Porter Capital Corporation v Masters

In the High Court of Justice Claim No. HC 12T00556 Chancery Division B e t w e e n: 2013 EWHC 3929 (Ch) Porter Capital Corporation Claimant -and- Zulfikar Masters Defendant Before Mr. N Strauss Q.C. (sitting as a deputy judge) Dates of hearing: 28th June, 1st-3rd and 8th-10th July 2013 Date of judgment: 10th December 2013 ________________________________ Mr. Lawrence Jacobson, instructed by Bermans LLP appeared for the claimant; Mr. Iain Pester, instructed by Charles Fussell & Co LLP, appeared for the defendant. ________________________________ Approved judgment Introduction In this action, the claimant (Porter), a factoring company incorporated in Alabama and also operating in Connecticut, claims $2,698,198.86 plus interest accruing on and after 1st July 2013 from the defendant (Mr. Masters). Mr. Masters was the guarantor of debts owed by Cura Pharmaceuticals Inc., (Cura), a company incorporated in New Jersey and a customer of Porter between 2004 and 2010. Porters claim against Mr. Masters is for the balance said to be due and unpaid under a Commercial Financing Agreement (the CFA) dated 18th November 2004 in respect of advances to Cura, together with interest and charges, and fees for invoice collection services, less payments by Cura and its customers, and amounts recovered from other guarantors. The guarantee was given in an agreement called a Performance Covenant and Waiver (the PCW), entered into on the same day, whereby Mr. Masters, his co-directors Fabio Lanzieri and Alastair Young, and also Mrs. Lanzieri, guaranteed Curas liability to Porter. Mr. and Mrs. Lanzieris liability was limited to the value of their interest in their home at 7, Riverside Lane, Holmdal, New Jersey, which was subject to a prior mortgage. Porter was founded in 1991 by Mr. Donald Porter (Mr. Porter), its chairman and chief executive officer, his brother Marc Porter and his nephew, Ron Williamson (who left in 2012). Its head office is in Birmingham, Alabama, but at the material time Mr. Porter was based in its North East Office in New York and, later, in Connecticut. Mr. Porter describes the company as a financial services company that provides working capital for companies with an annual turnover of between $1 million and $60 million through asset-based lending. Mr. Masters is an entrepreneur, who has for 30 years run an international group of companies in the healthcare sector, including pharmaceutical and medical expert distribution companies and a UK-based research and development company. In 2004, he was awarded the O.B.E. for services to international trade. Curas business was that of a specialty and generic pharmaceutical company, providing products not easily accessible to health care professionals. Mr. Lanzieri, the President and chief executive officer, was based in New Jersey and ran the day to day business. He had a shareholding of 5%. Mr.Young was the main shareholder, with a 72.5% interest, having invested US$8 million. He was based in Melbourne, Australia. Mr. Masters, who had invested US$3 million, had a 22.5% shareholding; he was based in England and Switzerland. Mr. Young and Mr. Masters were directors, but were not involved in the day-to-day running of Curas business. In November 2004, Porter agreed to provide Cura with a factoring facility of $3 million, on the terms of the CFA, supported by a Security Agreement giving Porter a charge over Curas assets and by the guarantees given in the PCW. The agreement terminated with Curas bankruptcy in March 2010. Both the CFA and the PCW are governed by the laws of the State of Connecticut, and I have been provided with the extensive and very helpful evidence, both oral and written, of Professor G. Eric Brunstad Jr., a partner at the law firm of Dechert LLP, on behalf of Porter, and of Mr. James C. Riley, a partner, and head of the litigation department, at the law firm of Whitman Breed Abbot & Morgan LLC, on behalf of Mr. Masters, on various issues of contractual construction and on other issues. The CFA and the PCW are standard agreements, used by Porter for all its customers, subject sometimes to modifications. Neither can be described as a particularly user-friendly document. I refer in more detail to their terms below, but essentially the CFA provides for Porter to advance money against the customers receivables, charging interest, and to collect the receivables from the customer for a fee of between 2% and 6% depending on the speed of recovery, and the PCW is a comprehensively worded guarantee. Mr. Porter describes the CFA in these terms in this witness statement. 