Neutral Citation Number: [2012] EWHC 927 (Comm)
Claim No: 2011 Folio 1507
IN THE HIGH COURT OF JUSTICE 
QUEEN’S BENCH DIVISION 
COMMERCIAL COURT
Royal Courts of Justice 
Strand London, WC2A 2LL
Date: 18th April 2012
Before :
Mr C Edelman QC
(Sitting as a Deputy Judge of the Commercial Court)

Between:
	NSB LIMITED (In Liquidation)	Claimant	
	- and -		
	WORLDPAY LIMITED	Defendant	

Andrew Mitchell QC (instructed by DLA Piper UK LLP) for the Defendant
Ali Reza Sinai (instructed by Kiteleys Solicitors) for the Claimant
Hearing date: 23 March 2012

JUDGMENT

Mr C Edelman QC :
Introduction
1.	The application with which I have to deal is made by the Defendant pursuant to an Application Notice dated 16 December 2011. The Defendant applies for an Order that summary judgment be entered for the Defendant under CPR Part 24. The application is supported by the second witness statement (dated 6 December 2011) of Tony Rossiter, a Senior Credit Manager with WorldPay (UK) Limited, which now carries on the Defendant’s merchant acquiring business. For the Claimant, there is a witness statement dated 29 February 2012 from Romek Kriwald, a former Director of the Claimant, to which Mr Rossiter has responded in his third witness statement dated 14 March 2012. There was then a further witness statement from Mr Kriwald dated 16 March 2012 and the Claimant also put before me a draft Re-Amended Particulars of Claim, primarily to address a point taken by the Defendant on the way in which the damages claim was pleaded. In addition, there was some of the evidence that had been deployed for the purposes of an application by the Defendant to set aside a default judgment which had been obtained by the Claimant on 6 March 2009.
2.	These proceedings began in the Bournemouth County Court. At that stage, the Claimant’s claim was for £56,709.61, which it was alleged had been wrongfully retained by the Defendant. However, the Claimant subsequently expanded its claim to encompass a more general claim for damages and although no figure for the loss has been pleaded, it has been put as a claim for a sum well into seven figures. As a result, the proceedings were transferred by consent to the High Court in 2011 and to the Commercial List. In the meantime, in April 2010 the Claimant went into voluntary creditors’ liquidation but the Liquidator has elected to continue with these proceedings.
3.	The application to set aside the default judgment obtained whilst these proceedings were still in the County Court was contested and there was a judgment on the appeal by His Honour Judge Iain Hughes QC. In that judgment, he helpfully set out the background to this case in the following terms:
“Worldpay is a merchant acquirer that provides credit and debit card payment processing services to merchants. It provides a single link between merchants and the card issuers known as a merchant acquiring facility. The relationship between Worldpay and the merchant is governed by the terms and conditions of a Worldpay customer agreement. In November 2000, NSB, a merchant, entered into a merchant acquiring agreement. It is common ground that the version in use at the material time was the March 2007 issue of the Worldpay customer agreement.
When a cardholder pays a merchant for goods or services or facilities with a credit card the merchant acquirer makes payment to the nominated bank account of the merchant in the amount of the payment they have accepted by card. This payment is made by the merchant acquirer upon the merchant submitting data in respect of the transaction, usually by the electronic transmission of the data. Such payments are made by the merchant acquirer very quickly, usually within a few days.
Worldpay, as a merchant acquirer is a member of the card schemes operated by MasterCard and Visa. Having received data from a merchant the merchant acquirer will submit the electronic data in respect of the transaction to the clearing system of the relevant card scheme. Each of the card schemes operate a card clearing system to facilitate the payment and interchange of liabilities between the card issuers and the merchant acquirer. Having submitted the data the card issuer pays the amount of the transaction to the merchant acquirer. The card issuer then seeks payment from its cardholder.
The clearing process involves a very large number of transactions; billions each year. Neither the merchant acquirer nor the card issuer have any involvement with the underlying transaction between the cardholder and the merchant and are not in a position to resolve disputes between them. Because of this the schemes operate a chargeback mechanism for swiftly dealing with disputes between the cardholder and the merchant.
Chargeback may occur, for example, when a cardholder asserts that he has not received the goods or services for which he has paid with his card or he finds a transaction on his monthly statement which he did not authorise. By this time the merchant will have been paid by the merchant acquirer in respect of the transaction.
If the cardholder raises such a claim with their card issuer the latter will then chargeback the transaction to the merchant acquirer, in so doing identifying the basis of the dispute. Codes are used to identify the nature of the claim. The merchant acquirer will then refund the card issuer. Ordinarily the merchant acquirer will then pass the chargeback on to the merchant. In so doing they will seek information relating to the transaction. In the case of alleged non-receipt of goods the merchant acquirer will ask for evidence of any delivery. If the merchant is able to provide this evidence then the merchant acquirer will re-present the transaction and it will be debited again from the card issuer back to the merchant acquirer.
In the event that the card issuer still does not accept this re-presentation it may again chargeback and this will again require the merchant acquirer to credit the sum back to the card issuer. This chargeback cannot be presented again. There is an arbitration scheme available to resolve disputes between the card issuers and the merchant acquirers.
However, if the merchant does not repay the merchant acquirer, perhaps because it has become insolvent, the merchant acquirer still has an obligation under the rules to pay the refund to the card issuer. Thus the merchant acquirer bears the risk of any inability on the part of a merchant it has contracted with to repay the chargeback. ...
NSB provided a service reuniting pet owners with their lost pets. On payment of a fee by the owner, NSB, which traded as “Keepsafe”, would provide each pet with a unique reference number which would be displayed on a tag to be worn around the neck of the animal, together with a telephone number for the finder to call. On receipt of the call NSB would arrange for the pet and its owner to be reunited ...”
4.	At the time of the commencement of the relationship between the Claimant and the Defendant, in November 2000, pet owners could purchase the service provided by the Claimant on an annual or a lifetime basis, with the lifetime being the life of the pet. It was not in dispute that in the period 2001 to 2006 purchases were overwhelmingly on a lifetime basis. Under its agreement with the Defendant, the Claimant was able to accept payment from pet owners by way of both Visa and MasterCard, with the evidence indicating that about 56% of the Claimant’s debit/credit card business was with Visa credit or Visa debit cards. Chargeback would not be a significant issue in relation to MasterCard transactions because the MasterCard rules specify a chargeback window of 540 days from the date of the transaction. By contrast, so the Defendant contended, the Visa rules were different in that there was a 120 calendar day chargeback time limit which ran from the date the cardholder expected to receive the service. It has therefore been the Defendant’s case that there was a risk of chargeback under transactions using a Visa card throughout the lifetime of a pet where the pet owner had purchased the service on a lifetime basis.
5.	In the summer of 2006, at the Defendant’s insistence, the Claimant agreed to cease selling its service on a lifetime basis and one of the issues of fact between the parties, which it is impossible for me to resolve on a summary judgment application, is whether or not the Claimant thereafter complied with that agreement during the period up to the termination of its contract with the Defendant.
The Contract Terms
6.	The relevant terms of the contract between the Claimant and the Defendant for present purposes are those set out in the March 2007 issue. The clauses which are material to this application are as follows:
“Terms and Conditions
This Agreement sets out the terms on which WorldPay ... will accept Cards as a means of payment for goods and services You supply and upon which Transactions will be presented to Us by the Cardholder for authorisation clearing and settlement purposes by the Acquirer ... You accept the risk associated with Card payments and You understand that You can be debited back for any transaction which is subsequently disputed even if authorised. ...
1. Definitions
In this Agreement: ...
“Chargeback” means any invalid or disputed Transaction that is or may be charged to Us by our Acquirer; ...
“Disputed Transaction” means a Transaction which has been disputed by a Cardholder, either directly by notification to Us by the Cardholder or by notification to the card issuer; ...
“Refund” means a Transaction where a Payment Transaction is reversed with the intention of crediting the Cardholder’s account; ...
6. Remittances...
6.1 Each week .. . we will calculate the amount of Remittance by calculating the amounts due in respect of Payment Transactions which are due following the Remittance Period and deducting the following:
6.1.1 the Service Charge due;
6.1.2 Refunds;
6.1.3 Chargebacks ...
6.1.4 Disputed Transactions and any amounts reasonably required to cover potential or expected Refunds, Chargebacks or Disputed Transactions; ...
