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Cite as: [2004] EWHC 1526 (QB)

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Neutral Citation Number: [2004] EWHC 1526 (QB)
Claim No. HQ03X02483


10th March 2004

B e f o r e :

Christopher Moger QC
sitting as a Deputy Judge of the High Court






Claim No. HQ03X02483
Neutral Citation Number: [2004] EWHC 1526 (QB)
Date: 10th March 2004
Christopher Moger QC
sitting as a Deputy Judge of the High Court
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Crown Copyright ©

  1. The Claimant, Vodafone Limited ("VL"), provides to its customers telecommunications services and equipment via its cellular radio network in the United Kingdom. VL is the main operating company of a group of companies, the ultimate holding company of which is Vodafone Group Plc.
  2. Two other companies in the group are Vodafone UK Limited ("VUKL") and Vodafone Connect Limited ("VCL"). VUKL is a holding company which does not provide services or equipment to customers. VCL, a subsidiary of VUKL, was, until early 2001, a trading company supplying equipment and services to customers but, with effect from about 31 January 2001, sold its business to VL and continued in existence as a shell company.
  3. However, Vodafone Connect remained a name in use in the Vodafone business. It is an admitted fact that at all material times it was a trading name used by VL.
  4. The first Defendant, GNT Holdings (UK) Limited ("Holdings"), was itself a subsidiary of an Italian company called Elios Holding SpA. Until the summer of 2003 Holdings had a German trading subsidiary company called Global Network Telephone GmbH ("GmbH"). Mr Jan Malkus, who gave evidence before me, described himself as the Managing Director of GmbH.
  5. GmbH had its own subsidiary Global Network Telephone UK Limited ("GNTUK") which provided wholesale telephone services in the UK to other telecommunications companies, was formed in 1999, and went into creditors' voluntary liquidation in May 2003. The Managing Director of GNTUK from early 2000 until his resignation in August 2002 was the second Defendant, Nicholas Barter. Mr Malkus was also a director of GNTUK. Mr Barter, who had resigned in acrimonious circumstances which have been the subject of other litigation, was succeeded as Managing Director of GNTUK by Mr Thorsten Weber. Mr Weber was also a consultant at GmbH.
  6. The main shareholder behind the GNT group was an Italian gentleman, Dr Carlo Corba Colombo. He is variously described in the papers and by the witnesses as Dr or Mr Corba. Following the convention adopted by the witnesses, I shall refer to this gentleman as Mr Corba.
  7. With effect from March 2001 Holdings had 5 directors in all. Of those already mentioned, Messrs Malkus, Corba, and Barter were three of the directors. A fourth director, a Mr Slingsby, who is a solicitor and consultant in the firm of Howard Kennedy, was also company secretary of Holdings. It will be necessary later in this judgment to examine the roles of these officers in the affairs of Holdings in more detail.
  8. In June, September, November, and December 2001 GNTUK acquired mobile telephone connections to the Vodafone Network from VL. It is common ground that all of its dealings were with VL. Neither VCL nor VUKL ever supplied any services or equipment to GNTUK. Neither company was ever owed money by GNTUK.
  9. GNTUK dealt with VL through the latter's agent in each case. Initially the agent was a company called Anglia Telecom. The agent involved at a later stage, and in particular for the November transaction with VL, was The Wap Store Limited ("Wap"). The finance director of Wap was a Mr Hannah (also spelled Hanna in the papers).
  10. The November transaction concerned the supply of 56 mobile telephone connections or SIM cards. It was typical of the other transactions between the parties in that GNTUK submitted a written purchase order to VL for all 56 SIM cards, in this case on 2 November 2001, and then entered into a series of Customer Agreements on VL's form, in this case 7 forms each dated 8 November 2001. 7 forms were required because there was space on each form for the details of only 9 SIM cards to be entered. It was, in essence, a single transaction.
  11. For so long as the SIM cards remained in use by GNTUK it was liable to pay to VL a fixed monthly line rental and charges calculated by reference to the number and type of calls made on each telephone set.
  12. It is not in dispute that, on 2 November 2001, Mr Barter signed a letter in the form of a guarantee, as director of Holdings and on Holdings headed notepaper. I will have to examine its terms in greater detail later in this judgment.
  13. After about September 2002 GNTUK experienced difficulties in meeting the payments VL said were due for use of the connections with which it had been supplied by VL. These difficulties culminated in an attempt by VL to collect the sum of £493,934.90 by direct debit from GNTUK's bank. Payment of this amount was refused by the bank on 9 April 2003. By fax dated 1 May 2003, erroneously addressed to Mr Barter, VL's solicitor, Mr Littlejohn, threatened proceedings against Holdings in relation to the guarantee. The figure mentioned in his letter was £488,334.90. On 2 May 2003 notice was given to all prospective creditors that GNTUK was to go into liquidation.
  14. By letter dated 13 May 2003, VL, through a firm of solicitors called Clarks, demanded payment from Holdings under the guarantee of the sum then said to be due, £495,419.61. Winding up proceedings were threatened in the event of non-payment. That letter was addressed to Holdings' accountants' address and copied to the offices of Howard Kennedy which was its registered address. Holdings replied through Howard Kennedy on 20 May that it was taking instructions. On 23 May 2003, Howard Kennedy responded substantively to the effect that it had taken instructions, that Mr Barter lacked authority to sign the letter of guarantee for Holdings, and that nobody at "the Company" had any prior knowledge of the existence of the letter of guarantee.
  15. There is some confusion in that letter about the identity of the client and the definition of "the Company" referred to in it. I have heard evidence about the letter from Mr Malkus and from Mr Slingsby. It is written under the reference of the latter. I accept his evidence to the effect that he oversaw the investigations which were carried out by his assistant Ms Jilka Patel and that the enquiries were made of Mr Corba on behalf of Holdings and of the firm of FSG, accountants to Holdings. I accept his explanation to the effect that the confusing reference to GNTUK in the heading of the letter is explained by careless adoption of the heading of earlier correspondence in the lead up to this letter - as he said "this is life". I have no doubt he is right when he told me that the response was given on behalf of Holdings and that it was on the instructions of Mr Corba that the writer asserted that nobody at Holdings had knowledge of the letter of guarantee. He told me that he had made enquiries of the right person and there was no reason for him to do anything further to verify what he had been told.
  16. It is not clear whether Mr Slingsby wrote the letter himself although he was clear that he did not sign it. It does not matter whether he did or not. He was closely concerned with it at the time and was, I find, in a position to give me first hand evidence about it and the sources of the information contained in it. The tenor of the evidence of Mr Malkus on this aspect of the case was that he could not be sure whether he had had any input into the letter. In the light of the evidence of Mr Slingsby, I find that he was not directly consulted by Howard Kennedy. There is no evidence that Mr Corba spoke to him before responding to the enquiry although, given the nature of the enquiry, it is not unlikely that he did.
  17. In May 2003 VL served a Statutory Demand on Holdings and issued a winding up petition. This was subsequently withdrawn and on 6 August 2003 the Claim Form in the present proceedings was issued. The pleadings have been through several amendments and during the course of the hearing I gave permission for a further amendment of the Defence of the second Defendant. The case has come on for trial with commendable speed.
  18. VL claims against Holdings on the letter of guarantee the sum of £495,419.61 allegedly owed to it by GNTUK. The pleaded claim for debt recovery costs and interest pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 is not pursued. A claim for interest pursuant to section 35A Supreme Court Act 1981 is made.
  19. VL claims against Mr Barter, in the alternative, damages for breach of warranty of authority if it should prove that he had no actual or ostensible authority effective to bind Holdings to the letter of guarantee. The damages sought are the sums that VL would have recovered under the guarantee had it been enforceable against Holdings. Interest under the 1981 Act is also claimed on those damages.
  20. The case proceeded on the footing that any sum proved as due to VL from GNTUK would be the measure of any damages recoverable against Mr Barter. It was not suggested on behalf of Mr Barter that a guarantee from Holdings was worthless or worth less than the full amount that could have been claimed from Holdings. There was no exploration of the point in evidence. It seems to me that on a fair reading of the pleadings it is not pleaded either: my reading of paragraph 9.10 of the Amended Defence of the Second Defendant is that the point being made there is made by reference to the inadequacies of the letter of guarantee rather than to any lack of value to VL in an authorised guarantee. I proceed therefore on the basis that there is no issue of this sort before me.
  21. £495,419.61: the sum claimed.

