedness.  At that point, therefore, LBF would be the beneficial owner of the securities, owing no relevant debt to LBIE.
145.	If thereafter, say in the second month, LBF made a stock loan to LBIE by way of a manual Rascals operation, this would give rise to an obligation on LBIE to pay the relevant collateral to LBF.  When eventually the stock loan was brought to an end, that amount would be repayable by LBF to LBIE, with financing charges.  If the stock loan were still outstanding at the end of the second month, then LBIE’s debt to LBF would be paid as part of the month-end pay-down.  LBIE would therefore have a good beneficial title to the securities under the stock loan.
146.	If, to take a different example, the securities were acquired in one month and the stock loan was made in the same month, then once the stock loan had been made there would be two unsecured debts between LBIE and LBF, one each way.  At the end of the month during which the acquisition and the stock loan were made, at the latest, all unsecured amounts would be cleared by way of the month-end pay-down.  Accordingly, by then (whether or not before) LBIE would hold the full beneficial title to the securities under the stock loan, having paid in full the amount due on the on-leg of the stock loan.  So far as I am aware, it is unnecessary to decide whether LBIE held the beneficial title earlier than the month-end in these cases.
147.	During the hearing we were addressed on the basis that the last month-end paydown took place on 31 August 2008.  Since then, Mr Milligan has informed the court that the paydown on that date was only provisional and was not confirmed, as it needed to be.  Accordingly he revised his submissions on the basis that the last effective monthly pay-down took place on 31 July 2008.  LBF was able to inform us that it agreed that this was the correct date as regards the final paydown.
148.	On this basis Mr Milligan submitted that in almost all cases of securities affected by manual Rascals the beneficial as well as the legal title would be in LBIE, by virtue of a stock loan to LBIE under which LBIE’s payment obligation had been satisfied by the critical date, 15 September 2008.  The only case in which that would, or might, not be true is where the stock loan had been entered into after 31 July 2008, after the last effective month-end pay-down that occurred before the collapse of the group on 15 September 2008.  In all other cases, although there may have been an unsecured debt from LBIE to LBF under the stock loan for a time, it would have been paid in full by way of the pay-down at the end of the month.  He also suggested (after the hearing) that there might be some cases in which LBIE had paid the collateral under the stock loan in some other way, and he invited the court to keep that possibility open, as the judge had done in respect of another affiliate in paragraph 2(F) of his order.
149.	That seems to be the one respect in which some late transaction manual Rascals cases may be in a different position from those subject to automatic Rascals.  The skeleton argument on behalf of LBF mentioned two cases in which securities acquired during July 2008 were made the subject of stock loans in August 2008.  There may have been others.
150.	The judge dealt with manual Rascals cases at paragraphs 370 to 374.  He held that despite the possible factual differences which I have mentioned, in particular as regards the late transaction manual Rascals cases, there was no difference in legal result.  I agree with what the judge said there, subject to my difference from the judge about the ICFA which, however, does not affect the result.  It seems to me, however, that the relevant points may have been rather differently argued before us.  I would hold, for the reasons given above, that the position is the same in principle, but that it is different in practice for any securities in relation to which a stock loan under manual Rascals was first entered into after 31 July 2008, unless LBIE can show that it paid the collateral under the stock loan in some other way.  Moreover, LBF accepts that where both the acquisition from the street and the stock loan took place after 31 July 2008, the estoppel applies to the relevant securities in the same way as to the securities subject to automatic Rascals and to immediate manual Rascals processes.
What happened at the end of the process?
151.	The other aspect of the appeal is concerned with the end of the process rather than the beginning.  This applies only to automatic Rascals cases, because the stock loans under manual Rascals remained open indefinitely.
152.	The conclusions I have come to about the automatic Rascals process mean that, when the group collapsed, LBIE had the beneficial as well as the legal title to the securities which were then subject to the automatic Rascals process.  LBF nevertheless contends that, at one point or another thereafter, the beneficial title reverted to it, albeit without any payment being made to LBIE at that stage.
153.	Mr Moss’ primary argument in support of this conclusion relied on the 5 hour or so gap between settlement of the off-leg, as recorded, and the opening of the next on-leg.  He accepted that the price on the last off-leg was not in fact paid.  He submitted that there had been a habitual waiver of the requirement of payment during the 5 hour gap, which would have applied as usual on the settlement of the last off-leg.  I reject that submission for the reasons set out at paragraph [134] above.
154.	I therefore conclude, essentially for the reasons already given above, that payment was required of LBF on the final off-leg, as it had been on all previous repos, and since LBF did not in fact make payment, the beneficial title did not revert to it from LBIE under the last repo, even though the repo was shown to have been settled on 23 September 2008.