6.4 We may hold back from the Remittance any amounts reasonably required to cover potential or expected Refunds, Chargebacks, or Disputed Transactions and we may hold back the amount of any excess trading over the agreed trading limit.
8. Chargebacks and Disputed Transactions ...
8.1 In the event of any Chargeback in respect of any of your Transactions We will immediately be entitled to debit Your account (if not already debited as a Disputed Transaction) or to recover from You by other means the amount paid by Us in respect of the relevant Transaction(s). The Card Issuer’s decision shall be conclusive as to the determination of any Chargeback. Wherever possible, notice to You of a Chargeback will be accompanied by an explanation of the reason for it. ...
8.2 Where We are notified of any invalid or Disputed Transactions We will notify you of the same by email, fax or letter accompanied by an explanation of the reason for it. We will flag the Transaction as disputed and debit it back to You. You agree to investigate Disputed Transactions and take all reasonable steps to resolve disputes with Cardholders in a timely manner and follow the procedures for handling Disputed Transactions and Chargebacks which we advise from time to time. ...
8.3 In the event that We consider in good faith that there is a high risk of Chargeback We shall retain funds from any Remittance to cover the potential amount of such Chargeback and You shall on request provide such additional funds as We may specify in good faith to cover Chargebacks and potential Chargebacks. ...
12. Your Obligations . . .
12.2 You will:...
(i) Act in a reasonable manner to resolve Cardholder disputes or potential disputes; ...
14. Agreement Term and Terminations
14.1 The Agreement ..., subject to earlier termination pursuant to Clause 14.2 or as otherwise provided in this Agreement, shall continue in force for a minimum period of 12 months and will be automatically renewed for a further 12 months on each anniversary date until terminated by one party giving to the other not less than 30 days notice prior to any renewal date. ...
15. Liabilities...
(b) ... We shall not be liable, in contract, tort (including negligence), or otherwise for:
(i) any loss of profit, business, contracts, revenues, or anticipated savings; or
(ii) any special, indirect, or consequential damages of any nature whatsoever,
resulting from any act or omission on Our part or any other person authorised by Us.
16. Indemnities
16.1 You will indemnify Us against all losses, costs, expenses, damages and liabilities incurred by Us as a result of any claim brought against Us by any Cardholder, Card Issuer, Acquirer or other third party as a result of Your breach of the Agreement or Your acts or omissions. ...
19. Entire Agreement
19.1 The Agreement sets out the entire agreement between You and Us, and no representations nor warranties nor other assurances which are not specifically set out herein shall be implied as terms of the Agreement...
22. Set-Off
We shall be entitled to set off any of Your liabilities to Us (whether present, future, actual or contingent) against any amounts owing to You. We do not have to give prior notice to do this. You are not entitled to set-off any liabilities of Ours under this Agreement (whether present, future, actual or contingent) against any funds due to Us under this Agreement.
23. Waiver
No failure or delay by Us in exercising our rights under the Agreement shall be construed as a waiver or release of that right unless otherwise agreed in writing by Us. ...”
The Claim
7.	As I have already recorded, this action started life in the Bournemouth County Court and the original Particulars of Claim pleaded that on 28 August 2007, the Defendant served a notice on the Claimant purporting to give 30 days’ notice, in accordance with Clause 14.1 of the Agreement, to terminate the Contract with effect from 29 September 2007. It was pleaded that whilst the Claimant disputed that the notice was valid, the validity of the “purported termination” was not in issue in the proceedings. The Particulars of Claim went on to plead that the termination date was ultimately extended to 6 November and then ultimately to 30 November 2007. It was further pleaded that, wrongfully and in breach of contract, the Defendant withheld the Claimant’s remittances due for October and November in the sum of £77,000 and whilst they did agree on 29 November 2007 to release £27,000 for the purposes of meeting the Claimant’s monthly salary run, they continued to retain £56,709.61, claiming to be entitled to do so pursuant to Clause 8.3 of the Contract. It was alleged that this retention of the remittances was in breach of contract as there was no “high risk” of potential chargebacks as at 30 November 2007, in particular having regard to the low level of chargebacks that had historically arisen on the Claimant’s account.
8.	This claim was thereafter amended to add a claim for damages. The Amended Particulars of Claim did not particularise the loss and damage, save that it was pleaded that “The Claimant will rely at trial on expert evidence on the value of its shares at the date it stopped trading.” The only indication of the quantum of the claim is that in the Liquidator’s annual report to creditors for the period ending April 2011, the value of the claim against the Defendant is put in the sum of £8,065,000. The new claim for damages was put on the basis that the Defendant’s purported termination of the Contract and/or retention of approximately £57,000 and/or its conduct, of which complaint was made in the Amended Particulars of Claim, gave rise to breaches of the Contract and/or of the Defendant’s duties. It was also alleged that on 20 October 2007, the Defendant did not believe in good faith that there was a high risk of chargebacks.
9.	In addition to alleging that the Defendant’s purported termination was a breach of contract and that a high risk of chargebacks did not exist on 20 October 2007 or thereafter, the Claimant complains of the Defendant’s failure to cooperate with the Claimant’s efforts to transfer the provision of banking facilities to alternative bankers, in particular by failing to provide “any credible answers for the termination and retention”, forcing the Claimant into a comer on 29 November 2007 by offering to release £27,000 of the retained sums for payment of wages on the dual condition that services under the Agreement would cease on 30 November 2007 and that the Claimant would not pursue the Defendant for compensation and stopping performance of the Agreement on 30 November 2007 on 1 day’s notice, despite knowing that this would cause the Claimant’s sales and revenue effectively to cease and would make it impossible for the Claimant to transfer to new bankers.
10.	It is pleaded that the Defendant acted in bad faith on the basis that it decided to terminate and retain the Claimant’s revenue because of the strength of the company rather than the high risk of chargebacks and notwithstanding the history of low chargebacks and the absence of any evidence to suggest that the Claimant would cease trading but for the decision to cut off its income stream. The Claimant relies on the Defendant’s assessment of the risk of chargebacks and the steps taken to address any such risk in 2006 following the production of the KPMG report on 11 April 2006 and avers that no material factors occurred between 11 April 2006 and 30 November 2007. The Claimant also addresses the Defendant’s reliance on the total amount of refunds between June 2001 and April 2009 and what the Defendant has said and not said about its reasons for terminating the Contract and retaining all of the monies.
11.	The Claimant further pleads the Defendant’s refusal to enter into a novation agreement with The Answering Service (“TAS”), a 24 hour call-handling service, which it is said would have addressed the risk of chargebacks had the Defendant truly been concerned about it.
12.	The causative link between the alleged breaches and the loss and damage claimed is that it is alleged that on 30 November 2007, the Claimant stopped trading as a result of the Defendant’s unlawful breaches of the agreement and/or duty.
13.	It is apparent from the Claimant’s pleading that it is alleging that the Defendant’s purported termination of the Contract was a breach of Clause 14.1 and that its retention of approximately £57,000 was a breach of Clause 8.3 of the Contract but in addition, the Claimant asserts and relies on breaches of a duty of care owed by the Defendant to the Claimant and of the following implied terms:
“(i) The duty to perform banking services with reasonable skill and care as expected from reasonably diligent bankers;
(ii) The duty to provide adequate notice of termination so as to allow the Claimant to make alternative banking arrangements;
(iii) The duty to cooperate with the Claimant in the process of transferring banking services to alternative providers including the provision of necessary information and timely reasons for its decisions;
(iv) The duty to be frank and to deal openly with the Claimant.” (Paragraph 11 of the Amended Particulars of Claim.)
The Issues
14.	It is impossible and inappropriate for me to seek to resolve any of the genuinely contentious issues of fact that have emerged in the evidence which has been served and which I have read. Further, Mr Sinai rightly reminded me of the relevant principles to be applied when considering an application for summary judgment and in particular referred me to the passage in the speech of Lord Hope in Three Rivers DC v. Bank of England (No. 3) [2001] 2 All ER 513, at paragraph 95 on p.542. He also referred me to CPR Part 24.2(a)(ii) and to the commentary in the White Book at para 24.2.3, emphasising that what must be established here is that the Claimant has no real prospects of succeeding on its claim and that there are no other compelling reasons for the case to go to trial, with the word “real” meaning that the Court should only disregard prospects of success which are false, fanciful or imaginary. A respondent to an application for summary judgment need not show its claim or defence, as the case may be, will probably succeed.