  22. Both Defendants put VL to proof that the sum claimed was due to it from GNTUK. Both contend that VL has failed to do so.
  23. VL put forward, as evidence of the sum due, the 4 invoices in Bundle 1 Tab 19. They are contemporaneous documents. On the face of each there is an indication that the invoice in the papers is the first of a large number of other pages enclosed with it when it was sent to GNTUK. Disclosure of those pages was withheld on the grounds that it would have been disproportionate to list them. Disclosure of them was not sought by either Defendant. There is no evidence about the nature of the supporting documents but I was told that they contain the details of the calls made which go to make up the sum due in the invoice. That this is the standard practice with telephone bills is something that is common knowledge. I am happy to accept therefore, that each invoice was sent with substantial supporting details and that the Defendants could have sought disclosure had they wished to satisfy themselves of the calculation of the sums due.
  24. The invoices are not easy to follow. The first part of each calculates a "Sub-Total". Taken together the sub-totals amount to something over £9,000. It is not clear how the sub-total fits into the figures in the second part of the invoice.
  25. The second part of each invoice contains what is plainly a running account between VL and GNTUK. If the sums due in each under the box "Current Invoice" are added together they amount to a sum £5,600 greater than the sum claimed. As the sequence develops, the cumulative balance due is shown in a box marked "Amount Due". At the end of the sequence the sum shown due is the sum claimed. Plainly a small reduction of the "Current Invoice" figure has been allowed during the sequence to give rise to the sum claimed. There is, in other words, an unexplained reduction in the sum claimed. This is an adjustment in favour of the Defendants.
  26. There is other contemporaneous evidence which tends to show that the figures in the running account element of each invoice are accurate. In two of the invoices, those for 19 February and 7 May 2003, the running account appears to give credit for a payment made against the "Previous Balance" but the same sum is again brought into debit under the description "Other Activities". The sums treated in that way are £142,074.61 and £493,934.90. GNTUK did not pay either sum as the February correspondence and May electronic log exhibited to the statement of Mr Fletcher who gave evidence for VL demonstrate. Mr Fletcher's evidence about these sums is that neither was paid. Mr Fletcher, like all those who gave evidence for VL, was a careful and obviously honest witness doing his best to help the Court. I have no hesitation in accepting the accuracy of what he said about the history of the account. It shows that the running account debit on "Other activities" was the method used to show sums left unpaid from the previous balance.
  27. In his witness statement Mr Fletcher asserted that GNTUK went into liquidation owing VL the sum claimed. He readily accepted in cross examination that he could not give the Court a breakdown of that figure. His evidence about the final balance takes the matter no further, therefore, than the invoices.
  28. Mr Malkus gave evidence for Holdings. Although English is not his first language Mr Malkus demonstrated to me an impressive and ready command of it. He is obviously an able man. He was a witness who had prepared himself carefully – to the extent of making some minute corrections to his witness statement before being prepared to swear to its truth. I found him at his most impressive as a witness when his evidence was substantiated by contemporaneous documents. Listening both to what he said and the way he said it, I concluded that I should be more cautious about accepting his evidence where it was not so substantiated. He seemed reluctant to volunteer information or to answer questions unrelated to the documents in an entirely straightforward way. I was quite sure, though, that neither problem was the result of any lack of fluency in the English language.
  29. Mr Malkus's evidence in chief was give by reference to his corrected witness statement. In it he touches on the sum due to VL by GNTUK (a company of which Mr Malkus was a director – a fact mentioned in his statement in the Employment Tribunal proceedings but omitted from his statement in these proceedings other than by reference to the earlier statement). At paragraph 5 he acknowledges that GNTUK owed monies to VL but says that GNTUK was "concerned" that the sum claimed was not accurate because of the rate being charged by VL for off-net calls.
  30. Mr Malkus was not asked any questions about this and it would not be right to attribute to him any intention positively to imply that GNTUK's concerns should cast serious doubt on the final account. His evidence is right to the extent that in October 2002, after enquiry by GNTUK, VL discovered that it had been overcharging GNTUK and credited the account with the large sum of £159,850.72. Furthermore, it is right that GNTUK did raise concerns about the January 2003 invoice at the same time that VL were seeking the comfort of a further parent company guarantee from GNTUK's immediate parent company. That concern led to a meeting between the parties held on 20 February 2003 and attended for GNTUK by Mr Weber and a Mr Amram. I accept the evidence of Mr Fletcher to the effect that further accounting information was thereupon supplied to GNTUK and that there never was any subsequent challenge to VL's invoices. Quite the contrary; his evidence is that Messrs Weber and Amram thereafter promised payment as soon as further foreign investment planned for GNTUK came forward. Mr Weber was in regular contact with Mr Malkus throughout the relevant period and I am confident that Mr Malkus was kept abreast of these developments.
  31. I find as a fact that full information was supplied about each invoice to GNTUK at the time each was sent and that GNTUK accepted the accuracy of the account having had their fears allayed and the make up of the account explained to them in February 2003. There is positive support for the accuracy of VL's invoices in those circumstances.
  32. There is nothing in the evidence before me to cast doubt on the evidence contained in the invoices as to the sums due from GNTUK to VL. I hold that, as at 7 May 2003, GNTUK owed VL the sum of £495,419.61.
  33. The Letter of Guarantee

