CHBKF 1999/0660/B3
IN THE HIGH COURT OF JUSTICE					  CHBKF 1999/0659/B2
CHANCERY DIVISION

Thursday 23rd March 2000

Before:-

THE VICE-CHANCELLOR:

The Rt. Hon.  Sir Richard Scott

The Rt. Hon. Lord Justice Chadwick

The Rt. Hon. Lord Justice Buxton

B E T W E E N:-

	              The Society of Lloyds
	Appellant	
	                           - and -
		
	              Geoffrey George Twinn
               Gail Sally Anne Twinn	Respondents	

_________________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040,  Fax No:  0171 831 8838
Official Shorthand Writers to the Court)
_________________________
 
Mr J. Briggs  instructed by The Society of Lloyds  for the Appellant
 Ms C. Mackenzie-Smith instructed by Geoffrey George Twinn and Gail Sally Anne Twinn for     the Respondents
_________________________
Judgment
As Approved by the Court

Crown Copyright ©

  
  
The Vice-Chancellor:
1.	This is an appeal by the Society of Lloyd’s (Lloyd’s) against the judgment of Jacob J., given on 11 May 1999.  The respondents to the appeal are Mr and Mrs Twinn.  They are, or were, Lloyd’s Names.

2.	On 12 July 1998 Lloyd’s served on Mr and Mrs Twinn statutory demands.  A separate statutory demand was served on each.  The statutory demands called for payment of sums said to be owing by them to Lloyd’s under the so-called Reconstruction and Renewal Agreement entered into between Lloyd’s and each of the Names who accepted the terms on offer.  No application to set aside the statutory demands was made.  Nor was payment made.  So, on 23 September 1998 Lloyd’s petitioned for bankruptcy orders to be made against Mr and Mrs Twinn.  There was a separate petition against each of them.  The petition against Mr Twinn alleged an indebtedness to Lloyd’s of £1,018,832.  Paragraph 2 of the petition said this:-
	“2.	The debtor is justly and truly indebted to us in the aggregate sum of £1,018,832 being the amount due to us pursuant to the terms of Settlement Agreement concluded between us and the debtor in 1996 and payable by Noon on 30 September 1996 whereby the debtor is deemed to be an “Accepting Name”.  By a letter dated 27 June 1997 we demanded payment from the debtor of the sum of £1,018,832 which said sum remains due and unpaid”.

3.	The petition against Mrs Twinn was based on an alleged indebtedness to Lloyd’s of £623,440.  Paragraph 2 of the petition was in the same terms as the corresponding paragraph in the petition against her husband, save that the amount specified was £623,440 and the letter demanding payment was dated 13 October 1997.  The two bankruptcy petitions came before Mr Registrar James on 19 January 1999.  He made a bankruptcy order on each petition.  He gave a brief ex tempore judgment at the time and gave his full reasons in a written judgment some days later.  Both Mr Twinn and Mrs Twinn appealed.  The appeals were heard by Jacob J., on 11 May 1999.  He allowed the appeals and set aside the bankruptcy orders.  This appeal is against that order.  Lloyd’s seeks the re-instatement of the bankruptcy orders.

4.	The issues argued before the Registrar were, first, whether Mr and Mrs Twinn had accepted the Re-construction and Renewal Settlement offer that had been extended by Lloyd’s to Names in July 1996.  Had they become Accepting Names?  The Registrar held that they had; Jacob J., held that they had not.  He held that their purported acceptance had been so hedged around with conditions as not to constitute an effective acceptance at all.  A second issue was argued before the Registrar.  It was whether, if  Mr and Mrs Twinn had accepted the offer and become bound by its terms to pay the sums stated to be due, they had, pursuant to section 271(3) of the Insolvency Act 1986, made an offer to compound or secure their debts which Lloyd’s had unreasonably refused.  The Registrar held that Lloyd’s refusal of the offer that Mr and Mrs Twinn had made was not unreasonable.  There is nothing to indicate whether this point was persisted in before Jacob J.  Jacob J., said nothing about it and, since he reversed the Registrar and decided the main point in Mr and Mrs Twinn’s favour, he did not need to.  The point has not been raised before us.