5. The majority of Porters business involves the purchasing of invoices and then an advance of a certain percentage of the amount of that invoice being paid to its clients. Porter then deals with the collection of the unpaid invoices and charges the clients, amongst other things, fees and interest for its service. After the advance and other sums owed to Porter had been repaid by the sums collected by Porter, the remaining received funds are held in a reserve account to settle any dispute Porters clients may have with their customers. If there is no dispute, the reserves are paid to Porters clients. Additionally, Porters client often earn rebates based on how quickly the invoices are paid. 6. It is standard for Porters agreements with its client to provide that funding may be made by Porter to its client that is in addition to the advances that are made to its clients on the invoices that Porter purchases at the agreed percentage level. The additional funding is typically provided to assist with various matters such as the purchase of stock, cash flow issues, pay-roll, etc., and is known within the factoring industry as an over-advance. When entering into an Agreement with a client, Porter will, amongst other things, establish a credit limit with that client for the purposes of advancing funds on purchased invoices and over-advances. Numerous issues have arisen between the parties, summarised at para. 46 below. A feature of the case has been the prevalence of attempts on both sides to introduce late issues and evidence, and I have had to consider carefully what should be permitted and what excluded. The terms of the CFA and the PCW The main relevant provisions of the CFA are set out below. Clause 1 defines the purpose of the CFA, namely to enable Cura … to obtain short-term financing by selling, transferring, setting over, and assigning to Porter … accounts receivable and invoices held by [Cura] at a discount below their face value. Clause 2.14 and clause 15 define Obligations in very wide terms as … any sums which have or may become due by [Cura] to [Porter] under this Agreement and also … any other indebtedness or liability of [Cura] to [Porter], direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all future advances or loans which may be made at the option of [Porter] to [Cura] …. Clause 2.10 and clause 24 define Default, also in very wide terms, including any failure to pay any Obligation or any breach of any term of the CFA or any other contract between Porter and Cura, and also to include various insolvency events. A further event, net worth falling below negative $3.5 million, is provided for in Exhibit B. Clause 3 requires Cura to offer all its accounts receivable to Porter, and for Porter to notify Cura which of them it elects to purchase, having the absolute right in its sole discretion to reject any or all of them. Clause 4 provides, in effect, albeit in considerable detail, that such accounts receivable as are accepted by Porter are deemed to have been purchased by it, together with all rights, title and interest etc. Clause 5, relating to the Reserve Account, and Exhibit B, to which it refers, must be set out in full. Clause 5 reads as follows:- 5. Purchase Price, Reserve Account. 5.1 Purchase Price. Porter Capital agrees to buy the Accounts Receivable set forth on the Invoice Schedule (each a Purchased receivable and collectively, the Purchased Receivables) from the Company at the Purchase Price Percentage, as set forth on Exhibit B, attached, of the face value of each such acceptable invoice (the Purchase Price). The Purchase Price for each Purchased Receivable, less the Reserve Amount set forth on Exhibit B, shall be paid to the Company in immediately available funds at the time of purchase. 5.2 Reserve Account. Porter Capital shall establish and maintain a Reserve Account (see Exhibit B) for the Company and withhold from each Purchased Receivable an amount equal to the Purchase Price in paragraph 5.1, less the amount advanced to the Company (the Advance Amount). Porter Capital may increase the Reserve Amount taken on each Purchased Receivable in its sole discretion. The Reserve Account may be held and applied by Porter Capital in its sole discretion against charge backs or any Obligations of the Company to Porter Capital. 