  34. There is very little dispute between VL and Mr Barter about the circumstances in which the Letter of Guarantee came to be written. The dispute relates to the question whether Mr Barter signed it without reference to Mr Malkus or after discussing it with him.
  35. Mr Ludford, a Dealer Account Manager for VL within whose remit in the autumn of 2001 was the Wap account, gave evidence about the circumstances leading up to the letter of guarantee. His evidence was not challenged and I accept it and the evidence of Mrs Etheridge who monitored GNTUK's account from about October 2001 and who substantially corroborated the account he gave. Mr Barter's evidence is broadly to the same effect.
  36. Wap approached Mr Ludford, whose job it was to maximise sales through his agents, to say that VL's Credit and Risk Department had turned down a proposed transaction with GNTUK. Mr Ludford took up the matter with Ken McGrath of the Credit and Risk Department. Mr McGrath has left VL and was not called as a witness.
  37. Mr McGrath suggested that a meeting with GNTUK might provide further information which would enable him to re-assess the proposal. There was a meeting at the offices of Mishcon de Reya at which Mr Barter made a presentation about the GNT group to Wap (in the person of Mr Hannah and another) and VL in the person of Mr Ludford.
  38. Following that meeting, Mr Ludford reported to Mr McGrath that he thought GNTUK to be "ok" and Mr Barter to be a credible businessman. He forwarded to Mr McGrath the material that had been produced by Mr Barter. Mr Barter told me and I accept that the material had been given to him by Mr Malkus.
  39. The transaction proposed was the acquisition by GNTUK of a further 56 network connections. Mr Barter's evidence was that he had equipment installed and customers ready to make use of these connections. He was under pressure to expand GNTUK's business which was profitable and was anxious to secure the agreement with VL.
  40. I should say at this point that I found Mr Barter to be a straightforward, careful, and helpful witness. Mr Hantusch emphasised that, given his potential exposure to the large claim against him, he would have every reason to embroider his evidence especially in relation to the contentious issue of his conversation with Mr Malkus about the letter of guarantee. Notwithstanding the pressure that he was under, however, I did not find him prone to exaggerate or embroider his evidence. I found his evidence believable and I believed it.
  41. The result of Mr McGrath's reconsideration of the transaction was that he approved it subject to conditions. One condition was that there be a parent company guarantee for the liabilities of GNTUK. When, by e-mail on 30 October 2001, the matter was first raised by Mr McGrath internally with VL staff including Mr Ludford and Mrs Etheridge he spoke of a guarantee from "the parent company for all costs & charges – Elios Holding SPA". He said when the customer had confirmed the conditions were acceptable he would prepare the guarantee form.
  42. On 2 November 2001 in a message timed at 12:38 pm he sent a draft copy guarantee by e-mail to Bonnie Winfield of Wap. He said
  43. "This is the draft copy guarantee which will need to be completed on GNT Holdings UK Ltd headed paper and signed by the director of the holding company….I must reiterate that it must be on the HOLDING company's letterhead…"

  44. The draft is that set out at Bundle 2 Tab 2 page 350. It was addressed to VUKL but was otherwise in the same form as that subsequently signed. It provided for the signature of Mr Barter as a director of the company.
  45. At 15:45 pm on the same day, Mr McGrath made an entry on the electronic log exhibited to Mrs Etheridge's statement to the following effect:
  46. "56 handsets assessed and approved by k mcgrath c byrne and j etheridge, terms parentla company guarntee (sic) received and fortnightly payment terms of 30k or all unbilled to date which ever greater"