5.	Lloyd’s Notices of Appeal, served on 23 June 1999, challenge Jacob J’s conclusion that Mr and Mrs Twinn had not effectively accepted Lloyd’s  Reconstruction and Renewal settlement offer.  As an alternative, the Notices contend that Mr and Mrs Twinn should be held to be estopped from denying that they accepted the offer.  This estoppel plea was based on Mr and Mrs Twinn’s conduct and, in particular, on the correspondence, following their purported acceptance.  When the appeal was opened  Mr Bannister Q.C., counsel for Lloyd’s, abandoned the estoppel point.  In my view he was right to do so.  Whatever the merit of the point, it is hardly an appropriate basis on which to issue a bankruptcy petition or a sufficient ground to support a bankruptcy order.  

6.	Mr and Mrs Twinn served Respondent’s Notices on 14 July 1999.  They constituted a response to Lloyd’s estoppel point.  With Lloyd’s abandonment of the estoppel point they have no further relevance save, later, when costs are considered.

7.	Shortly before the commencement of  the hearing of this appeal, however, those acting for Mr and Mrs Twinn indicated that permission would be sought to serve a further Respondent’s Notice raising a new point.  The point is based upon paragraph 38 of the Reconstruction and Renewal Agreement which, it is said, constitutes a penalty or, alternatively, a forfeiture provision,  and is unenforceable.  Mrs Mackenzie-Smith, counsel for Mr and Mrs Twinn, sought the requisite permission at the commencement of the hearing. We said that we would hear her arguments on the point at the same time as we heard her in response to the appeal and would deal with the point in our judgment on the appeal.

8.	The parties’ submissions, both on the acceptance point and on the penalty point, require a careful look at the nature, as well as at some of the terms, of the Reconstruction and Renewal settlement offer.

9.	The Reconstruction and Renewal settlement offer was intended to bring about a global settlement of the difficulties afflicting the Lloyd’s market, Lloyd’s itself, its underwriting agents, its Names and other parties such as auditors.  Legal proceedings had been commenced by Names against underwriting agents, auditors, Lloyd’s itself and others.  The proposed settlement affected not only non-professionals, such as the Names, but also professionals in the market and certain outsiders.

10.	One of the features of  the proposed settlement was a proposal to provide financial assistance to Names in meeting their accrued liabilities to Lloyd’s; another was the intention to provide Names, through re-insurance of their on-going liabilities into Equitas, with certainty as to the extent of their liabilities.  These aims required that a fund be built up sufficient to provide both the amount of the proposed assistance and the amount of the re-insurance  premium.  The viability of the settlement proposal was dependent upon sufficient acceptances being received from Names to enable this object to be achieved.

11.	The settlement offer was highly complex.  It comprised a number of related documents which were sent to the Names.  Each Name was invited to sign an Acceptance Form.  The documents were sent under cover of a letter dated 30 July 1996 from Lloyd’s Chief Executive.  The opening paragraphs of the letter said:-
	“You will find enclosed with this document a form of acceptance for the settlement offer and a finality statement setting your 1992 and prior underwriting liabilities and the credits available to assist you in meeting these liabilities.  
	I urge you to read this document very carefully and to take advice form your lawyer, financial or other appropriate adviser on the terms of the settlement offer and your finality statement as soon possible but, in any event, so that you are able to meet the deadlines for acceptance and payment”.
12.	Under the heading “Acceptance” the letter specified 28 August 1996 as the latest time for duly completed forms of acceptance to be returned to Lloyd’s, and warned that:-
	“Names who do not accept the settlement offer by this time will lose their entitlement to the allocations of debt credits, the litigation settlement fund and the auditor settlement fund shown on their finality statements ... Such Names will also be ineligible for the refund of their members’ special Central Fund contribution and will be required to pay all of their underwriting liabilities in full... Moreover, unless sufficient Names accept the settlement offer, the Settlement Agreement will not become unconditional and the reconstruction plan will fail”.
13.	Under the heading “Payment”, the letter said that payment of finality bills would be required by 12 noon 30 September 1996 and warned that:-
	“Any Name who fails to pay his finality bill as described in Chapter 5 by this time will lose the benefits referred to above, even if he accepted the settlement offer on or prior to 28 August 1996.  It is therefore crucial that Names should make arrangements to pay their finality bills in good time ...”
14.	The documents which accompanied the 30 July 1996 letter included a 159 page introductory document explaining the important features of the Settlement Agreement.  This warned again that:-
	“To benefit from allocations from the settlement fund, Names must accept the settlement offer, enter into the Settlement Agreement and pay their finality bills”.
and said that:-
	“To accept the settlement offer, Names must complete and return a form of acceptance to Lloyd’s ... by 12 noon (London time) on 28 August 1996”.
15.	The introductory document contained and explained the settlement offer.  Attached to it was a copy of the Settlement Agreement to which each Name who duly signed and returned to Lloyd’s a form of acceptance would become a party.  In section G the introductory document, under the heading “Collection of Amounts Unpaid by Names”, spelled out the consequence of failure of an Accepting Name to pay his finality bill by 30 September 1996:-
	“A Name who accepts the settlement offer but, nevertheless, fails to pay his finality bill by 30 September 1996 ... will be subject to legal proceedings, under the Settlement Agreement, by Lloyd’s to recover the amount remaining unpaid by him, together with any interest due ... .  An accepting Name who fails to pay by the 30 September 1996 deadline will be obliged to pay the amount shown in the “total liabilities” line of his finality statement without the assistance of any debt credit or litigation settlement fund allocations ...”.
16.	In the Settlement Agreement, under the heading  “Obligations of Lloyd’s”, clause 3.1 provided that:-
	“... each Accepting Name will be entitled, in accordance with [the terms of the Settlement Offer Document]:
	(a)	to have applied for his benefit such amounts, if any, as are set out in his finality statement from the Combined Litigation Settlement Funds (excluding Expenses Refunds) and/or the Debt Credits, provided he has paid, or otherwise satisfied his obligation to pay, all amounts due from him in respect of his Finality Statement...”.
and, under the heading, “Obligations of Accepting Names”, clause 4.1 provided that:-
	“... each Accepting Name agrees with Lloyd’s to pay, or otherwise to satisfy his obligation to pay, all amounts due in respect of his Finality Statement in accordance with the terms set out in the Settlement Offer Document ...”