15.	Mr Mitchell QC on behalf of the Defendant was realistic in recognising the constraints that are imposed on the Court in dealing with an application for summary judgment. However, he submitted that without needing to enter into any consideration of the factual disputes between the parties, I could conclude that the claim was bound to fail. In particular, he contended that:
(i) The alleged implied terms either were not implied terms or were not applicable to the Claimant’s claim;
(ii) There was no legal basis on which it could be said that the termination of the Contract was in breach of contract;
(iii) There was no sustainable case of a breach of Clause 8.3;
(iv) The Claimant had no sustainable case that it had suffered any loss.
The Implied Terms
(i)	The duty to perform hanking services with reasonable skill and care as expected from reasonably diligent bankers
16.	This implied term overlaps with the alleged duty of care in tort and what is said about the implied term must equally apply to the duty of care in tort.
17.	Mr Mitchell did not dispute that insofar as its provision of banking services was concerned, there would be a statutorily implied term along the lines pleaded. However, he submitted that such an implied term could not be applicable to the exercise of the right to terminate the Contract or to the exercise of the express contractual rights to retain monies under Clause 8.3, which was made subject to a duty of good faith. Mr Sinai had to recognise the force of those submissions and did not assert any reliance on this implied term for the purposes of the Claimant’s claim against the Defendant in this action.
(ii)	The duty to provide adequate notice of termination so as to allow the Claimant to make alternative hanking arrangements
18.	Mr Mitchell submitted that such a term could not be implied into the Agreement in circumstances where the Contract made express provision for termination and, in particular, in Clause 14.1 for the period of notice to be given for the termination of the Contract. Once again, Mr Sinai had to recognise the force of this submission and had to accept that either a notice under Clause 14.1 was valid and effective so as to bring the Contract to an end or it was not, in which case the Contract would renew for another 12 month period. He therefore abandoned reliance on this implied term.
(iii)	The duty to cooperate with the Claimant in the process of transferring banking services to alternative providers including the provision of necessary information and timely reasons for its decisions
19.	Mr Mitchell submitted that there was no necessity for the implication of such a term in relation to notice of termination as it was open to the Defendant to give notice under Clause 14.1 as it wished. The effect of Clause 14.1 was that the Contract was an automatically renewable 12 month contract with either party having the right to prevent there being an automatic renewal on giving to the other party not less than 30 days’ notice prior to any renewal date. It was not necessary for the party serving the notice to have any good reason for doing so and the service of the notice was entirely at the discretion of the parties. Yet again, Mr Sinai had to recognise the force of this submission and accepted this implied term could not be relevant to the question of termination.
20.	However, Mr Sinai did maintain that this implied term was relevant to the question of the retention. Reliance on this implied term does indeed form an important part of the Claimant’s case in that it is alleged that the Defendant’s failure to provide clear and adequate reasons for its decision to retain approximately £57,000 caused the Claimant to be unable to complete its banking arrangements with Barclays (as it is said that Barclays needed to be satisfied as to why the Defendant saw fit to retain such a significant sum of money) and so the question whether this term falls to be implied in relation to Clause 8.3 is an important one.
21.	Mr Sinai drew my attention to Clause 8.1 and to the definition in the Contract of “Chargeback”. He submitted that reading the definition of Chargeback into Clause 8.1, meant that Clause 8.1 included future chargebacks, because the definition of “Chargeback” included invalid or disputed transactions that “may be” charged to the Defendant. On that basis, he submitted, the obligation of the Defendant to give an explanation of the reason for a potential future chargeback arose. Mr Mitchell challenged this construction of Clause 8.1 and submitted that the clause could only apply to an actual chargeback and the rationale for the obligation of the Defendant to give an explanation of the reason for the chargeback wherever possible was that the Defendant would have been given an explanation by the card issuer.
22.	Mr Sinai also relied on the obligation to give reasons in Clause 8.2. However, Mr Mitchell submitted that what is contemplated by Clause 8.2 is the Defendant passing on to the Claimant any explanation or reason for a transaction being said to be invalid or disputed so as to facilitate the Claimant’s investigation of the transaction and efforts to resolve the matter. By contrast, he submitted, Clause 8.3 contains no reference to the Defendant having to give any explanation or reason for the retention.
23.	Mr Sinai also submitted that it was in any event necessary to imply a term where money is being retained that the Defendant should give an explanation as to why it is being retained, which he submitted tied in with the Claimant’s obligation to act in a reasonable manner to resolve potential cardholder disputes under Clause 12.2(i). Mr Mitchell submitted that there was no necessity to imply such a term into Clause 8.3.
24.	In my judgement there is no basis whatsoever for the implication of this term. Clauses 8.1 and 8.2 are addressing situations in which there is known to be a chargeback for an invalid or disputed transaction and the provision of an explanation of the reasons for the issue having arisen fits logically and cohesively with the imposition of the chargeback on the Claimant and the obligation of the Claimant to investigate and attempt to resolve disputed transactions. By contrast, Clause 8.3 is addressing the potential for chargeback arising at some point in the future. Furthermore, the criterion for the retention which is expressed in Clause 8.3, namely that the Defendant considers in good faith that there is a high risk of chargeback in an amount potentially of the order of the amount retained, of itself provides to the Claimant the reason for the retention. I simply do not understand how it can be said to be necessary for the operation of the Contract that the Defendant should be obliged to explain how it came to reach the view it did. Indeed, the very fact that the parties have chosen to express the Defendant’s decision making by reference to the standard of good faith is a most powerful indication that the parties did not intend the Defendant’s decision making to be subject to close scrutiny. As for Clause 12.2(i), when it refers to “potential disputes”, that must again be contemplating known issues which could give rise to a dispute, because otherwise the Claimant could not go about seeking to resolve the potential dispute with the cardholder. Finally, I would add that having made express provision for an explanation of reasons in Clauses 8.1 and 8.2, the absence of any such requirement in Clause 8.3 is telling.
25.	Accordingly, I have no hesitation in concluding that the Claimant has no real prospect of establishing the implication of this term.
(iv) The duty to be frank and to deal openly with the Claimant
26.	Mr Mitchell submits that this implied term cannot arise because as regards termination, the Defendant was entitled to serve notice under Clause 14.1 without having to give any reason for doing so and secondly because in relation to Clause 8.3 the Defendant was given the right to retain monies if it formed the requisite good faith view. Mr Mitchell also submitted that the nature of the relationship between the parties was that of an ordinary banker and customer and was not a fiduciary relationship, so that again there was no reason to imply this duty. Mr Sinai submitted that the duty arose from the obligation of good faith under Clause 8.3. However, that does not seem to me to be apposite. All that the requirement of good faith is doing in Clause 8.3 is to place a constraint (albeit a very relaxed one) on the nature of the Defendant’s decision making. In order to be a valid decision for the purposes of Clause 8.3, it must be a decision made in good faith. That does not import any duty to be frank with or to deal openly with the Claimant. Nor is the implication of such a duty necessary for the operation of the Contract and in particular Clauses 8.3 and 14.1. Accordingly, I conclude that there is no real prospect of the Claimant establishing the implication of this term.
Termination
27.	In circumstances where I have concluded that the Claimant has no real prospect of proving the implication of any terms relevant to the termination of the Contract, the next question is whether the Claimant has any real prospect of establishing a breach of contract in relation to the Defendant’s conduct in purporting to terminate the Contract.
28.	What happened in relation to the termination was as follows:
(i) On 28 August 2007 the Defendant sent to the Claimant an email in the following terms:
“Dear Andy,
Further to our telephone conversation today, 28 August 2007, as you are aware, NSB Limited t/s Keepsafe facilities and financial profile were recently subject to an internal review, a process undertaken on all of our merchants at varying intervals. As a result of this review we regret to inform you that, in accordance with your Worldpay Customer Agreement, we hereby issue you a formal notice of our intention to withdraw your Worldpay facilities.
In this regard and in accordance with clause 14 of our agreement, we are now giving you 30 days notice of closure of your account(s). We shall therefore be closing your account(s) on 29 September 2007.”