5.3 Rebates. As an inducement to secure full and prompt payment of the Purchased Receivables upon which Porter Capital agrees to purchase from the Company, a rebate on each Purchased Receivable shall be paid in full in accordance with the rebate schedule set forth on Exhibit B. Porter Capital shall deliver a Monthly Reserve Statement and pay any reserves and rebate due on or before the seventh business day of each month for the prior month. Notwithstanding the previous sentence, Porter Capital may, in its sole discretion, withhold from time to time any rebate sums due the Company as further security for the repayment of any and all Obligations of the Company. Exhibit B provides as follows:- EXHIBIT B Rebate Schedule The Purchased Receivables shall be bought at ninety-four percent (94.00%) of their face amount. A rebate for prompt payment will be paid to the Company by Porter Capital as follows: If the invoice is paid by the Customer between: The amount rebated to the Company will be: The net charge to the Company will be: 1-30 days 4.00% 2.00% 31-45 days 3.00% 3.00% 46-60 days 2.00% 4.00% 61-75 days 1.00% 5.00% 76-90 days 0.00% 6.00% Advances and Reserves The Advance Amount shall be up to seventy-five (75%) percent of each invoice, with concentration limited to 20% of eligible accounts receivable, and the Reserve Amount shall be nineteen percent (19.00%) of each invoice and shall be held by Porter Capital in the Reserve Account. If Porter Capital exercises its right under Section 13.3 of the Agreement to charge back or cause customer to repurchase an account deemed subject to a Credit Dispute, Porter Capital shall nevertheless continue to collect the account. Porter Capital will continue to list the account on the aged receivables list and will charge an administrative fee of one percent of the amount of said invoice per thirty (30) days to continue its collection efforts. If payment on the account is made to the Company on an account deemed subject to a Credit Dispute, the proceeds will be immediately deposited in a Lockbox Account. Failure by the Company to deliver the proceeds of an account deemed subject to a Credit Dispute to Porter Capital shall be deemed a Misdirected Payment. The Company shall pay Porter Capital on the average monthly outstanding balance on all advances interest, at the greater of (i) 8.5% and (ii) the Prime Rate (as published in the Wall Street Journal) plus 4.0%, on an annualized basis, charged daily, collected at the end of each month until all advances are paid in full and all Obligations satisfied. Maximum Facility Amount The maximum amount available to the Company is $3,000,000.00 (the Maximum Facility Amount). The Company shall pay to Porter Capital a facility fee in an amount equal to one percent of the Maximum Facility Amount (Facility Fee) which fee shall be due and payable on the date hereof and each six-month anniversary of the date hereof for the Initial Term and each succeeding renewal term. [There is also provision for additional fees for the Lockbox account and for tax lien searches]. Some points to notice on Exhibit B are:- Although Clause 5 and Exhibit B could be more succinctly expressed, it is clear that the Reserve Account provided for by clause 5.2 is to contain the purchase price (100% less 6% fee = 94%), less the Reserve Amount withheld (19%), less any additional amount withheld by Porter in the exercise of its discretion under clause 5.2. So if Porter decides that a receivable is risky and advances only 50%, the Reserve Account will hold 44%. It is common ground that the words with concentration limited to 20% of eligible accounts receivable means that not more than 20% of accounts receivable relate to any one debtor; however Mr. Porters evidence is that there were only 2 or 3 major customers. There is a Rebate Schedule which discounts what is, in effect, Porters 6% net charge, or fee, for its collection services (the difference between the face value of the invoice and 94%) on a sliding scale, depending upon when the invoice is paid by the customer, thus a rebate of 4% if paid between 1-30 days, 3% if paid between 31 and 45 days and so on; above 75 days, the net charge is the full 6%. This is where the main provision for interest on all advances is to be found i.e. interest at the rate of the greater of 8.5% and Prime Rate + 4% charged daily, collected at the end of each month until all advances are paid in full and all Obligations satisfied. Clause 8 is also important: it provides for additional advances, carrying an interest rate of 1.5% per month in the following terms:- 8. Over-Advances. While it is anticipated that the Reserve Account will carry a positive balance most if not all the time, Porter Capital may, as part of this Agreement and to ease the Companys short-term cash-flow problems, permit the Company to carry an Over-Advance balance on its Reserve Account. An Over-Advance is defined as a negative balance in the Reserve Account. Upon the establishment of each such Over-Advance, Porter Capital, in its sole judgment, shall have the right to charge the Company a one-time processing and administrative fee of up to three percent of each such amount so established as an Over-Advance. Porter Capital may withhold from the Accounts Receivable