155.	At that stage, the records showed that the off-leg had settled but that LBF owed LBIE the price on the off-leg.  This was shown as an unsecured payable, rather than as secured.  That could lead to an inference that LBIE did not have the beneficial title, since otherwise it could and should have been shown as secured.  However, the fact that LBF was shown as owing LBIE the price makes it clear (as is in fact common ground) that LBF had not paid the price under the off-leg.  It therefore had not satisfied the condition upon which transfer of title depended.  Thus the entries in the records were not consistent, but the plain and indisputably correct record that LBF had not yet paid the price showed that it did not have the beneficial title.
156.	Mr Moss put forward an argument based on LBF’s letter dated 16 September 2008 which, if correct, led to the conclusion that the final repo should be regarded as that which closed on that date, because all later repo transactions were unauthorised by LBF.  On the reasoning which I have set out above, this makes no difference, because, on this assumption, LBF did not pay the price for the off-leg which was recorded as having settled on 16 September, and nothing that happened after that, including the opening of a new but (on this basis) unauthorised repo on that date, can affect the position.  Nevertheless I will deal with the point briefly.
157.	I have mentioned the letter dated 16 September 2008.  It was sent from LBF to LBIE, so far as we can see at 3.14pm (probably Swiss time) on 16 September 2008, in the following terms, so far as relevant:
“Please note that [LBF] terminates all intercompany agreements or arrangements with [LBIE] including all branches … to act on behalf of LBF or as an agent for LBF without the approval, in particular no transactions in cash or securities are allowed …”
158.	The judge did not need to decide this point, any more than I do.  He said at paragraph 361 that he inclined to the view that the letter did not affect the operation of automatic Rascals because both parties dealt with each other as principals.  The correct analysis of the repo transactions which were generated automatically by the computer system, in relation to any securities which (according to the instructions given to the computer) were eligible for automatic Rascals, seems a somewhat metaphysical exercise.  No human intervention was necessary for the process to continue.  Nevertheless, it seems to me that, given that the operation of the computer system was under the control of LBIE staff, and also given the discretion afforded to LBIE under the ICRA (see clause 1 quoted at paragraph [40] above), it would be right to regard LBIE as acting for itself as principal but also for LBF as agent, in relation to the automatic Rascals process.  I conclude that, if the implications of the letter of 16 September 2008 had been thought through at the time, the automatic Rascals process should have been brought to an end at that point in time.  It is understandable that this was not addressed at that time, when all concerned had many other things to think about and to do.  But in principle it seems to me that the outcome of the automatic Rascals process ought to be approached on the basis that the last authorised repo (and therefore the last relevant transaction) was that which closed on 16 September 2008.
159.	Mr Milligan pointed out that under the ICRA 7 days’ notice of termination was required by clause 8.  No such notice was given.  Mr Moss’ answer, which I accept, is that the ICRA as such was not terminated, but it was a facultative agreement.  Nothing compelled LBF to submit any securities to the agreement, or to the continuation of the arrangements entered into under it.  It was open to LBF to terminate by immediate notice LBIE’s authority to enter into future transactions on LBF’s behalf.  Seven days’ notice would have been required for a change to the terms governing whatever transactions were to be entered into between the parties, but not for LBF to call a halt to the entry into any future transactions.
160.	As I have said, when the automatic Rascals process came (or should have come) to an end makes no difference.  LBF did not pay the price on the final off-leg whether it occurred on 16 or on 23 September 2008, and therefore the beneficial title to the securities did not revert to LBF from LBIE.
161.	Mr Milligan had separate arguments about what occurred on 23 September 2008, if that had been relevant.  Since in my judgment it is not relevant, and it is not necessary to the determination of the appeal, I do not propose to lengthen this judgment still further by saying anything more about points which do not arise.
Disposition
162.	For those reasons I would dismiss both the appeal and the Respondent’s Notice, save that if there were any securities which were subject to the manual Rascals process on 15 September 2008, having been made the subject of a stock loan after 31 July 2008, then LBIE did not have the beneficial title to those securities, which therefore belonged beneficially to LBF at the moment of the group’s collapse, subject, however, to the possibility that LBIE can show that it paid the collateral under the stock loan in some other manner, or that the securities were first acquired from the street after 31 July 2008.  Those possibilities need to be kept open, so as to be capable of resolution by the judge if the parties cannot agree the position.
163.	Nothing in my reasoning is dependent on whether LBIE was entitled to a lien or any equivalent right over the relevant securities.  It is therefore not necessary to refer or remit any question about that to the judge before the issues on the appeal can be determined.
Lord Justice Patten
164.	I agree.
Lord Justice Tomlinson
165.	I also agree.