  47. Mrs Etheridge, who was involved, refers to that entry as evidencing the obtaining of the guarantee. There is no other relevant entry in VL's log and I find that the signed letter of guarantee was secured by that time.
  48. There is no doubt that Mr Barter signed the letter of guarantee in his capacity as director of Holdings. His evidence, which I accept, is that Mr Hannah of Wap gave him the text and told him that it should be put on the letterhead of GNTUK's parent company. I am satisfied, on the evidence, that Mr Barter merely took the text of the draft he had been given and cut and pasted it (to use his words in evidence) onto a document kept at GNTUK in electronic form which bore the GNT logo and the address and details of Holdings. From that description from Mr Barter about how he produced the letter it is likely, as he told me, that he received the text in electronic form.
  49. There is a difference between the letter signed and the draft prepared by Mr McGrath. The letter signed is addressed to Vodafone Connect. The address is the same as that employed on the draft. In January 2001 it had been an address of VCL. There is no explanation on the evidence to identify the author of or reason for that change. I accept that Mr Barter was not responsible for it – he simply adopted the text he was given and, as will appear, did not concern himself overmuch with the identity of the Vodafone entity with which he was dealing. It must have been prepared by Mr McGrath or by someone at Wap after referring the matter back to Mr McGrath.
  50. Mr Barter told me that it was made very clear to him that there would be no further business from Vodafone if a parent company guarantee was not forthcoming. He felt under pressure to expand the business and was told by Mr Hannah that the letter had to be signed that day.
  51. Mr Barter's evidence is that he asked whether a guarantee from GmbH or from Holdings was wanted. That information would not have been obvious from the text of the draft. That would have been a natural question for Mr Barter to have asked because GmbH was GNTUK's immediate parent and because it is common ground that GmbH had previously given guarantees for GNTUK. It has the ring of truth and I am satisfied he asked it.
  52. He also says that Mr Hannah answered to the effect that it did not matter. Mr Barter was not cross examined about this part of his evidence but I have had more difficulty with it. It is a piece of evidence which puts his evidence about his subsequent call to Mr Malkus, which is hotly contested, into context. On the face of it, it was a surprising answer for Mr Hannah to give since Mr McGrath's e-mail to Wap specified completion on Holdings headed paper. However, I have come to the conclusion that Mr Barter's evidence can be accepted on this matter. He struck me as a careful witness overall. The answer makes sense of his approach to Mr Malkus which, having heard him cross examined, I am confident he made and has described truthfully. There was, obviously, an opportunity for Mr McGrath and Mr Hannah to reconsider the terms of Mr McGrath's 12.38 e-mail because at some stage the text of the draft was changed. Maybe Mr Barter's account compresses more than one conversation with Mr Hannah but on the substance of his account I am satisfied his evidence is correct.
  53. Mr Barter telephoned Mr Malkus who was in Germany to ask whether the latter would be able to sign a guarantee that day. I understood his evidence to be that one possibility was that Mr Malkus could sign for GmbH and that he was aware that previous guarantees had come from that company and that Mr Malkus had signed them.
  54. Mr Malkus told him that he could not do so. Mr Barter recalls Mr Malkus saying to him
  55. "You are entitled to sign on behalf of Holdings and if Vodafone are stupid enough to accept Holdings as a guarantor that is even better."

  56. Mr Barter's oral evidence was that he spoke to Mr Malkus not to seek permission but, it being the first time he had ever been asked for a guarantee of this sort (which I took to mean – a guarantee from Holdings), he wanted to check whether it was alright for him to sign it. He told me that Mr Malkus told him to go ahead and sign it and that it was a discussion and not a formal instruction that he should do so. Mr Barter's belief was that he did have authority to sign the letter for Holdings but wanted to check with Mr Malkus. Mr Malkus was someone he spoke to regularly at that time.
  57. I believed this evidence. It is, in my judgment, inherently likely that Mr Barter would wish to discuss this unusual request with someone from Holdings. There was other evidence, from Mr Slingsby, which showed that Mr Malkus and Mr Corba were the two gentlemen who took decisions about Holdings on a day to day basis. Moreover Mr Malkus was Managing Director of GmbH, the parent company of GNTUK. In finding that Mr Barter did have the conversation he described I take into account the fact that it was likely that he would have raised the issue before signing and that Mr Malkus was the most obvious person to have raised it with.
  58. Moreover, the remark attributed to Mr Malkus about the stupidity of Vodafone taking a guarantee from Holdings is an aspect of the conversation which rings true and would be the sort of detail that would stick in the mind. The explanation of the remark seems to be that the financial circumstances of Holdings were less good than those of GmbH which was the company usually chosen by those seeking security for GNTUK's liabilities. Mr Malkus confirmed this when giving evidence but I formed the distinct impression when he did so that he understood the point being asked but volunteered the answers reluctantly. The documents in the bundle were not referred to in this connection at trial but the financial situation of Holdings in November 2001 (likely to be known to Mr Malkus at the time of this conversation) is shown by the financial statements for the year ending 31 December 2001 at Bundle 3 Tab 2 page 223 and following. In short it depended for its survival on the support of its parent company.
  59. Having seen Mr Malkus give evidence I consider that the remark attributed to him is one he is likely to have made. Securing the transaction with Vodafone was important to the success of GNTUK but I formed the view that he would have been happy to avoid having to put real assets forward to secure its position if he could have done so. Certainly he was a willing party to stringing VL along in late 2002 and early 2003 by holding out the promise of a guarantee from GmbH which I am confident he never intended to give and thereby buying time for GNTUK to continue to trade at VL's expense.
  60. Mr Malkus's evidence was unsatisfactory about this important factual dispute. At paragraph 12 of his witness statement, Mr Malkus dealt specifically with the allegation made by Mr Barter in his Defence about this particular conversation. This was not a part of his statement that Mr Malkus sought to correct at the outset of his evidence before me. In the statement he said
  61. "I do recall having a conversation with him regarding the Agreement with Vodafone and GNT UK but at no point in time was any kind of guarantee or other security discussed."