(ii) In response to that notice, the Claimant sought further time in order to move to different acquirers. In an email dated 21 September 2007, the Claimant explained the delay it was experiencing in setting up facilities with an alternative merchant acquirer but said that it had been assured verbally that everything would be sorted out in 10-15 days. The Defendant responded by an email on 25 September 2007 extending the termination date to 20 October 2007 (which was in fact a greater period of time than the Claimant had requested). The Defendant also indicated that it would be amenable to a request for yet further time after that.
(iii) On 16 October 2007, the Defendant agreed to extend the termination date for another 30 days from 20 October 2007. This in fact took the termination beyond the anniversary of 6 November 2007.
(iv) On the anniversary date of 6 November 2007, the Claimant’s solicitors emailed the Defendant’s solicitors explaining that:
the only reason for the delay with Barclays [another alternative merchant acquirer] is simply the logistics of arranging a further meeting in London that the relevant personnel from Barclays can attend. All appropriate information requested by Barclays has been provided. The best estimate that my client can give (as you will appreciate it is not within their control) is that they hope to have the facility in place within the next 2-3 weeks.”
(v) On 8 November 2007, the Claimant’s solicitors wrote to the Defendant’s solicitors in the following terms:
“... with regard to Barclays Merchant Services, the only reason for the delay as we have previously indicated to you, is arranging a further follow up meeting and to discuss the reduction of the retention period as, due to the fact that [the Claimant] will be a new customer of Barclays, they are currently requesting a 30 day period prior to payment of any monies to [the Claimant]. You will appreciate that Worldpay currently operates on a 3 day period, and although Barclays have indicated that after 3 or 4 months trading they are happy to reduce that to 7 or 14 days, at the moment our client is trying to persuade Barclays to reduce that amount from commencement of trading or, alternatively, look at alternatives to assist with cash flow over the initial set up period.”
(vi) On 14 November 2007, the Claimant’s solicitors emailed the Defendant’s solicitors in the following terms:
"... I have been trying to contact Barclays for an update on timing without success. I have put through another call this morning but the person I need to speak to is currently in meetings. Very frustrating but I can understand why my client is saying that they are moving at their own pace. I will try to get some answers during today.”
(vii) On 20 November 2007, after the expiry of the 30 day extension referred to above, the parties’ solicitors had a conversation and the Claimant’s solicitors sent two emails. The first stated:
"... Awaiting information from Barclays which we are chasing.”
The second stated:
“I confirm that Barclays have now agreed the 29.02.08 as the date for the transfer of the facility. Please confirm that your client will continue the facility until that date ....”
(viii) The Defendant was not prepared to extend the termination date for another 3 months and made this known to the Claimant by an email sent on 28 November 2007.
(ix) In the meantime, the Defendant had allowed transactions processed up to 20 October 2007 to be paid into the Claimant’s account but made no further remittances. By the end of November, the Defendant had a retention of about £84,000.
(x) On 28 November 2007, the Claimant’s solicitors sent an email to the Defendant’s solicitors challenging the entitlement of the Defendant to retain any money on the grounds that the Defendant’s potential liability was “minimal if not non-existent” and further stated as follows:
“The sum of approximately £27,000 (your client has the exact figure) is required by 12 noon today to pay the staff and if this is not paid our client will have no alternative than to put the company into liquidation. We understand that your client is holding over £80,000 of our client’s money and therefore even if £27,000 is released your client will still have over £50,000.
Accordingly please confirm whether your client is prepared to release sufficient money to pay the staff today. If not could you also please take your client’s instructions with regard to what, if anything, they would want to put in a press release which our client will no doubt be required to make later today.”
(xi) Later that day, Mr Kriwald sent an email to the Defendant which included the following:
"... if funds for payroll are not made available by 5 pm today, we will lay-off our staff immediately, put our company into liquidation and communicate the circumstances to the media in a press release.
I would imagine that the next communication you would receive on the matter might be from the insolvency practitioners who are now advising us (McTear, Williams & Wood), or from the Official Receiver.
This is not a threat; it is the only possible course of action open to the Directors of the company as a direct result of your actions. You have just closed us down.”
In an attachment to that email, Mr Kriwald also responded to the Defendant’s email of 28 November 2007 stating “We can bring this date [the date of termination] forward to 30 November 2007”. In relation to the release of funds Mr Kriwald stated “Today, we will be satisfied with the release of funds sufficient to cover the payroll”.
(xii) On 29 November 2007, there was an exchange of correspondence between the parties’ respective solicitors. Referring back to the email exchanges on 28 November 2007, the Defendant’s solicitors stated that it had been agreed that:
“1. Our client will today pay £27,000 to your client, for the sole purpose of meeting the salary run of that amount as detailed in earlier emails;
2. In consideration for the payment, your client agrees that the acquiring facilities with our client will be terminated at 4 pm on Friday 30 November 2007.”
The letter went on to state that the balance of funds retained by the Defendant would continue to be retained until such time as the Defendant considered that the risk profile of the Claimant allowed a further payment to be made and also expressed a requirement for an acknowledgement by the Claimant that it did not intend to pursue any claims against the Defendant. The Claimant’s solicitors responded in the following terms:
“We can confirm that the matters referred to at paragraphs numbered 1 and 2 of your letter are agreed.”
The letter went on to state that the Claimant did not accept that the retention of funds by the Defendant was legitimate and reserved the Claimant’s rights to any claims it might have for the return of those funds. The letter also gave confirmation that the Claimant was not aware of any other claims against the Defendant.
(xiii) The Defendant made the payment of £27,000 to the Claimant following receipt of the Claimant’s letter of 29 November 2007.
29.	Mr Mitchell submitted that although the notice of termination of 28 August 2007 did not comply with the mechanism of Clause 14.1 in that it specified a date of termination which was prior to the anniversary date of the Contract, it was nonetheless a valid and effective notice of termination which took effect on 6 November 2007 and any breach of contract on the Defendant’s part in serving a notice with a premature termination date was cured by the subsequent extensions of time that were given up to and indeed beyond the anniversary date. Alternatively, he contends that there plainly was an agreed termination of the Contract with effect from 30 November 2007 in that the Claimant’s solicitor’s counter-proposal in the response to the Defendant’s solicitor’s letter dated 29 November 2007 had been accepted by the Defendant by its payment of the sum of £27,000.
30.	Mr Sinai submitted that the notice served in August 2007 was not a valid notice and was therefore a nullity which could not be cured by the subsequent extensions of time which were given. He accepted that the parties did agree on 29 November 2007 to terminate the Contract with effect from 30 November 2007 as the Defendant had alleged but submitted that there was an arguable case that the agreement to terminate had been entered into under economic duress in that the Claimant had no alternative but to agree to the termination in order to secure payment of the sum of £27,000 which had been retained by the Defendant.
31.	The first question which therefore falls to be considered is whether the notice served on 28 August 2007 could be said to be a nullity. It is right to say that the notice was plainly defective in that it purported to give 30 days’ notice of termination whereas the correct reading of Clause 14.1 is that termination under that provision should be with effect from the next anniversary date i.e. 6 November 2007. If the Defendant had refused to perform the agreement at any time prior to 6 November 2007 in reliance on the notice dated 28 August 2007, that would have amounted to a breach of contract and if concessions had been extracted from the Claimant in return for the Defendant’s continued performance of the Agreement until 6 November 2007, an economic duress case would have been tenable.
32.	However, this is not what happened. Rather, without imposing any preconditions, the Defendant agreed to extensions beyond 6 November 2007. No remedy therefore arises simply from the fact that the notice dated 28 August 2007 purported only to give 30 days’ notice of termination. Where, however, the validity of the 28 August 2007 notice comes into play is as part of the assessment of the Claimant’s economic duress case in relation to the agreement made on 29 November 2007. If the notice of termination was a nullity, the Defendant was extracting from the Claimant a very significant concession in agreeing to termination on 30 November 2007 because the Contract would otherwise have continued until 6 November 2008. If, though, the notice of termination was valid and effective in order to bring the Contract to an end on 6 November 2007, the Claimant was on borrowed time thereafter and the Claimant’s agreement to a termination date of 30 November 2007 falls to be regarded as simply being an agreement to the end date for the Defendant’s discretionary extensions of provision of its services beyond 6 November 2007. Mr Sinai recognised that he had to succeed on the question of the notice of termination being a nullity in order for him to be able even to advance a case of economic duress in relation to the later agreed termination.