17.	Clause 12(12) of the Settlement Agreement enabled Lloyd’s to agree in any individual case to an extension of time for payment by the Name of his finality bill. Paragraph 32 of Appendix 2 provided that:-
	“... an accepting Name will be entitled to receive the benefits set out in clauses 3.1(a) and 3.3 of the Settlement Agreement if he has paid, in accordance with paragraphs 42 to 48, by the Finality Payment Deadline, not less than his Finality Amount”.
18.	Paragraph 38 of Appendix 2 contained the provisions at which the penalty/forfeiture argument is directed.  It provided as follows:-
	“If an accepting Name fails to pay, in accordance with paragraphs 42 to 48, his Finality Account by the Finality Payment Deadline, he will:
	(a)	be in default; and
	(b)	not be eligible for any refund of the members’ special Central Fund contribution; and 
	(c)	not be entitled to have applied for his benefit the amounts, if any, as set out in his finality statement from the combined litigation settlement funds and/or debt credits save to the extent that he has any entitlement pursuant to the terms of any Action Group Settlement Agreement”.
19.	Clauses 42 to 48 set out the manner in which payment by Names of their respective finality bills was to be made.
20.	The relevant definitions were contained in paragraph 31 of Appendix 2.  “Finality Amount” was defined by reference to a complicated formula many of the ingredients of which were set out in the Name’s finality statement.  “Finality Payment Deadline” was defined as “12 noon (London time) on 30 September 1996 or such later time and date as Lloyd’s may allow”.
21.	A finality statement was attached to the set of documents sent to each Name.  The figures in the finality statements sent to Mr and Mrs Twinn respectively constitute the basis of the claims made in the Statutory Demands.  Let me describe Mr Twinn’s finality statement.  It begins with a section headed “Underwriting liabilities” which, under eight sub-headings, sets out the sums that, accordingly to Lloyd’s, constituted Mr Twinn’s underwriting liabilities to Lloyd’s.  The total shown was £1,147,578.

22.	The next section sets out a number of credits, including the settlement credits to be allowed to Mr Twinn if the reconstruction and renewal proposals were accepted.  They amounted to £1,071,853.  The total of the credits was shown as £1,095,995.

23.	The figures produced a debit balance of £51,583 which, ignoring a £1 deduction, was described as “Finality (cost) surplus before adjustments, taking into account funds at Lloyd’s”.  After some minor adjustments the finality statement showed £51,569 as the sum due to be paid by Mr Twinn.  The finality statement was accompanied by supporting pages showing how the various sums specified in the statement were arrived at.

24.	Mrs Twinn’s finality statement was in the same form.  The total of her underwriting liabilities was shown as £684,769.  The total of the credits she was to be allowed was £623,883.  The final sum shown as due from her to Lloyd’s was £60,612.  This final sum was later reduced to £50,271 as a result of a further so-called “Tranche 4” credit that increased her credits to £634,495.