  62. That evidence appears to support at least part of Mr Barter's account. If there were a conversation about the agreement it seems likely to me that Mr Barter would have mentioned the guarantee. There is no suggestion made by Mr Malkus in his statement that the conversation he is referring to occurred or that it may have occurred at a time different to that alleged by Mr Barter.
  63. When cross examined about it, however, Mr Malkus said his statement referred to several conversations in relation to the whole series of agreements between GNTUK and Vodafone. He denied that it referred to his recollection of a single conversation with Mr Barter about the November agreement with Vodafone. I did not find his evidence about this or the way he dealt with it in the witness box convincing. I think Mr Malkus did have a recollection about the conversation with Mr Barter but when faced with the prospect of questions about it sought refuge in an unconvincing denial of his earlier statement.
  64. Much was made by Holdings, after May 2003 when VL raised the matter of the guarantee, of the fact that no representative of Holdings other than Mr Barter knew of its existence before that date. I have described above the evidence of Mr Slingsby about the instructions he received from Mr Corba about that before his firm wrote the letter of 23 May 2003. It is certainly true moreover that Mr Malkus has subsequently maintained that he did not know of the existence of the letter of guarantee before May 2003.
  65. Mr Barter told me that having signed the letter of guarantee and returned it to Mr Hannah, he filed a copy in GNTUK's office in a file for documents for Holdings that was maintained there. He told me that he did not send a copy of the guarantee to Mr Malkus before or after his conversation. He did not send it to Mr Slingsby's office where another file for Holdings was maintained. He did not mention it at any subsequent Board meeting of Holdings. He said it was available for anyone to look at in the file where he had put it.
  66. Had it been Holdings' case that Mr Barter knew he had no authority to sign the document and deliberately concealed its existence from other members of the Board, this evidence might have afforded some support for that case. Having seen Mr Barter I would not have accepted any allegation of deliberate wrongdoing on his part and in my judgment Mr Hantusch was realistic to put his argument forward on the footing that Mr Barter signed the letter without further enquiry because he thought he had authority to do so. But that deprives the filing away of the letter in the way described of any significance. I have come to the conclusion that Mr Barter put the letter in a Holdings file where it was ready to hand for use in connection with the business of GNTUK and where it could be seen by Mr Malkus on his frequent visits to London had he desired to do so and there is no sinister significance to be attached to his treatment of it after the event.
  67. I would have been prepared to believe Mr Malkus had he said that he had never seen the actual letter of guarantee before May 2003. I did not believe his evidence to the effect that he was unaware of its existence before that time. Not only was he asked about it on 2 November 2001, but I am confident that negotiations about a further guarantee to be provided to VL in the latter part of 2002 and early 2003 were openly going forward to his knowledge on the footing that VL were unhappy with the security already offered by Holdings. This second guarantee was sought from GmbH.
  68. In their witness statements VL's witnesses about this aspect of the case, Mrs Etheridge and Mr Fletcher, refer to discussing the matter with Messrs Epstein and Weber of the GNT group in terms of a "second guarantee". In their oral evidence both told me that they could not be sure that they used that expression in these conversations.
  69. I found both to be impressive witnesses. Mrs Etheridge told me she had a good recollection of the conversations she was involved in and that she was confident Mr Epstein used the expression "second guarantee" in the conversation she had with him in January 2003 when he suggested that he would get Mr Malkus to sign it on his visits to London. She said, apropos of her logged request on 16 December 2002 of Mr Epstein that he provide details of GmbH for the purpose of the guarantee, that she explained to him why VL wanted a second guarantee. She told me that she explained to him that VL thought it would be in a much better position with a guarantee from GmbH. She told me she explained that that was because the German company was in a better financial position than the company from whom VL had the first guarantee. Mr Epstein told her he would discuss it with the directors in Germany. This would have been a natural thing for her to explain. She gave the evidence straightforwardly and I believed her. It reinforces the inference that Mr Epstein probably explained to Mr Malkus why a second guarantee was required by reference to the deficiencies in the first guarantee.
  70. Mr Fletcher, who raised the matter at a meeting with Mr Weber on 20 February 2003 at which Mr Weber promised that he would get Mr Malkus to sign the requested guarantee said that he might not have used the expression "second guarantee" but might have used the expression "new guarantee". He was clear in his evidence that he would not have used the expression "the guarantee" because, for him, what was being proposed was a replacement. I find that the probability is that in the discussion with Mr Weber both were conscious of the existing guarantee.
  71. Although Mr Malkus was not directly involved in discussions with VL at this stage, I find he was closely involved through his regular contact with Messrs Epstein and Weber. The subject could scarcely have been discussed without the explanation about the replacement nature of the guarantee sought from GmbH coming up between those gentlemen. Mr Malkus's lack of reaction to the existence of a first guarantee is explained by his knowledge of it. His knowledge of it is explained by his conversation with Mr Barter. He may or may not have told his fellow directors at Holdings and I am not in a position to say he did. I am in a position to find, and I do, that he knew about the first guarantee throughout and that I do not accept his evidence to the contrary.
  72. The terms of the Letter of Guarantee

  73. VL readily accepts that the terms of the letter of guarantee are open to criticism. The terms are those drafted by VL and were accepted without discussion by Mr Barter. He was presented by Mr McGrath with a letter which was required by VL as a condition for its doing further business with GNTUK.
  74. The letter was addressed to "Vodafone Connect" at an address which, in January 2001 at least, was an address of VCL. The letter is set out on the headed paper of Holdings. It describes the address of that company correctly. It is signed by Mr Barter who describes himself, correctly, as a director of that company.
  75. The letter reads as follows – I shall use the labels for the companies referred to that I have adopted in this judgment although their names were set out in full in the text:
  76. "Dear Sir/Madam,


    Following discussions between the above named company, a wholly owned subsidiary of Holdings, and yourselves, I am writing to confirm that in consideration of VUKL entering into the agreement referred to below, we hereby irrevocably and unconditionally guarantee, as principal obligor, to pay on demand any debt incurred by the company in their business dealings with you and/or any other liabilities incurred by GNTUK in connection with the company's obligation to VUKL, including, without limitation in connection with the agreement for the supply of telecommunication services and equipment entered into of even date.

    The Guarantee shall not be affected by and shall remain valid but not withstanding any amendment or variation to the agreement.

    If you require any further information, please do not hesitate to contact me.

    Yours faithfully .."