33.	The validity of defective notices was considered in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, which concerned a clause in two leases giving the tenant the right to determine the leases by serving not less than 6 months notice in writing to expire “on the third anniversary of the term commencement date”. The leases were for a term of 10 years from and including 13 January, 1992. The House of Lords held that an objective test had to be applied and the question was how a reasonable recipient would have understood the notices, bearing in mind their context: a reasonable recipient would have been in no doubt that the tenant wished to determine the leases on 13 January, 1995 but had wrongly stated the date as 12 January and that accordingly the notices were effective to determine the leases. At page 768, Lord Steyn said:
“It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved. That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.
There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, e.g. notices to quit, notices to determine licences and notices to complete: Delta Vale Properties Ltd v. Mills [1990] 1 W.L.R. 445, 454E. To those examples may be added notices under charterparties, contracts of affreightment, and so forth.
Even if such notices under contractual rights reserved contain errors they may be valid if they are “sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:” the Delta case, at p. 454E-G, per Slade L.J. and adopted by Stocker and Bingham L.JJ.; see also Carradine Properties Ltd v. Aslam [1976] 1 W.L.R. 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it.”
34.	It is right to say that the error in the date for termination given in the notice was far more extreme than the error made in the notice given in Mannai but it seems to me that a reasonable recipient of the notice could have had no reasonable doubt as to this notice having been intended to be a notice under Clause 14.1 of the Contract. In particular :
(i) The notice expressed itself to be a notice “in accordance with clause 14 of our agreement”;
(ii) It purported to give 30 days’ notice, which is the period specified in Clause 14.1;
(iii) It could not have been intended to be a notice under Clause 14.2 firstly because none of the grounds for termination under Clause 14.2 was specified in the notice and secondly because Clause 14.2 permitted termination with immediate effect and, although the giving of 30 days’ notice would not of itself be inconsistent with termination under Clause 14.2, when combined with the absence of any attempt to invoke any of the grounds specified in Clause 14.2, the giving of 30 days’ notice made it clear that a notice under Clause 14.1 rather than Clause 14.2 was intended.
35.	The reaction of a reasonable reader of the notice, who would have had Clause 14.1 in mind, would have been that the Defendant had decided to terminate its relationship with the Claimant but had misunderstood the effect of Clause 14.1 in that the Defendant appeared to understand that the termination could be at any time within a renewed 12 month period rather than only at an anniversary date. A reasonable reader would, therefore, have reacted to this notice by recognising its effectiveness to terminate the Contract but by also drawing the Defendant’s attention to the fact that the notice of termination could only take effect on the next anniversary date of the Contract. The result therefore, in my judgement, is that it is not reasonably arguable that the notice was a nullity. That is not, of course, to say that the Claimant would not have had a remedy if the Defendant had sought to rely on the notice as bringing the Contract to an end on any date earlier than the anniversary date but, as I have already stated, that is not what happened.
36.	If I am wrong about that and the notice of termination was a nullity, the economic duress argument comes into play in relation to the agreed termination with effect from 30 November 2007.
37.	An agreement entered into as a result of duress is not valid as a matter of law. Duress is the obtaining of agreement or consent by illegitimate means. Economic pressure can amount to duress and comprises two ingredients: (i) illegitimate pressure by one party and (ii) this illegitimate pressure being a significant cause inducing the other party to act as he did. An agreement entered into under economic duress is invalid in the sense that the party subject to the duress has the right to withdraw from the agreement, although that right can be lost if that party later affirms the agreement or waives the right to withdraw from it.
38.	I have concluded that a case of economic duress would have no real prospects of success. My reasons are as follows:
(i) The agreed termination was negotiated by solicitors acting on behalf of the Claimant;
(ii) Apart from reserving the Claimant’s rights in respect of the return of the balance of monies retained by the Defendant, the Claimant’s solicitors confirmed, in the letter dated 29 November 2007, that the Claimant was not aware of any other claims against the Defendant;
(iii) Although the email to which Mr Kriwald responded on 28 November 2007 had expressed the Defendant’s unwillingness to extend the facility for another 3 months, the initiative for a termination date of 30 November 2007 came from Mr Kriwald in his comments on that email sent with his response on 28 November 2007;
(iv) Mr Kriwald’s response did not contain any protest about the Defendant holding the Claimant to ransom but on the contrary was seeking to extract £27,000 from the Defendant by making threats as to what would happen if the sum of £27,000 was not forthcoming (indeed, in Mr Kriwald’s comments on the Defendant’s email, he appeared to be recognising that there was a significant continuing exposure to the Defendant from the sale of lifetime membership products prior to April 2006);
(v) For the reasons which I give later in this Judgment, there was no basis on which the Defendant’s decision to retain the sum of approximately £84,000 could have been challenged under the Contract;
(vi) When the Claimant commenced proceedings against the Defendant in February 2009, it could not possibly then be said still to have been under the influence of any duress and yet no challenge was made to the agreement made on 29 November 2007. On the contrary, that agreement was expressly pleaded by the Claimant as explaining how the balance claimed of £56,709.61 was arrived at;
Even now, the Claimant does not seek to withdraw from the agreement made on 29 November 2007, no doubt in part because to do so would involve the Claimant in having to accept that if the Defendant was right about its entitlement to retain some £84,000, the payment to the Claimant of £27,000 under the agreement made on 29 November 2007 would have to be returned in the event that it was found that the agreement was invalid due to duress.
39.	This means that the Claimant has no tenable claim in respect of the termination of the Contract.
Retention of Monies
40.	The Defendant’s retention of £57,000 is therefore not only the subject of the “debt” claim for the payment over of that money but is also the only remaining basis on which the Claimant could found a claim for damages arising out of the cessation of its business. Clause 8.3, pursuant to which the money was retained, requires that the Defendant should “consider in good faith there is a high risk of chargeback” before making any retention of monies and that the retention should only be sufficient so as “to cover the potential amount of such Chargeback”.
41.	Mr Sinai recognised that the contractual standard was one of good faith but he submitted that this also required that good commercial practice should be applied. Mr Mitchell submitted that the issue of good faith is a purely subjective one without any objective criteria being applicable. I accept Mr Mitchell’s submissions. It is important, when considering the content of the requirement of good faith to bear in mind the purpose of Clause 8.3. It is there purely for the Defendant’s economic protection. The nature of the arrangements necessarily gave rise to a risk that the Defendant would have to repay monies which had passed through its hands and been paid over to the Claimant. Clause 8.3 was designed to protect the Defendant from loss in such an eventuality. It is therefore hardly surprising that it should set a low threshold for the Defendant to become entitled to retain money against that risk and that low threshold arises through the conferring on the Defendant of a right to retain money which is subject only to a standard of good faith.
42.	It seems to me that there is no tenable basis for importing into the requirement of good faith, consideration of any objective standard or criteria. To act in good faith would require the Defendant not to act arbitrarily, capriciously or by reference to any extraneous factor. If the decision reached by the Defendant was perverse that might either of itself result in a breach of the duty of good faith or might be relied upon as evidence that the Defendant must have acted arbitrarily, capriciously or by having regard to some extraneous factor. I do not need to decide whether and if so how perversity would fit into the good faith test because, one way or another, if there was a real prospect of the Claimant proving perversity that would be sufficient to defeat the application for summary judgment on this issue because at the very least it would raise a question as to whether the Defendant had acted arbitrarily, capriciously or by having regard to some extraneous factor.
43.	Mr Mitchell submits that any case that the Defendant did not act in good faith, judged by the criteria set out above, is fanciful. Mr Mitchell identified the following factors:
(i)	In 2006, there was an independent review by KPMG of the risks to the Defendant of the Claimant’s business. This arose out of the Defendant’s concern as to its potential exposure to chargebacks in the event that the Claimant’s business ceased. In particular, the Defendant was concerned that if the Claimant went out of business, those customers of the Defendant who had purchased lifetime products would claim a refund from their card issuer of money they had paid in advance for the lifetime service, with the exposure being for the lifetime of the animal. The KPMG report, dated 11 April 2006, relied on the merchant potential liability (“MPL”) using data and internal information provided by the Claimant’s management, as was recorded in the report, with the Directors of the Claimant confirming in a side letter dated 12 April 2006 that they were unaware of any factual inaccuracies in the report.
(ii)	The report summarised the conclusions of the Claimant’s own Directors regarding the risk they faced and KPMG’s own, more pessimistic assessments of that risk.