or the sums it normally advances such sums as it deems necessary to satisfy any Over-Advance or negative balance in the Reserve Account. Notwithstanding anything contained herein to the contrary, Porter Capital may terminate the Over-Advance facility at any time without notice to the Company as it deems fit. Interest shall accrue on the outstanding Over-Advance balance at the rate of one-and-half percent per month. The important point to note about clause 8 is that it provides for Porter to be entitled to treat a negative balance in the Reserve Account as an over-advance, and then to charge a one-time fee of up to 3% of each such advance, and interest at 1.5% per month. Clause 9.1 requires Cura to instruct customers to pay directly to Porters lockbox account, and there is an additional provision, as Mr. Pester puts it, tucked away at the end of clause 9.4 which provides as follows:- To allow an interval for checks to clear the federal banking system, [Porter] … shall have the right to extend constructive receipt of payments that [it] receives on behalf of [Cura] by three business days for in-state checks received and by five business days for out-of-state checks received. Clause 10 provides for Cura to pay various expenses and taxes, including costs and expenses incurred in the enforcement or preservation of any rights under (inter alia) the CFA and the PCW. Clause 10 and clause 22 (below) overlap to some extent. Clause 12 provides for additional fees, including at clause 12.3 an underwriting fee of 1.5% of the Maximum Facility Amount ($3 million) which is to be due and payable on the date of the agreement out of the monies advanced by Porter to Cura. There is also a 6-monthly fee of 1% provided for in Exhibit B. Clause 22 requires Cura to reimburse Porter on demand for attorneys fees and other expenses of enforcing the CFA or related agreements (including the PCW). Clause 25 provides for Porters remedies in the event of any default including:- clause 25.1, the right to declare any Obligations immediately due and payable (which it did on 2nd March 2010); clause 25.8, interest on any outstanding Obligation (including unpaid legal fees and expenses) at the rate of 2 per cent per month; Clause 25.9, liquidated damages of 10 per cent of all outstanding obligations, including unpaid interest; and Clause 25.10, any and all other remedies allowed in law or under the Connecticut U.C.C.. Clause 29 provides that the governing law is to be the law of the State of Connecticut. Turning to the PCW, it is common ground that by clause 14 this is a guaranty of payment and not a guaranty of collection which, under Connecticut law, is a limited form of guarantee requiring the creditor to proceed first against the principal debtor. Clause 14 provides that Porter is not required to take any action against Cura, or have resort to other security. One of the preambles to the PCW states that Porter is willing to purchase Curas accounts receivable only if the Undersigned i.e. Mr. and Mrs. Lanzieri, Mr. Young and Mr. Masters, guarantee payment to Porter of all of the Obligations of Cura. Clause 1 defines the guaranteed Obligations in the widest possible terms, which are not restricted to obligations under the CFA:- 1. Guaranty of Obligations. The Undersigned, unconditionally guaranty to Porter Capital full payment and prompt and faithful performance by the Company of all of its present and future indebtedness and obligations to Porter Capital. The words indebtedness and obligations are used herein in their most comprehensive sense and include any and all advances, debts, obligations, and liabilities of the company heretofore including without limitation attorneys fees, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether the Company may be liable individually or jointly with others, or whether recovery may be or hereafter become barred by any statute of limitations or otherwise become unenforceable. Said indebtedness and obligations guaranteed hereunder shall be collectively referred to herein as Obligations. Clause 2(a) defines what is a default under the PCW, to include any default in the payment or performance of the instrument (including without limitation the [CFA]), or of the Obligations hereby guaranteed…. Clause 8 contains a representation by the Undersigned that they are now and will be completely familiar with the business, operation and overall economic condition of the Company. Clause 10 provides for joint and several liability. Clause 11 permits Porter to apply any monies available to it in payment or reduction of the Obligations in any way it sees fit. Clause 12 is an important provision, and reads as follows:- 12. Application of Payments. The Undersigned hereby