  77. The Defendants contend that this letter confers no rights upon VL at all. They argue that it is addressed to VCL not VL. They submit that it offers a guarantee of the liabilities of GNTUK to VCL and or VUKL but not of the liabilities of GNTUK to VL. They submit that consideration is an essential requirement for an enforceable guarantee: a proposition which is not in dispute. The Defendants submit, however, that the stated consideration failed: the consideration described being VUKL's entering into an agreement "of even date" with GNTUK for the supply of telecommunication services and equipment. They point to the undeniable fact that there never was an agreement for the supply of telecommunication services and equipment between VUKL and GNTUK. Moreover, the 7 customer agreements between GNTUK and VL were signed on 8 November 2001 and not on the date of the letter of guarantee.
  78. VL submits that an application of the proper principles of construction enables the Court to hold that the guarantee was given by Holdings to VL in respect of GNTUK's liabilities to VL. I have been referred to the well known dicta of Lord Hoffmann in the cases of Mannai Limited v Eagle Star Assurance Company Limited [1997] AC 749 at 774, 775, and 778 and Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912-913. It is common ground that these decisions contain the guidance that I should follow in construing the letter of guarantee.
  79. VL also referred me to three authorities described in argument as the "misnomer" cases: Nittan v Solent Steel [1981] 1 Lloyds Rep 633; Perrylease v Imecar [1988] 1 WLR 463; and Lombard v Brookplan Trading Limited [1991] 1 WLR 271. Useful though those cases are as illustrating the Court's reluctance to be diverted from a proper construction of the agreements with which they were dealing by obviously mistaken description of the parties referred to in the documents being considered, they do not, to my mind, carry the approach to be applied by the Court any further than the later and more authoritative words of Lord Hoffmann.
  80. In arriving at my construction of the letter of guarantee I have therefore approached the matter on the basis of the approach outlined by Lord Hoffmann. The subjective intentions or understanding of the parties to the agreement are irrelevant. I put out of consideration for the purposes of construction the evidence Mr Barter gave about his understanding of the effect of the guarantee and his intention in signing it. If relevant, that evidence is relevant to VL's alternative claim for rectification of the letter.
  81. Lord Hoffmann's words need to be read as a whole and in mentioning particular parts of the passages referred to I do not mean to imply that I have lost sight of the whole. That said it seems to me that the following parts of the passage in the Investors Compensation Scheme speech are of particular relevance to the question before me.
  82. [i] The object of the exercise is "the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would have been reasonably available to the parties in the situation in which they were at the time of the contract".
    [ii] "Subject to the requirement that it should have been reasonably available to the parties … (the background) includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man."
    [iii] "The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax."
    [iv] "The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention they plainly could not have had."

  83. The background knowledge reasonably available to the parties included the following:
  84. [i] All the dealings GNTUK had ever had with Vodafone were with VL and not with VCL, which was a shell company, or with VKUL which was a holding company which did not trade with customers. At the date of the letter there was no liability of GNTUK to VCL or VUKL and none was in contemplation.
    [ii] Vodafone Connect, to whom the letter is addressed, was a trading name of VL.
    [iii] The discussions referred to in the letter were between GNTUK and VL. They related to an attempt by GNTUK to satisfy VL about its credit worthiness in connection with a proposed transaction between them about the supply of 56 connections to the Vodafone network. They culminated in VL agreeing to supply those connections to GNTUK provided it had a parent company guarantee from Holdings.
    [iv]A purchase order for the 56 connections had been placed with VL by GNTUK on 2 November 2001 – an order of "even date" with the letter. It was that order that VL had agreed, conditionally, to supply subject to the provision of the guarantee. That agreement, albeit conditional expressly on the supply of the guarantee and impliedly on signature of customer agreement forms at some unspecified later date, was communicated to GNTUK by VL via its agent on 2 November 2001 – a communication of "even date" with the letter.

  85. These circumstances lead me to the conclusion that something went wrong with the drafting of the letter. It cannot have been intended by the parties to confer a guarantee on VCL for GNTUK's liabilities to VCL or VUKL. It cannot have been intended to refer to consideration in the form of VUKL entering an agreement with GNTUK on 2 November 2001. To construe it literally would be a commercial nonsense. Indeed, neither Defendant contends that the letter made any commercial sense if read literally.
  86. Moreover, there is enough in the background circumstances for me to ascertain what the letter did mean. It is to be read, in my judgment, as a guarantee from Holdings of GNTUK's liabilities to VL given to VL in consideration of its agreeing to supply the 56 connections to GNTUK which were the subject of GNTUK's purchase order of 2 November 2001.
  87. I therefore decline the Defendants' invitation to hold that it was a meaningless and ineffective letter. I hold that, subject to the further questions of authority, it was a legally effective guarantee of GNTUK's liabilities to VL and in the circumstances that have happened, a guarantee covering the sum claimed in this action.
  88. In the circumstances it is not necessary for me to rule upon VL's alternative claim for rectification of the agreement. I can say, however, that I accept the evidence of Mr Barter that his understanding throughout his dealings with VL was simply that he was dealing with Vodafone. He had no interest in which particular entity he was dealing with. When he signed the customer agreements with VL he did not care which company he was dealing with – he did what he was asked to do. He told me he would not have seen the invoices sent to GNTUK so long as there was no dispute or difficulty with them. There is no positive evidence that he saw any invoices prior to signing the letter of guarantee still less that he drew any conclusions from them about the identity of the Vodafone company GNTUK was dealing with.
  89. Mr Barter told me and I accept that he noticed the reference to different names in the letter of 2 November 2001 and mentioned that to Mr Hannah. He was told by Mr Hannah that they were all part of the Vodafone group. He, Mr Barter, regarded himself as dealing with Vodafone so he assumed the letter was correct.
  90. While I am satisfied that Mr Barter lacked any understanding of the different Vodafone entities and also that he did not mind which entity it was with whom he was dealing providing it was Vodafone, I am also clear from his evidence that it was his understanding that the guarantee was being sought by the entity with whom he was hoping to contract for the supply of the 56 connections and that it was his intention that Holdings give the guarantee to that entity. That entity was, in fact, VL. It is abundantly plain that Mr Barter and VL shared a common intention to that extent. Mr Hantusch submits that Holdings had no intention at all about the matter because it was unaware of the guarantee. Holdings, may, of course, have been fixed with Mr Barter's knowledge and intentions for the purposes of rectification. That will depend on the authority issue. Holdings did know of the guarantee for the reasons explained above.
  91. Authority