(iii)	Even on the basis of the Claimant’s management’s assumptions, one of which was to equate a lifetime membership to a membership of a fixed term of 10 years, the reasonableness of which KPMG did not entirely share, KPMG reported that the potential liability as at March 2006 in respect of policies already sold since 2001 (the overwhelming majority being lifetime policies) was £718,000 as an absolute minimum and existing lifetime policies alone (assuming no further lifetime policies were sold going forward) produced an exposure which, although reducing over time, would still be £340,000 as at March 2008, £240,000 by March 2009 and £164,000 by March 2010. KPMG’s own assessments of the potential liability were much higher.
(iv)	KPMG also noted that, in the event of insolvency, exposure might be managed by the Defendant paying for a third party to administer calls but KPMG estimated that the cost of the service would be £15,000 per year and therefore, over a 10 year period (which was the Claimant’s management’s assumed life of a pet), the total cost would be £150,000.
(v)	On KPMG’s assessment, in April 2006, the exposure to chargebacks faced by the Defendant as at October/November 2007 when the Defendant started to retain funds in the event that the Claimant ceased trading would be at a minimum between £340,000 and £441,000, with KPMG’s own assessment putting the exposure at a potential of between £1.7 million and £2.2 million.
(vi)	In March 2007, the Claimant’s account was referred back to the Defendant’s internal “Intensive Care Exposure Forum”, with the credit analyst’s report of 5 March 2007 giving the Claimant a category 3 rating, indicating a deteriorating trend for the Claimant’s trading, which was gathering momentum and raised questions as to the short term trading ability of the Claimant. The report also noted that the business was loss making in 2006 and had a total net worth of only £4,000, with the reason for this being that the Directors had a history of drawing substantial amounts from the company on a monthly basis which, the report stated, they had said they intended to continue to do. The report referred back to KPMG’s work in 2006 and to the cost if a third party had to be engaged to perform the contracts with customers and gave an MPL exposure in excess of £1.3 million. The report recorded that although the exposure to MasterCard was limited to 540 days following the transaction, the exposure in respect of Visa, which was said to account for some 77% of transactions in the year to February 2007, was for the lifetime of the service. The report also made reference to the Claimant having started to sell lifetime policies again.
(vii)	The Intensive Care Credit Committee met on 14 March 2007 and amongst the matters which the Committee took into account was that in February 2006 when the issue of withholding funds from the Claimant had arisen, Mr Kriwald had stated that the withholding of funds would almost certainly result in the business becoming insolvent and being obliged to cease trading and that he had made the following threat:
“In such a situation, we believe that we would have no alternative but to contact by email in excess of 40,000 customers who have purchased our services through Worldpay over the last two years.
We would inform them in a single message that we had ceased to trade and were no longer in a position to meet our obligations to them. We would direct them to Worldpay with the recommendation that they sought a refund or partial refund from you. Your maximum liability in this situation would be in excess of £2m.”
(viii)	The Claimant’s account was referred back to the same Committee in June 2007 following a credit analyst’s report dated 25 May 2007. Whilst recording that the MPL was £1.4 million and that the Directors were stripping out the vast majority of the cash of the business, the report provided an analysis of the exposure which was more favourable to the Claimant in that it took the Claimant’s management’s assertion that there was only a 1% risk of chargeback and extrapolated that on a “loss given default” basis as giving rise to an exposure of £104,000, although the credit analyst suggested that a 2% risk i.e. £208,000 exposure, should be applied.
(ix)	In July 2007, the Claimant’s 2007 results were published. The balance sheet was negative to the tune of £12,335, which reflected net current liabilities of £45,336. These factors were noted in a credit analyst’s report of 31 July 2007, which also pointed to the deterioration in the Claimant’s financial position from 2006 (when there had been a positive balance sheet figure of £4,000 and net current liabilities had been £25,971) to 2007. The notes to the accounts stated that the financial statements had been compiled on a going concern basis which, in view of the trading losses, was “considered to be appropriate only given the continued support of the Directors, shareholders and associated companies”. The Claimant was considered to be running out of momentum and the report noted the stripping out of cash from the business by the Directors and that the business did not have reserves to ride out a prolonged period of difficult trading. The projected MPL as at September 2007 was £1.369 million.
(x)	The Intensive Care Credit Committee discussed the account on 2 August 2007 and their discussion included the question of the MPL and the tail on liability. This was followed by the notice of termination on 28 August 2007.
(xi)	There was a further meeting of the Committee on 11 September 2007 at which the need to agree an extended termination date was discussed.
(xii)	On 16 October 2007, the Defendant informed the Claimant that remittances would be withheld from 20 October 2007 (although they were in fact withheld from 26 October 2007). Mr Kriwald’s response to this included the threat that if remittances were withheld and a replacement for the Defendant could not be introduced, the Claimant would fail and if that occurred:
“We will have no alternative but to direct many tens of thousands of disgruntled customers to Worldpay, providing them with the number to make their chargeback claim “For reasons beyond our control, Keepsafe is no longer able to continue trading, for a full or partial refund of your £99.99 please call Worldpay on 0207 ..... etc. etc.” It seems only fair that if it were to be your decision (to stop remittances before we can replace you) that brings us down, we would at least assist our customers in recovering their money from you. This could easily amount to a seven figure claim in next to no time.”
Mr Kriwald went on to suggest that this could be avoided if a sensible closure to a 7 year working relationship could be worked out.
(xiii)	On 28 November 2007, Mr Kriwald responded to a passage in the email sent to him by the Defendant which recorded that the financial risk to the Defendant based on the KPMG report and assuming that the Claimant had not sold lifetime memberships since April 2006 would currently be in the region of £600,000 in the following terms:
“Keepsafe has fully complied with the findings of the report. We adopted the terms and conditions referred to in the report as defined by the bank and have sold maximum service length of 1 month with further periods (including the lifetime of the pet) on a discretionary basis. Accordingly, the risk has indeed reduced to £600,000 as a result of the new terms and conditions having been in place since March 2006 (see page 22 of KPMG report).”
(xiv)	On 28 November 2007, the Defendant’s solicitors had also informed the Claimant’s solicitors that the Defendant was prepared to accept further security for the Director’s personal guarantees which had been given in 2006 instead of retaining monies but the response from the Claimant’s solicitors was to refuse that offer because “our client is firmly of the view that your client’s potential liability is minimal if not non-existent and there is no justifiable reason why your client should retain the monies”.
(xv)	In Mr Kriwald’s email of 28 November 2007, he threatened the Defendant that if funds for the payroll payments were not made available by 5 pm that day, the Claimant would lay off its staff immediately, put the company into liquidation and communicate the circumstances to the media in a press release. Although the Defendant did release £27,000, nonetheless, the Claimant did cease trading.
(xvi)	Although it is common ground that the Defendant did not exercise the option that it had to take over liability for the answering service that the Claimant had provided through the use of TAS, the cost of that service was estimated to be £15,000 per year and to last for up to 10 years for a total cost of £150,000 (if anything, that is now said by the Defendant to be an under-estimate as it was a figure based on a cost of £1 per incident whereas on 12 November 2007, the Claimant informed the Defendant that the cost would be £2 per incident). Furthermore (and this is of relevance to the Defendant’s retention of the monies as at the date of commencement of proceedings (February 2009)), on 15 December 2008, TAS submitted to the Defendant invoices for its services from December 2007 to November 2008 in the total sum of £94,493.64 and although the Defendant disputed its obligation to make any payment against this invoice, it represented a potential liability of the Defendant.
In those circumstances, Mr Mitchell submits that the documentary evidence permits me to conclude that any allegation that the Defendant was not entitled to retain £57,000 pursuant to Clause 8.3 is fanciful and can be dismissed.