25.	The effect of these figures, in conjunction with the relevant clauses of the Settlement Agreement, was that Mr Twinn, if he accepted the settlement offer, would discharge his liabilities to Lloyd’s if he paid £51,569 by 30 September 1996.  If he failed to pay that sum by that date, then, subject to any extension of time that he might be allowed by Lloyd’s, he would lose the benefit of the settlement credits and become liable to pay his underwriting liabilities in full.  Mrs Twinn, if she accepted the settlement offer, could discharge her liabilities to Lloyd’s by paying £50,271 (taking into account the later Tranche 4 credit) by 30 September 1996.  If she failed to do so, then she would lose the benefit of the settlement credits and, like Mr Twinn,  become liable to pay her underwriting liabilities in full.

26.	These features of the Settlement Agreement are those on which Mrs Mackenzie-Smith’s penalty and/or forfeiture arguments are based.

27.	The documents sent to each Name included a form of acceptance.  The form was headed “Lloyd’s Settlement Offer”.  Beneath the heading the following explanation and warning was given:-
	“This Form must be read in conjunction with your Finality Statement, the accompanying guidance notes and the Settlement Offer Document, including the Settlement Agreement set out and described therein.  By signing and returning this Form you irrevocably accept the settlement offer and become bound by the terms and conditions of the Settlement Agreement ...”.
28.	Then followed a sub-heading, “Section 1.  Acceptance of the settlement offer” and beneath the sub-heading the following:-
	“I have carefully read the Settlement Offer Document, including the Settlement Agreement set out and described therein.  In consideration for the mutual covenants and agreements and other good consideration, I hereby irrevocably accept the settlement offer, agree to be bound by the terms and conditions set out in the Settlement Agreement, make all releases, waivers, assignments and other depositions and grant all powers of  attorney, authorities and appointments there under”.
29.	The Form was to be “signed and delivered as a deed” in the presence of two witnesses.  The Form included a “Section 3.  Payment Form” under which the signatory was invited to state whether or not he intended “to return a Payment Form”.
30.	On 23 August 1996 Mr Twinn executed the form as a deed.  On 19 August 1996 Mrs Twinn executed the form that had been sent to her.  In section 3 of his form, Mr Twinn indicated that he did not intend “to return a Payment Form” and added, in manuscript, “see covering letter”.  Mrs Twinn, too, in section 3 of her form, indicated that she did not intend “to return a Payment Form”.
31.	The covering letter in question, written by Mr Twinn to Lloyd’s, was dated 23 August 1996.  Enclosed with the letter were the acceptance forms that Mr Twinn and Mrs Twinn had executed.  The contents of the letter is more than simply the foundation stone of Mr and Mrs Twinn’s contention that they never accepted the settlement offer.  It is the whole structure of their case.  I should therefore set it out in full.
	“I enclose form of acceptance of the offer duly completed subject to:-
	(1)	the figure as set out in the finality statement being correct.  This would appear clear from the statement and the substantial accompanying documentation but I have been awaiting a reply to correspondence from the financial recovery department since April
	(2)	I have no money with which to make payment; the failure to reply has left me in an impossible situation to consider arranging finance.
	I also enclose my wife’s acceptance which is subject to the terms of the letter from the financial recovery department of 5th August.
	It has been agreed that I shall be responsible for her payment and, from what she has told me of her statement of means, there is no way she can pay.  However, this is academic as I have agreed to take responsibility to try to get this matter settled.  As you will have seen from her statement of means you are probably more likely to get the money from me than her.
	I have no liquid assets; nor does my wife.  My wife has, however, agreed that we combine what we own for this purpose so that Lloyd’s can treat us as one entity.
	My bankers are already querying the adequacy of their security.  I tried both English and European banks for assistance when the Lloyd’s situation started to become apparent with no success.  My member’s agent approached every bank that they could in 1993 with no success.  The facility offered by the Abbey National is no good to us; our London home has already been sold to go towards the money paid under the guarantees and the above address was merely previously a holiday flat with, as must appear from my wife’s statement of means, inadequate equity to be of help.  All assets including this are already mortgaged.
	Lloyd’s has constantly said that no name should be prevented from accepting the offer merely because he cannot pay.
	Lloyd’s must have more contacts and greater access to facilities than me.  Property in France is probably the best bet and, failing any other solution, I am prepared to give a mortgage to Lloyd’s
	I look forward to hearing from you with your advice and assistance”.