consent that from time to time, before or after any default by the Company, with notice to or assent from the Undersigned, any security at any time held by or available to Porter Capital for any obligation of the Company for all or any portion of the Obligations, may be exchanged, surrendered, or released and any obligation of the Company, may be changed, altered, renewed, extended, continued, surrendered, compromised, waived, or released in whole or in part, or any default with respect thereto waived, and may extend further credit in any manner whatsoever to the Company, and generally deal with the Company or any such security as Porter Capital may see fit; and the Undersigned shall remain bound under this Guaranty notwithstanding any such exchange, surrender, release, change, alteration, renewal, extension, continuance, compromise, waiver, inaction, extension of further credit or other dealings. (my emphasis) Clause 13(d) provides that the Undersigned waive … . (d) all notices to which the Undersigned might otherwise be entitled provided notice is given to the Company if required pursuant to the terms of the CFA …. Clause 18 provides that any modifications, charges or amendments to the PCW must be by an agreement signed by all the parties. Clause 19 provides as follows:- 19. Unconditional Guaranty. The Undersigned acknowledge that this Guaranty and the Undersigneds obligations under this Guaranty are and shall at all times continue to be absolute and unconditional in all respect and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Guaranty and the obligations of the Undersigned under this Guaranty or the obligations of any other person or party (including, without limitation, the Company) relating to this Guaranty or the obligations of the Undersigned thereunder or otherwise with respect to the Obligations. This Guaranty sets forth the entire agreement and understanding of Porter Capital and the Undersigned, and the Undersigned absolutely, unconditionally, and irrevocably waive any and all rights to assert any defense, set-off, counterclaim, or cross claim of any nature whatsoever with respect to this Guaranty or the obligations of any other person or party (including, without limitation, the Company) relating to this Guaranty or the obligations of the Undersigned hereunder or otherwise with respect to the Obligations in any action or proceeding brought by Porter Capital to collect the Obligations, or any portion thereof, or to enforce the obligations of the Undersigned under this Guaranty. The Undersigned acknowledge that no oral or other agreements, understandings, representations, or warranties exist with respect to the obligations or the Undersigned under this Guaranty, except those specially set forth in this Guaranty. Clause 20 provides as follows:- 20. Security for Guaranty; Limitation of Liability. As security for the Undersigneds obligations under this Guaranty, the Lanzieris have agreed to grant a mortgage to Porter Capital on the property owned by Maria Lanzieri and located at 7 riverside Lane, Holmdal, New Jersey (the Property) pursuant to the terms of that certain Mortgage dated the date hereof given by the Lanzieris in favor of Porter Capital. Notwithstanding anything to the contrary contained herein, the liability of the Lanzieris under this Guaranty shall be limited recourse to the Property only. Clause 23 provides that Connecticut law is to be the governing law. Clause 25 provides for all notices, demands or requests to be given in writing. The composition of Porters claim Porters claim against Mr. Masters of $2,698,198.86 as at 30th June 2013 was made up as follows:- $1,672,326.13 due as at 19th March 2010, less $6,177.92 received later in respect of invoices. Liquidated damages under clause 25.9 of the CFA at 10%, amounting to $166,614.82. Default interest under clause 25.8 of the CFA from 19th March 2010 to 27th September 2012, at 2% per month, totalling $1,009,352.46. A deduction from the resulting total of $2,842,115.49 of $1.2 million received from Mr. Young in respect of the settlement of proceedings taken against him in Australia and the release of the Lanzieris property. Default interest at 2% per month on the resulting sum of $1,642,115.49 from 27th September 2012 to 30th April 2013, totalling $299,850.29. An additional sum of $756,233.08 in respect of legal fees and expenses under clause 10 of the CFA. (In Mr. Jacobsons closing submissions, the claim was put at $2,677,779.56.) Porter claims that default interest at 2% per month continues to accrue, and that the legal fees and expenses continue to increase. The issues The issues between the parties are as follows:- What is the scope of the guarantee? Has Porter provided prima facie