44.	Mr Sinai complained that much of the evidence on which the Defendant relies emerged shortly before the hearing of this application through the third witness statement of Mr Rossiter dated 14 March 2012. He made a point that the Claimant had had only a limited time to assimilate this material and prepare evidence in response and that it raised new issues which would need to be explored through disclosure and at trial. He points out that it appears that the Defendant was concerned about whether the Claimant had reverted back to selling lifetime memberships and about the possibility that the Claimant might cease to trade. He emphasised the fact that the credit analyst’s report dated 5 March 2007 had stated that the implementation of agreed terms and conditions in the last quarter of 2006 had reduced the outstanding MPL for the period from September 2006 to December 2006 to “Nil”. He also made the following points about the material:
(i)	There is no explanation of how the relevant figures on which the retention was based were calculated;
(ii)	The lower figures reported in the credit analyst’s report dated 25 May 2007 followed the recognition at the 14 March 2007 meeting that the actual loss could be lower than the MPL since not all cardholders would claim chargebacks and that the exposure figure arrived at still did not take into account the personal security that had already been provided by the Directors;
(iii)	Apart from the factual dispute relating to the sale of lifetime products after April 2006, there was no evidence that the Defendant took any meaningful steps to check whether the appropriate terms and conditions were in fact being displayed at the point of sale;
(iv)	There is no evidence to show that the Defendant implemented the tighter controls which would assess the risk of chargebacks;
(v)	Although there was criticism that the Claimant was illiquid and its Directors were withdrawing large sums of money from the company, there is no evidence that they were asked to leave a certain amount in reserves;
(vi)	The Defendant had the benefit of significant joint and several guarantees from the Directors and there is no explanation of how these personal guarantees were assessed when the decision to retain monies was made;
(vii)	No explanation is provided about how the ability of TAS to continue the service was assessed when the decision to retain monies was taken;
(viii)	The concerns about the Claimant’s ongoing viability and loss of momentum appear to be based on a slight loss of profit in one set of accounts and the loss of one client and are based on very slight underlying materials, without any explanations being sought from the Claimant.
45.	Mr Sinai says that the Defendant must have realised that suspending payment would destabilise the business by causing a liquidity crisis, as that is expressly recorded in the Defendant’s internal records, and he is right that I must assume that the Defendant was aware that retaining monies due to the Claimant might have such a consequence. Against all that, Mr Sinai points to the fact that the only evidence from Mr Rossiter as to the reason for the retention is contained in paragraph 23 of Mr Rossiter’s third witness statement, in which, after referring to Mr Kriwald’s email of 16 October 2007, which had stated that if payment was withheld, the Claimant would “quite quickly go bust” and in which he threatened to encourage and assist customers in bringing claims which would result in chargebacks, Mr Rossiter stated as follows:
“This was an overt and quite direct threat to cause Worldpay very considerable financial loss. Worldpay started retaining money shortly thereafter. At this stage, customer relations between Worldpay and NSB had completely broken down. NSB had had ample time to move to a new acquirer but continuously sought further extensions of time without proper justification. I had no confidence at this stage that NSB was actually going to be able to move acquirer. The financial position of NSB was deteriorating (for no fault on the part of Worldpay), and there was a high risk of NSB ceasing to trade. The suggestion that a short term deferral of settlement of funds could bring about, in the words of Mr Kriwald, the insolvency of NSB, underpinned my concerns that NSB represented a real and significant chargeback risk. In the circumstances, there was a significant risk of chargeback and the decision was taken to defer settlement.”
46.	Other points made by Mr Sinai included the following:
(i)	The chargeback rules applicable to Visa cards would need to be explored and investigated at trial;
(ii)	The reason why the Defendant did not invoke the novation agreement with TAS would need to be investigated at trial;
(iii)	The historic chargeback rate for the Claimant had been very low;
(iv)	The Defendant’s explanation for failing to explain to the Claimant the reason for its decision to retain monies, notwithstanding internal recommendations that the Defendant should do so, would need to be explored at trial;
(v)	Whether there was any basis for the Defendant’s belief that the Claimant was continuing to sell lifetime policies would need to be explored at trial;
(vi)	There would have to be an enquiry at trial into the preparation and implementation of the KPMG report, in particular in circumstances where no particulars have been given of the Defendant’s reliance upon the report, KPMG did not have the benefit of the Visa or MasterCard rules and the disputed issue of whether the Claimant was continuing to sell lifetime cover appears to have formed part of the Defendant’s reasoning;
(vii)	Whether it was in all the circumstances reasonable for the Defendant to have relied on anything the Claimant said about MPL;
(viii)	The question whether the KPMG report was fundamentally flawed would have to be explored;
(ix)	It would have to be established what the actual proportion of sales through Visa was, in respect of which no adequate disclosure has been given.
47.	In support of the above, the Claimant relies on the fact that it appears that there have in fact been very few chargebacks since November 2007. Mr Sinai also submitted that the risk arising from past sales was addressed by the parties with the implementation of the measures agreed in 2006, which comprised the Claimant agreeing not to sell lifetime cover and the Claimant’s Directors agreeing to provide personal guarantees with the result that there must be real prospects of establishing that the Defendant’s case on past risk must be limited to a breach of the terms of those arrangements or that the Defendant is estopped from going behind the agreed measures in respect of the same risk. These again, it is said, would require factual investigation. More generally, Mr Sinai submitted that the evaluation of the Defendant’s conduct cannot be carried out properly at this hearing on the basis of selected documents disclosed by the Defendant. It is said that the Court cannot assess the merits of the Defendant’s assessments or of its good faith unless it first determines whether a high risk of chargeback did in fact exist because if it did not, the Defendant would then have the added burden of establishing to the Court’s satisfaction that its erroneous belief was nonetheless justified on the facts. Mr Sinai also added that Clause 8.3 is not a mechanism for obtaining indefinite and unlimited security for the general/hypothetical future risk that the Claimant might stop trading and that there was no evidence in October and November 2007 to suggest that the Claimant would cease trading, but for the Defendant’s decision to cut off its income stream.
48.	I have to say that I find Mr Sinai’s submissions to be utterly unrealistic. Just taking the Claimant’s financial position as revealed by its accounts, it was quite obviously in a very poor state of health. Even in the 2006 year they had shown minimal net assets and the 2007 year showed a negative net asset figure reflecting a drop in the asset position of £16,000. Furthermore, net current liabilities had increased from £25,971 to £45,336. I have of course read and carefully considered Mr Kriwald’s statements and I can well understand that from his perspective it may have seemed that things were going well because the Directors had been drawing significant sums from the company but the fact is that they had left the company without any cash reserves to call on. It also seems to me to be impossible for the Claimant to say that the Defendant was not entitled to take the view that there was a real risk of the Defendant ceasing to trade in circumstances where the minute that the Defendant raised the possibility of withholding remittances, it was informed by the Claimant that the effect of withholding remittances would be that the Claimant would have to cease trading and go into liquidation. Indeed, in November 2007, Mr Kriwald was saying that if the Claimant did not receive £27,000 in order to pay its salary obligations, it would cease to trade and become insolvent. Furthermore, and this much appears to be common ground, if the Claimant could not arrange other facilities, its business would not be able to continue and the Defendant was entitled to take that into account in any event.
49.	The historic rate of chargebacks does not assist the Claimant because of course during that historical period the Claimant was trading. What the Defendant was concerned about and entitled to be concerned about was what would happen if the Defendant ceased trading and those who had bought lifetime cover tried to take advantage of their cover, only to find that the Claimant was no longer around to provide it. This affected and would continue to affect cover sold prior to April 2006 which was predominantly on a lifetime basis and the risk would continue throughout the life of the covered animals. The quantum of that risk would obviously depend on whether money was recoverable by the customer from the card issuer. In that regard, the position under the Visa rules was addressed at the hearing of the appeal before His Honour Judge Iain Hughes QC and in his judgment. The Claimant has made no attempt to investigate or challenge what the Defendant has produced by way of evidence in respect of the Visa rules and it seems to me that the Claimant has no real prospect of establishing that the Defendant was not entitled, in good faith to believe that there was an exposure to chargeback in respect of customers who had paid using Visa cards by reference to the date on which the relevant service ought to have been but was not provided by the Claimant. As to the proportion of transactions on Visa cards, it seems to me that given the potential liability to chargeback, the sum of approximately £57,000 retained by the Defendant allows for such a significant margin of error on the proportion calculated by the Defendant as to mean that there can be no real or relevant issue as to the correctness of the Defendant’s assessment of the proportion of Visa sales.
50.	As for the assessment of the quantum of the potential liabilities, and the risk of such liabilities arising, the figures quoted by KPMG in 20006, even making allowance for the fact that they included MasterCard transactions, would involve significant multiples of the sums actually retained by the Defendant and even the lesser figures which were first raised in the credit analysis report of 25 May 2007 represented a multiple of the sums actually retained by the Defendant.