	32.  	The letter expressed Mr Twinn’s acceptance to be subject to the correctness of the figures in his finality statement  but no point has been taken on this appeal, or was taken below, on the figures.  Mr Twinn does not dispute that the figures are correct.  Mrs Twinn’s acceptance was expressed by the letter to be subject to the terms of a letter of 5 August from Lloyd’s financial recovery department.  No point was taken on this either.  The letter led to the increase of Mrs Twinn’s credits and to the consequential reduction to £50,271 of the net sum due from her.  The point that has been taken is based on Mr Twinn’s assertion in the letter that neither he nor his wife would be able to pay the net sums due from them under their respective finality statements.  This assertion, it is submitted, rendered the apparently unequivocal acceptances, constituted by the execution of the acceptance forms, equivocal and ineffective.  Jacob J., in his judgment at page 9, posed the following question:-
	“... The question is, in short, does this letter of the 23rd of August 1996 amount to an unequivocal acceptance of the offer?”
33.	I think, with respect, that this was the wrong question.  The letter of 23 August was not, on any view, a letter of acceptance.  The acceptances were effected by the execution of the acceptance forms.  The right question, in my view, was whether the letter of 23 August, which accompanied the executed forms, rendered the apparently unequivocal acceptances equivocal.  I do not, however, think that the reformulation of the question is critical.  What is critical is the true effect of the letter of 23 August.
34.	The judge set out his conclusions on this critical issue in the following passage:-
	“I have come to the conclusion that that is not right.  I think this letter is saying “I would like to accept your offer but I cannot pay the money”.  It is a much more reasonable way of reading the letter because, for someone to say “I accept to do something which I cannot do” is a pointless thing to do.  Although it purports in one place to be accepting the offer with all the things that I have read out about unequivocal, unconditional and so forth, it is also saying “I am not going to do it”.  When a man says “I am not going to do it”, it is most unlikely that he is accepting an obligation to do it.
	The letter conveys other indications of incomplete acceptance, together with, of  course, indications of acceptance.  “I undertake to take responsibility to try to get this matter settled” does not look as though he has not accepted.  This letter is more than simply a plea for indulgence after acceptance.  It is a statement that what he is supposed to be accepting he will not perform.  It is difficult to construe against that by the offeree saying he will not perform an obligation as an acceptance of the obligation to perform”
35.	I am afraid I do not agree with the learned judge’s analysis.  It seems to me plain that Mr Twinn was following up unconditional acceptances with an attempt to obtain concessions as to the means by which his and his wife’s payment obligations under the Settlement Agreement might be discharged.  In particular, the sentence in the letter “Lloyd’s has constantly said that no name should be prevented form accepting the offer merely because he cannot pay “seems to me to show that Mr Twinn was doing just that.  He was accepting the offer although he could not pay. The ensuing correspondence between Mr Twinn and Lloyd’s seems to me to bear this out.  Mrs Mackenzie-Smith protested that subsequent correspondence could not be used to assist in construction of a written contract.  She is quite right, at least as a general proposition.  But subsequent correspondence, or subsequent statements by the parties, can be used to cast light on the question whether a binding contract has been entered into.  The point is made in Chitty, Vol. 1, 28th edition, at paragraph 12-124:-
	“Subsequent actions are therefore inadmissible to interpret a written agreement, although they are admissible to show there was a contract and what the terms of the contract were, either originally or by variation or as the basis of an estoppel”.
36.	On 14 September 1996 Mr Twinn wrote to Lloyd’s.  He referred to his letter of 23 August “which accompanied Acceptance forms which I know were received in your office and treated as acceptances ...”.  He then said “I am concerned not to have heard from you since, put in simple terms, I have to produce £100,000 by the 30th September failing which both I and my wife would appear to be in default and therefore treated as not having accepted the offer”.
37.	These remarks show that he regarded himself and his wife as having sent to Lloyd’s valid acceptances and are inconsistent with the proposition that he did not have to produce the £100,000 odd by 30 September.
38.	On 11 October Mr Twinn wrote again to Lloyd’s.  He said”.  I am not asking to reduce in anyway the amount payable by either my wife or myself ...”.  This was clearly  a reference to the net sums shown payable by the finality statements.  But if the settlement offer had not been accepted these would not have been the sums that were payable.