proof of its case? Is Mr. Masters prevented from disputing the amount of the guaranteed debt by Curas acceptance of or failure to dispute it? Is Mr. Masters prevented from disputing the amount of the guaranteed debt by his own acceptance of or failure to dispute it? Is Mr. Masters prevented by clause 19 of the PCW from taking all or any of the points he seeks to take? Is Mr. Masters released, entirely or pro tanto, by a Settlement Agreement which released Mr. Young and Mr. and Mrs. Lanzieris property (see para. 68 below). Were advances of $600,000 and $500,000 made to Cura in March and June 2006 recoverable from Mr. Masters under the PCW? On the proper construction of the CFA, was Porter entitled to charge compound interest? Are the provisions in clause 25.8 and 25.9 of the CFA for liquidated damages of 10% and for default interest at 2% per month, or either of them, unenforceable penalties as a matter of Connecticut law? Is the debt to be reduced because Porter wrongly treated loans as over-advances, attracting higher interest, when the Reserve Account was, or should have been, in credit? Are the attorneys fees claimed by Porter under clause 22 of the CFA recoverable? Has the float charge been wrongly applied? Has the net charge been wrongly applied? Has Porter wrongly charged interest on a fee of $45,000 and other fees? Has Porter wrongly charged 2% per month since 2008? The issues of Connecticut law The following issues of Connecticut law are specifically raised on the pleadings:- Whether the PCW operates as an unconditional guarantee (re-amended Defence para. 4.2). Whether Mr. Masters was released from its obligations under the PCW by Porters release of its security over Mr. and Mrs. Lanzieris property (re-amended Defence para.14, re-amended Reply para. 10(3)). The principle of construction that specific terms prevail over general terms (Re-amended Defence para. 4.2; re-amended Reply para. 8(2)(e)(iv)). The attitude of Connecticut law and public policy to waiver of defence clauses in guarantees (re-amended Reply para. 8(3)). Whether the law of Connecticut would prohibit clause 25.8 of the CFA or regard it as unconscionable (re-amended Reply para.13). The extent to which a director is chargeable with knowledge of the facts disclosed by the companys books and records (re-amended Reply para.2(6) and (7)). However, the expert evidence of Connecticut law on both sides ranged wider than the pleaded issues, and covered the general principles of construction of contracts, with reference to some of the specific issues between the parties, and also the law relating to penalties with specific reference to both clause 25.8 and clause 25.9. In their joint report, Professor Brunstad and Mr. Riley identified the areas covered by their evidence as (a) the general principles governing guaranty agreements under Connecticut law, (b) the operation of the CFA and (c) settlement and release; they also covered promissory estoppel. In view of the extensive evidence adduced by both parties, I have proceeded on the basis that Connecticut law applies to the issues identified in the experts joint report, insofar as they are pleaded issues, and that I can take into account the expert evidence on those issues, even where the pleading does not assert that there is a difference between English and Connecticut law. Normally a court would proceed on the basis that a foreign law is the same as English law unless the contrary was both pleaded and proved, but I consider that it would be wrong to follow this strictly in view, for example, of the way the trial was conducted on both sides. However, I do not think it right to go beyond this, and apply Connecticut law to issues which do not arise in the pleadings at all. In the course of the hearing, Mr. Jacobson applied to strike out certain passages in Mr. Rileys expert report, on the ground that they went beyond explaining the principles of construction of contracts in Connecticut law, and sought to express a view on the meaning of particular provisions. Mr. Jacobson submitted that this went beyond the proper function of an expert report, relying on King v. Brandy Wine Reinsurance Co. [2005] 1 Lloyds Reports 655 at 670 per Waller L.J.:- …the role of an expert, unless the court is concerned with special meanings, is to prove the rulers of construction of the foreign law, and it is then for the court to interpret the contact in accordance with those rules. Mr. Jacobsons objection was well-founded, and I have accordingly not relied on paras. 3.1-3.3, 3.6, 3.7-3.10, 4.1-4.5, 4.6-4.7, 4.9 (part) and 4.13 of Mr. Rileys report, or on the responsive passages of Professor Brunstads supplemental report, paras. 