51.	Insofar as the Defendant may have believed that the Claimant had reverted after April 2006 to selling lifetime cover, this seems to me on the documents to have been more pertinent to the decision whether or not to terminate the Contract but even assuming, for the purposes of this application, that the Defendant did take its exposure to post-April 2006 transactions into account in deciding whether or not to make a retention, it is quite apparent from the figures being considered in relation to the pre-April 2006 transactions that the Defendant was entitled to retain a sum of at least £57,000 to cover its future liabilities in respect of pre-April 2006 transactions alone.
52.	The suggestion that the Defendant should have made arrangements with TAS to avoid the risk of chargebacks simply does not make sense as a basis for the release of the monies retained. Mr Sinai sought to argue that compared to the exposures being considered internally at the Defendant, the service offered by TAS would only cost about £150,000 over the life of the covers provided by the Claimant. However, the Defendant would have been entitled to have cover for this potential liability and it would simply be a matter of the Defendant being entitled to retain the £57,000 to cover the TAS costs rather than the potential liabilities if TAS was not engaged.
53.	The suggestion by Mr Sinai that the Defendant had adequate security in the form of guarantees from the Directors and so did not need any additional security involves consideration also of the waiver/estoppel case that Mr Sinai advanced. Having considered the documents and the evidence on that aspect, it seems to me that the very highest that the Claimant’s case could possibly be put is that in April 2006 the Defendant agreed not then to sever its relationship with the Claimant by reason of the sale of lifetime cover prior to April 2006 on terms as to the basis on which cover would be sold in the future and the provision of guarantees by the Directors. I cannot see that there could be any tenable basis for it being suggested that over a year later, in the light of such matters as the Claimant’s 2007 accounts, the Defendant was not entitled to reconsider the question of termination and in any event, once termination was back on the agenda, I cannot see that there is any tenable basis for it being said that the Defendant had somehow lost the entitlement to retain monies under Clause 8.3. No agreement or unequivocal representation to that effect could possibly be read out of the arrangement that the parties made in April 2006.
54.	As regards the suggestion that the Defendant should have relied on the security of the Directors’ guarantees, firstly the Contract entitled the Defendant to retain cash as security for potential chargebacks and it is readily understandable why the Contract should do so. Secondly, it is difficult to understand why the Defendant should be expected to have had faith in the availability of cash from the Directors to support the potential liability to chargebacks in circumstances where the Directors were apparently prepared to allow the company to fold rather than putting in £27,000 of their own money to discharge the payroll costs and save the company. I would also add that there is something inherently implausible and inconsistent about the Claimant’s case that the Defendant should have relied on the Directors’ guarantees rather than retaining £57,000 and that the retention of £57,000 caused the company to fail and a loss of millions of pounds, in circumstances where the premise of the suggested reliance on the Directors’ guarantees must be that the Directors would have been able readily to discharge their obligations. If they had readily been able to do so, it is difficult to understand why they could not also have made up the shortfall of £57,000 retained by the Defendant so as to avoid the Claimant’s failure.
55.	I must confess to regarding the Claimant’s suggestion that the Defendant was not entitled to conclude that there was, in the circumstances which had arisen, a high risk of chargeback the potential for which could exceed £57,000 as being quite ridiculous. All the more so given the threats made by Mr Kriwald as to what he would do to encourage Chargeback claims if the Claimant was forced to cease trading. The Claimant’s former Directors might disagree with such a conclusion but Clause 8.3 is not designed to allow for the decision of the Defendant to be second-guessed. It is sufficient that the decision is reached in good faith, even if it should turn out to be wrong, and, notwithstanding the pleaded “Particulars of the Defendant’s Bad Faith” and the evidence of Mr Kriwald, I have reached the firm conclusion that there is no tenable basis for a challenge to the good faith of the Defendant in reaching its decision, as recorded by Mr Rossiter, to retain £57,000 in October/November 2007. I should also add that as regards the position at the date of commencement of proceedings, not only were there still a number of years to go on the lifetime covers that had been issued prior to April 2006 but in any event the Defendant was facing a claim by TAS for well in excess of £57,000.
56.	Accordingly, there is no real prospect of the Claimant proving that the Defendant was in breach of contract in retaining £57,000 in November 2007 and there is no real prospect of the Claimant proving that it was entitled to the return of the monies retained as at the date of commencement of the proceedings.
Loss
57.	Even if the Claimant had been able to establish that the Defendant was in any respect guilty of a breach of contract, Mr Mitchell submitted that the way in which the claim for damages was pleaded, insofar as it was pleaded at all, was fundamentally flawed. In the Amended Particulars of Claim, it was pleaded as follows:
“The Claimant has suffered loss and damage by reason of the Defendant’s breaches of the Agreement and/or duty, and claims damages herein for an amount to be assessed. The Claimant will rely at trial on expert evidence on the value of its shares at the date it stopped trading.”
58.	Mr Mitchell made the simple and straightforward point that the lost value of the shares in the Claimant is not the company’s loss but rather is the shareholder’s loss which cannot be recovered by the company. He submitted that it was not surprising that the claim was made this way because the company was in fact loss making, despite an apparently high turnover, in part because the Directors were accustomed to withdrawing for their own benefit the vast majority of the company’s monies. The true financial state of the company is, he submitted, confirmed by the Claimant’s last set of accounts to which I have already referred and by the fact that the Liquidator’s report shows the Claimant as having no assets. By a letter dated 11 March 2011, the Defendant’s solicitors asked the Claimant’s solicitors to “explain the basis of your client’s alleged loss, detailing what loss your client suffered and how this has been caused by our client’s alleged breach of contract”. The response to that letter, dated 25th March 2011, simply stated as follows:
“Our client’s case on damages including causation is fully pleaded and requires no further particulars (see paragraphs 39 & 41).”
59.	Mr Mitchell further pointed out that even if the company sought to pursue a claim for its own loss, Clause 15 of the Contract excluded any claim for loss of profits and for any loss falling within the second limb of the rule in Hadley v. Baxendale.
60.	Mr Sinai had to recognise the force of Mr Mitchell’s submissions that a loss measured by the lost value in the shares of the company was not a tenable basis for a claim for damages by the Claimant. He recognised that it was for the Claimant to plead its loss but submitted that this was a business with a value and that it would be wrong for summary judgment to be given without providing the Claimant with an opportunity to plead its loss. Indeed, a draft Re-Amended Particulars of Claim was put before me which sought to re-plead the Claimant’s loss in the following terms:
“The Claimant’s losses include (but are not presently limited to) lost profits from continued trading, the goodwill and value of its business as well as the ability to sell the same and it will rely at trial on expert evidence inter alia on the value of its profits, business, goodwill and of its shares at the date it stopped trading. Full particulars of loss will be provided following the preparation of expert evidence.”
61.	It may well be that there was a value in a controlling interest in the Claimant having regard to the drawings that the Directors of the Claimant had been able to make from the company but that would be a shareholder loss and not a loss to the company.
62.	The fact is that the Claimant, until provision of the draft Re-Amended Particulars of Claim on 22 March 2012, had pleaded a claim for damages which was legally untenable. In order to avoid the point that the Defendant had taken on the recoverability of the claim as pleaded, an unparticularised alternative claim for damages is now pleaded but even that claim suffers from the following fundamental flaws:
(i)	Insofar as it pleads a claim based on loss of profits, the claim is excluded by clause 15 of the Contract;
(ii)	The claim still includes a claim for the value of the Claimant’s shares, which is a loss which is not recoverable by the company;
(iii)	The financial position of the company at year end 2006 and 2007, as reflected in the 2007 financial statements, is utterly inconsistent with the company having suffered a loss as alleged;
(iv)	The Claimant has had almost 4 ½ years since the termination of the Contract and the retention of the £57,000 to formulate and plead a legally tenable claim for damages but has been unable to do so;
(v)	It is utterly implausible that the retention of £57,000 could have caused the company to suffer a loss of millions of pounds - if that is really what the causative consequence of the retention of £57,000 would have been, I would have expected the Directors to support the company. The fact that they obviously did not do so is of itself demonstrative of the fact that they did not consider that the company had any value to them.
63.	Accordingly, even if I had concluded that there was a reasonably arguable case that the Defendant was in breach of contract in any respect, I would have concluded that there was no real prospect of the Claimant proving that it had suffered any loss by reason of any such breaches.
Conclusion
64.	In the circumstances, the Defendant is entitled to summary judgment on the Claimant’s claim.