39.	By November 1996 Lloyd’s were corresponding with Gane Jackson Scott, accountants acting for Mr and Mrs Twinn.  The correspondence was conducted on the footing that the sum Mr Twinn had to find was the net sum.  The accountants wrote on 15 November saying that Mr Twinn was “making some headway in raising the necessary finance in France to repay both his and his wife’s liability at Lloyd’s”.  The “liability” referred to was, plainly, the liability to pay the net sum.  By this time, of course, 30 September 1996 had come and gone.  But Lloyd’s was evidently prepared for the time being to exercise in Mr Twinn’s favour its discretionary power to extend the time for payment.  
40.	By January 1997, however, Lloyd’s was threatening to commence proceedings against Mr and Mrs Twinn, and on 17 January Gane Jackson Scott asked Lloyd’s to confirm that the amounts that had to be paid were £51,500 for Mr Twinn and £50, 000 for Mrs Twinn.
41.	On 27 June 1997 Lloyd’s wrote to Mr Twinn and, separately, to Mrs Twinn.  Each letter threatened legal proceedings.  Each letter enclosed a document described as  a Finality Account.  Mr Twinn’s Finality Account began with the net sum shown on his finality statement, £51,583, and, after some adjustments, added £48,794.44 in respect of interest and £919,134 attributable to “Loss of Settlement Credits”, producing an “Amount due” of £1,018,832.31.
42.	Mrs Twinn’s Finality Account followed the same lines and showed an “Amount due” of £624,607.91.  It is clear that these Finality Accounts had been drawn up pursuant to the provisions of paragraph 38 of Appendix 2 of  the Settlement Agreement.
43.	The response to these letters was a letter dated 23 July 1997 from Gane Jackson Scott.  The letter said that:-
	... when Mr Twinn submitted to you the acceptances of the finality figures last summer, in his covering letter he made it clear that although both he and his wife were accepting they were not in a position to make payment and would need time to pay...”.
44.	This analysis by Mr Twinn’s accountants of the position brought about by the sending to Lloyd’s of the executed acceptance forms and the 23 August 1996 covering letter is inconsistent with that adopted  by the judge.  It is consistent only with an intention on Mr Twinn’s part to accept the settlement offer and at the same time to try and negotiate indulgences as to the manner in which the payment obligations would be met.  
45.	Despite the terms of the letters from Lloyd’s dated 27 June 1997, it is apparent that Lloyd’s were still willing to accept late payment of the net sums.  A letter from Lloyd’s to Mr Twinn dated 14 July 1997 said this:-
	“The net amount due to finality is therefore the amount of £51,261.99 being the “Finality (cost) after payments” as set out in your Finality  Account.  This sum should be paid to Lloyd’s within 21 days from the date of this letter.  Failure to pay by the due date will result in you losing your benefits under the Settlement  Offer and Lloyd’s will commence recovery proceedings for the full amount of your underwriting liabilities pursuant to the terms of the Settlement Agreement, and as detailed at the foot of your Finality Account”.
46.	Mr Twinn’s response, by a letter to Lloyd’s of 31 October 1997, did not say that he and his wife had not accepted the settlement offer.  Instead he said this:-
	“My wife and I accepted the pledges given by you and others for those appropriate to consider accepting R & R.  We were informed that, if we accepted, assistance would be available but certainly nothing is being done for those who, although trying to make arrangements to pay, have been unable to pay under the timetable laid out.  What is the point in withdrawing debt credits when your department is aware that we are struggling to do what we can to make arrangements to pay ...”.
47.	It seems to me that in the correspondence running from September 1996 to October 1997  Mr Twinn was accepting (or Gane Jackson Scott were accepting on his behalf) that he and his wife had signed and returned to Lloyd’s valid acceptances of the settlement offer.   They were, at the same time, trying to obtain indulgences from Lloyd’s as to the manner in which and time at which they would have to pay the net sums.  There is no conceptual reason why an offeree should not accept an offer but at the same time indicate doubt in his ability to perform his part of the contract and ask for some indulgence.  The judge seemed to think it would be improbable that an offeree would ever do such a thing.  An offeree who doubted his ability to perform and wanted some indulgence would be expected to make a counter-offer rather than to accept and then try and negotiate more favourable terms.  It may be that, in general, that would be a reasonable expectation.  But not, in my opinion, in the present case.  The settlement offer, if it were to be accepted, had to be accepted before the end of August 1996.  Strict time limits on acceptance had been prescribed.  Very valuable benefits, namely, the settlement credits, were on offer.  Mr and Mrs Twinn had every reason to want to accept while the offer was still open for acceptance and then to make the best deal about payment that they could.