  92. Holdings contend that Mr Barter lacked any actual or ostensible authority to bind the company to the letter of guarantee. Mr Barter contends he had actual and ostensible authority to bind Holdings. VL seek to recover against Holdings on the footing that Mr Barter was authorised to enter into the guarantee for Holdings.
  93. I must first examine the facts relevant to this part of the case. Holdings is a UK registered company. It is a holding company. Its immediate and remoter subsidiaries, GmbH and GNTUK, are trading companies. No suggestion is made that, acting by its Board of Directors, it lacked the power to confer upon Mr Barter authority to enter into the letter of guarantee on its behalf. Likewise no suggestion is made that it lacked the power to confer on a Managing Director or equivalent any of the usual powers associated with that office.
  94. Messrs Barter, Malkus, and Slingsby were each made directors of Holdings on 29 March 2001 at a Board meeting in Milan in Italy. The existing directors at that time were Mr Corba and two other Italian gentlemen, Dr Cisotti and Dr Monti.
  95. On 12 April 2001, at another Board meeting in Milan, at which Mr Barter took the chair at the invitation, he told me, of Mr Corba, there were also present Mr Malkus, Mr Corba, and Dr Monti. At that meeting Mr Corba was authorised by the Board to agree the terms of the contracts of employment of Messrs Barter and Malkus with Holdings on behalf of the company.
  96. By the terms of his contract of employment with Holdings, an unsigned version of which is in the papers, Mr Barter was appointed as "Director responsible for the UK and USA" and it was provided that, during his appointment, he should "exercise such powers and shall comply with and perform such directions and duties in relation to the business and affairs of (Holdings) and any Group Company as may from time to time be vested in or given to him by the Board as Director and with any standing orders or other regulations for the time being in force".
  97. No standing orders or other regulations of relevance have been relied upon in this case. In my view, the highlighted words qualify the powers of the Director in so far as the Director purports to do anything in relation to the business and affairs of Holdings. With the exception of the other matters resolved upon at the Board meeting of 12 April 2001, no Board resolution is pointed to by VL or Mr Barter which would have had the effect of conferring any particular authority upon him in that respect.
  98. Mr Malkus's contract of employment is not among the material in evidence in the case.
  99. At item 6 of the minutes of the Board meeting of 12 April 2001 the following resolution of the Board is recorded.
  100. "It was resolved that Mr Malkus be elected CEO of the company and Mr Antony Slingsby was duly elected as Chairman of the company. All directors will have the power to negotiate contracts to the value of £100,000, with any higher investment requiring two signatures. A complete list of the powers will be provided by Mr Barter by the end of May … All powers granted in previous board meeting are hereby revoked."

  101. It seems to me that express actual authority was conferred on each director to bind Holdings to contracts with a value of less than £100,000. I read "negotiate" in the resolution in the context of the rest of the sentence, as meaning enter contracts for Holdings or commit Holdings to contracts below that value.
  102. While it is fair to say that that authority hardly accords with the insistence of Mr Malkus that all the directors were "non-executive" and were not directors clothed with "executive" powers, there is no doubt in my mind that their sole contracting authority was limited to contracts of a value of £100,000. In my judgment, the unlimited guarantee entered signed by Mr Barter cannot be said to be such a contract. The resolution did not confer express actual authority upon him to sign such a letter. I find, therefore, that when Mr Barter raised the question of the letter of guarantee with Mr Malkus before signing it on 2 November 2001, he was wrong to think that he already had authority, at any rate express authority, to sign the guarantee for Holdings.
  103. However, express authority was also given to any two members of the Board to enter into written contracts on behalf of Holdings that were unlimited in amount. There was evidence in the case that a subsequent guarantee, larger in amount according to Mr Barter, was entered into by Holdings to secure liabilities of GmbH and it can be seen from the papers that that matter was referred to the Board for a special approval. In my view, however, while that may have been a prudent course, it was not a necessary course from the point of view of the directors' authority: the contracting authority conferred on any pair of directors by the resolution of 12 April 2001 was unlimited in amount.
  104. By a separate part of the same resolution, Mr Malkus was appointed CEO of Holdings. Mr Malkus told me that he understood that that appointment was indistinguishable in title from that of Managing Director but, notwithstanding that appointment, he maintained that his role was non-executive and his powers the same as those of the other non-executive directors (as he described them). He contrasted his role for Holdings with the executive role he carried out for GmbH, executing contracts and signing papers. He said he understood his non-executive role in Holdings to be an advisory one as part of an advisory board. He pointed out that Holdings was a holding company and not a trading company. He told me that he had never, in fact, signed anything for Holdings without a Board resolution.
  105. While it is obviously right that there is less of a role for a Managing Director or CEO in a company whose business is not day to day trading with third parties, that does not mean that there is no need in such a company to clothe a director with the usual powers of a Managing Director to enable him or her to execute important or urgent business for the company should occasion demand it.
  106. There is a greater need for such an appointment, perhaps, when the Board meets infrequently and the directors are resident in different jurisdictions. In the case of Holdings the Board consisted of Italian, German, and British nationals. Mr Malkus was resident in Germany. Messrs Barter and Slingsby were resident in the United Kingdom. The papers reveal that Board meetings were sometimes held in Milan, presumably for the convenience of the controlling Italian interests and directors. To my mind it would therefore make sense for the Board of such a company as Holdings to appoint one of their number Managing Director or CEO and to clothe him with wide powers inherent in that office to enable day to day decisions to be taken where avoiding the time, trouble, and cost of convening a Board meeting made it convenient to do so.
  107. I did not find Mr Malkus's description of a wholly non-executive role in his appointment as CEO convincing. It seemed to me that his evidence was coloured by his desire to distance Holdings from taking responsibility for the letter of guarantee and to place responsibility for it onto Mr Barter, as had been his evidence that he had not had a conversation with Mr Barter about the letter of guarantee. I find that he was actually authorised by the Board to carry out the executive functions of a Managing Director required in the day to day business of the company.
  108. The evidence of Mr Slingsby supports this finding in my judgment. He told me that Board meetings at Holdings were infrequent; so infrequent in fact that he felt he could not properly discharge his role as a director. He said that the company was being run by Messrs Malkus and Corba. It was they who discussed issues as they arose. At one point in his evidence he described those two gentlemen as executive members of the Board. He was even under the impression that Mr Corba was the CEO (although it is fair to him to point out that he had not actually been at the Board meeting on 12 April 2001 when the CEO was appointed).
  109. Mr Slingsby was also asked about Howard Kennedy's letter written by the litigation department of that firm on behalf of Holdings on 24 June 2003 -(Bundle 3 Tab 2 page 238-240). At item 7 on page 240, Mr Malkus is described, one must assume on instructions from Holdings, as "the only executive director". The letter continues
  110. "and he (Mr Malkus) still seeks authorisation of the board before entering any agreements on behalf of Holdings."

    Mr Slingsby, speaking from his experience of the company, told me that he thought that passage was too widely drawn by which he meant that it was not accurate to claim that Mr Malkus's actions were so limited. If it was the intention of the letter to imply that Mr Malkus's authority was similarly limited, in my judgment it was not accurate.