48.	The contractual principles of offer and acceptance that have to be applied to resolve the acceptance issue are not in doubt.  An offer must be accepted unconditionally.  A conditional acceptance is not an effective acceptance but may be a counter-offer which, in turn, may or may not be accepted by the original offeror.  Jacob J., cited a passage from the judgment of Hirst J. in Lark -v- Outhwaite (1991) 2LCR 132 at 135.  The passage is as follows:-
	“The principles are elementary and very well established.  The acceptance must correspond with the offer and must be clear and unqualified and would fail to take effect if it attempts to vary the terms of the offer or to add new terms.  On the other hand, statements which are not intended to vary the terms of the offer or to add new terms do not vitiate the acceptance ...”.
I respectfully agree that this passage correctly expresses the law.
49.	Two situations must be distinguished from one another.  An offeree who purports to accept an offer must accept unconditionally.  An acceptance which adds a new term to the contract is not an unconditional acceptance.  But there is, conceptually at least, no reason why an offeree should not accept an offer unconditionally and, at the same time, make a collateral offer to the original offeror.  The original offeror may or may not accept the collateral offer but, whether he does or does not do so, the unconditional acceptance will stand as having concluded the contract on the terms of the original offer.
50.	Mrs Mackenzie-Smith submitted that a purported acceptance which asked for some form of indulgence to the offeree would only be effective so long as it was clear that the offeree was prepared to perform even if the indulgence was not granted.  She cited a passage from Chitty on Contracts, 26th Edition, in support.  I have not managed to find the comparable passage in the current edition, the 28th, but, in any event, I do not think her submission accurately expresses the law.  An acceptance which seeks an indulgence will be effective if it is clear that the offeree was unconditionally accepting the offer.  In a case where the terms of the offer held out a considerable benefit to the offeree, the offeree might well want to accept notwithstanding that in some respect or other he, the offeree, would not be able to perform.  Suppose an offer with a stipulation requiring  performance by a specified date.  That time element might or might not be fundamental to the contract.  It might or might not be of the essence of the contract.  Why should the offeree not give an unconditional acceptance but, at the same time, try to agree an extension of time, warning the offeror that his (the offeree’s) performance would anyway take place later than the specified date?
51.	Whether an acceptance is truly unconditional, with the counter-offer being collateral to the concluded contract, or whether the counter-offer is a condition of the acceptance is an issue which will depend on the facts of the particular case.  The intended effect of a purported acceptance must be judged objectively from the language used and the surrounding circumstances.
52.	In the present case, the probabilities, having regard to the circumstances in which the letter of 23 August was written, favour strongly, in my judgment, the conclusion that Mr and Mrs Twinn’s acceptances were unconditional.  The subsequent correspondence supports that conclusion and is inconsistent with the proposition that Mr and Mrs Twinn were not accepting Names.  In my judgment, therefore, the judge was wrong to allow the appeal from the Registrar.  I would restore the judgment of the Registrar on the acceptance issue.
53.	This conclusion makes it necessary for me to deal with Mrs Mackenzie-Smith’s penalty and/or forfeiture arguments.
54.	She argued that paragraph 38 of Appendix 2, under which the settlement credits were lost if the net sum  shown due in the finality statement was not paid by 30 September 1996, was a penalty and, as such, unenforceable.  This contention is, in my judgment, unarguable.  A contractual provision the effect of which is that a debtor who owes, say, £1,000 may discharge his liability if he pays £500 by a specified date but if he does not do so must pay the £1,000 is not a penalty provision.  If the substance of a contractual provision is as described it does not matter in the least that the contractual provision takes a form under which, first, the liability to pay £1,000 is replaced by a liability to pay £500, second, the £500 is to be paid by a specified date and, third, if the debtor fails to pay the £500 by that date his liability to pay the £1,000 revives.  In considering whether a provision is a penalty, the law will look to the substance, not to the form.  The substance of the Settlement Agreement is that the Name is offered a benefit, namely, the settlement credits, as an offset against his underwriting liabilities, provided he pays the balance by a specified date.  If he does so, he discharges his liability.  If he does not do so, his original liability revives.  That is the reverse of a penalty.  It is a conditional benefit.  If, of course, the sum specified in the finality statement as the amount of the Name’s underwriting liabilities were an arbitrary sum, the conclusion might be otherwise.  It is clear, however, and the contrary has not been suggested, that the underwriting liabilities sum specified  in the finality statement was a bona fide calculation of the amount of the Name’s underwriting liabilities to Lloyd’s.  Whether or not the sum was agreed by the Name as being correct, it was the result of a genuine attempt by Lloyd’s to quantify the Name’s current liabilities.  The question of a penalty simply does not arise.
55.	The penalty argument was raised by Lloyd’s Names in two cases, Jones -v- Lloyd’s and Standen -v- Lloyd’s which were tried together by Rattee J.  He gave a judgment on 16 December 1999 rejecting the argument.  The judgment has not yet been reported but we have been supplied with a transcript.  At page 20 Rattee J., referred to and cited from Thompson -v- Hudson (1869) 4 H.L.1.  The citation included the following passage from the speech of Lord Westbury, at page. 27:-
	“A penalty is a punishment, an infliction, for not doing, or for doing something; but if a man submits to receive, at a future time and on the default of his debtor, that which he is now entitled to receive, it is impossible to understand how that can be regarded as a penalty”.
56.	Rattee J’s conclusion was that:-
	“... similar reasoning applied to the Settlement Agreement leads to the conclusion that the provisions of paragraph 38 of Appendix 2 to the Settlement Offer Document do not give rise to a penalty.  They preserve the Name’s original underwriting liabilities without deduction of, in particular, Debt Credits in the event of the Name failing to comply with the new settlement provisions for payment of a lessor sum by a specified date”.
I entirely agree.
57.	Mrs Mackenzie-Smith suggested, alternatively, that paragraph 38 represented a forfeiture provision, under which the credits contributed in respect of the Name by other parties to the Reconstruction and Renewal Agreement became forfeited in the event of non-payment by the Name by the due date.  She submitted that, in the event that Jacob J’s judgment were reversed, Mr and Mrs Twinn should be granted equitable relief from forfeiture.  This point, too, was argued before Rattee J in Jones -v- Lloyd’s and Standen -v- Lloyd’s”.
58.	Rattee J. accepted the submission made on behalf of Lloyd’s that the doctrine of relief against forfeiture was applicable only where the alleged forfeiture was of some proprietary interest (page 22 of his judgment).  Basing himself on paragraph 9 of Appendix 2 to the Settlement Agreement which provides that “... no Name or other person will have an interest of any type in any part of the Settlement Fund ...”.  Rattee J. held that the doctrine of relief from forfeiture could have no application to a Name’s loss under paragraph 38 of the benefit of the Settlement Fund deductions (p. 23).
59.	I agree with him.  But there are two other reasons in particular why, in my opinion, forfeiture can have no part to play in a case like this.  First, the structure and financial viability of the Reconstruction and Renewal plan was based upon the premise that accepting Names would pay their finality bills by 30 September 1996.  The benefit of credits from the Settlement Fund was available to them only if they did so.  If a Name fails to do so, nothing is forfeited.  The Name simply does not fulfil the contractual condition upon which his entitlement to the credits depends.  Second, equitable relief from forfeiture is always on terms that the applicant comply with the contractual term the breach of which has led to the forfeiture.  There has been no tender by Mr and Mrs Twinn of the net sums that, under the finality statements, were payable by 30 September 1996.  In  her skeleton argument dealing with her forfeiture contention Mrs Mackenzie-Smith said that her clients “are able to secure for the net amount and have offered to do so”.  That is not good enough.  Lloyd’s were entitled to payment, not to some form of security.
60.	In my judgment, neither the penalty nor the forfeiture point, neither of which was raised before Jacob J., is of any substance.  Since, however, we have given the points full consideration I would propose to allow Mr and Mrs Twinn to file a respondents’ notice raising the points.
61.	I have had the advantage of reading in draft the judgment of Lord Justice Chadwick, I agree with him that the various points raised by, or on behalf of, Mr and Mrs Twinn in contesting their indebtedness to Lloyd’s on which the bankruptcy petitions were based, ought to have been raised on applications to set aside the statutory demands.  Lord Justice Chadwick has pointed out the possible difficulties that may follow the re-instalment of the bankruptcy orders; difficulties that would have been avoided had the challenge to their indebtedness been raised by Mr and Mrs Twinn in the manner envisaged in the 1986 bankruptcy code, namely, by applying to set aside the statutory demands.
62.	In the event, however, all the points on which Mr and Mrs Twinn rely being bad points, the appeal must be allowed and the bankruptcy orders against Mr and Mrs Twinn must be reinstated.
Order: Appeal allowed.  Permission to appeal to House of Lords refused.  Costs order as per agreed minute of order.
(Order does not form part of the approved judgment)