    The letter also claims

    "No day to day business decisions are made without the Board's ratification."

    Mr Slingsby told me that was not correct.

  111. On 2 November 2001, Mr Malkus was presented by his fellow director with an urgent matter which required resolution that day. Evidently the VL transaction was one which was considered to be important for GNTUK, itself an important part of the trading element of Holdings' group. The transaction was dependant upon Holdings signing the letter of guarantee. It has not been suggested that Mr Slingsby was available in the United Kingdom to sign the letter so loss of the transaction, to the presumed disadvantage of GNTUK and Holdings, was a real possibility. These are just the circumstances for which Mr Malkus's executive authority was granted to him. I find that it was within the scope of his actual authority as CEO to approve on behalf of Holdings the signature of the letter of guarantee by one director where two directors had approved entering into the guarantee and where two signatures could not otherwise be obtained.
  112. In the circumstances I find that Mr Barter signed the letter of guarantee with the actual authority of Holdings and that Holdings is bound by the letter.
  113. For the sake of completeness I should briefly state my conclusions in relation to the other arguments about authority that were addressed to me.
  114. Implied Authority.
  115. It was contended that Mr Barter's position as an executive director of Holdings clothed him with implied authority to sign the letter of guarantee for Holdings.

  116. The matter at issue here is whether Mr Barter had actual authority but of an implied rather than an express nature. Lord Diplock in Freeman & Lockyer v Buckhurst Park Properties (Magnal) Limited [1964] 2 QB 480 at 502 said
  117. "An actual authority is a legal relationship between principal and agent created by consensual agreement to which they alone are parties."

  118. As I have already found, and leaving aside any authority derived from his conversation with Mr Malkus, Mr Barter's actual authority in connection with contracting on behalf of Holdings was expressly limited in a way which did not permit him to sign the letter of guarantee. There is no scope, in my opinion, for implying into the legal relationship between him and Holdings a power which is contradicted by that express limitation. Nor does it seem to me that it would be within the usual authority of an ordinary director of Holdings to enter into such contractual arrangements with third parties.
  119. Ostensible Authority.
  120. In Freeman & Lockyer at 505-506 Lord Diplock described the 4 conditions that must be fulfilled where a third party dealing with a corporation has to rely upon the ostensible or apparent authority of a servant or officer of the corporation to enforce his rights against the corporation. It is not suggested, in this case, that the fourth condition is not satisfied. The others are

    "(1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;
    (2) that such representation was made by a person or persons who had "actual" authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
    (3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it".
  121. Holdings had had no dealings with VL prior to the letter of guarantee other than, perhaps, to play a role through Mr Barter in the presentation to Mr Ludford and others at the offices of Mishcon de Reya. No reliance has been placed by any party on that role and there was no evidence before me to enable me to judge to what extent Holdings might be said to have played a role in that presentation.
  122. There is no evidence from which I could infer that any representations about Mr Barter's authority to sign the letter of guarantee or agreements of any sort were made by the Board of Holdings or even by Mr Malkus to VL or anyone else. There is no basis for inferring that anyone at VL or even at its agents Wap was induced by any representations about Mr Barter's authority to enter into any contract with Holdings.
  123. This is not a case like First Energy (UK) Limited v Hungarian International Bank [1993] 2 Lloyds Rep 194 in which a senior manager of a merchant bank was clothed with ostensible authority to communicate approval of his head office to the terms of the offer letter he wrote with the effect that it was an offer capable of binding acceptance. That was a case where the facts were very different from the present case and where the nature of the authority spelled out by the Court of Appeal was limited and specifically derived from the facts. In the present case, the only representation that could have been made by Holdings was the implied representation by Mr Barter, as a director of Holdings, that he had authority to sign the letter of guarantee. In my judgment that will not do for ostensible authority. It offends against the requirement that the "appearance" of authority must emanate from the principal. The agent's own representations about his authority are insufficient.
  124. Had I not found that Mr Barter had actual authority derived from Mr Malkus, I would have felt obliged to hold that he lacked any other authority to sign the letter.
  125. Breach of Warranty of Authority

  126. On my findings, this claim does not arise. It was argued for Mr Barter that, even if he lacked actual or ostensible authority, he was not liable for breach of warranty of authority.
  127. Every person who purports to act as an agent is deemed by his conduct to represent that he is in fact duly authorised to act except where the true facts are known to the other party or he expressly disclaims authority. This succinct statement of the law I take from Bowstead and Reynolds on Agency 17th Edition Article 107(2) at page 496.
  128. Mr Barter signed the letter for Holdings, describing himself as a director of Holdings. No question of knowledge of the true facts on the part of VL or its agent Wap arises. Still less does any issue of a disclaimer by Mr Barter arise. On the contrary he has stoutly maintained throughout that he had authority to sign the letter as agent for Holdings. In my judgment he undoubtedly warranted that he had the authority to do so.
  129. The argument advanced was that no evidence had been adduced by VL to show that it had been induced to do anything in reliance on any warranty by Mr Barter. It was said that it was straining language to say that VL was induced to do anything; the letter of guarantee was not an inducement to the contract. Rather it was a non-negotiable condition precedent stipulated by Mr McGrath.
  130. I do not accept this characterisation of the situation. It might be said that the letter of guarantee was a condition precedent to the transaction between GNTUK and VL. But what, in commonsense, must have been intended by VL was that it would not proceed unless it was offered a valid guarantee enforceable against GNTUK's parent. The point of stipulating signature by a director of the parent and that the letter should be on the headed paper of the parent company was not to substitute its own requirements for proper authorisation binding Holdings to the letter. Had it been told the true facts -(ex hypothesi that Mr Barter had no authority to sign the letter)- VL would not have accepted the letter of guarantee.
  131. I have no doubt that VL was induced to accept the guarantee from Holdings by relying on Mr Barter's warranty of his authority. If Holdings had not been liable on the guarantee, VL would have suffered the loss claimed by reason of Mr Barter's breach of warranty.
  132. Conclusion

  133. There must be judgment for the Claimant against the first Defendant in the sum of £495,419.61 together with interest under the 1981 Act. The claim against the second Defendant must be dismissed.
  134. March 2004

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