3.1-3.3, 3.6, 3.7-3.10, 4.1-4.9. The factual evidence Porter called two witnesses, Mr. Porter and Mr. John Land, a certified public accountant, who has been a senior vice president at Porter since July 2009. Both were straightforward and truthful witnesses. Mr. Land had nothing to do with Curas account between the time he joined Porter and its termination, and his evidence was confined to proving the financial records and explaining the method of charging. I refer to his evidence in relation to particular issues where appropriate. Much of Mr. Porters evidence explained uncontroversial background, already referred to, and other parts of it are referred to in relation to specific issues, but the following points can conveniently be set out here:- In his witness statement, he said that Curas receivables were highly concentrated with two or three customers, and that it was not yet profitable and had a negative net worth (of itself an event of default). He referred to a number of emails showing that Cura had on a substantial number of separate occasions asked for over-advances to cover urgent requirements. He also referred to several emails evidencing discussions about ways of reducing the balance of the over-advances, and said that the balance was never disputed in the course of those discussions. He said that, in general, medical receivables in the U.S. were a tangled mess and that extreme caution was needed as to the advances made against them. Despite this he had negotiated an increase above Porters usual maximum advance, from 70% to 75%, with Mr. Lanzieri, and I think that there is an element of hindsight in his assessment of Cura. At the time, he must have had a more positive view of it and of medical receivables than he had later. Both in his witness statement and in his oral evidence, he stressed that Cura at all times had access to its website portal, showing full details of the day to day account, and that both Mr. Lanzieri and Curas chief financial officer, Mr. Silvard, regularly reviewed it. He explained that, once Cura had become bankrupt, its receivables were hard to collect, and only a very small proportion was recovered. Mr. Masters was also a straightforward and truthful witness, but his relevant evidence was largely to do with issue (3) above, and I refer to it in that context. The expert evidence I will refer to the expert evidence in relation to particular issues below, but the basic principles of Connecticut contract law were common ground, and similar to English law. I adopt the summary set out in Mr. Jacobsons skeleton argument:- 40. Both experts broadly agree that, among others, the following principles ought to apply in the construction of a guarantee: (1) A guarantee is a contract; (2) Connecticut Courts construe a contract to effectuate the intention of the parties which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction; (3) The intention of the parties is ascertained by a fair and reasonable construction of the written words. The language used must be accorded its common, natural and ordinary meaning and usage where it can be sensibly applied to the subject matter of the writing; (4) When the guarantee contains clear and unambiguous language it is to be given effect according to its terms; ambiguity exists where the parties intent is not clear and certain from the language of the contract itself; (5) The provisions in a contract must be read together and the more specific language in a contract prevails over the more general; (6) A court should avoid reading a contract in a way that renders it illogical; (7) Conn. courts will strictly construe guarantees because the guarantor cannot be held responsible to guarantee a performance different from that which he intended in the Guarantee; (8) A contract should not be construed in a manner that would render meaningless certain provisions therein as every provision must be given effect if it can reasonably be done. In addition, Professor Brunstad and Mr. Riley were in broad agreement that the various rules of construction, which might be in conflict in a particular case, provided guidance or assistance towards the correct conclusion, but were not of themselves conclusive. There are three respects in which Connecticut law differs from English law, the second of which is material in this case. The first is that, where a court has formally declared that a contract is ambiguous, evidence of pre-contractual negotiations is admissible. This plays no part in the present case. The second relates to the rule prohibiting penalties which, although part of both systems of law, does not operate in quite the same way; in particular, the approach taken by Burton J. and the Court of Appeal in Talal el Makdessi v. Cavendish Square Holdings BV [2013] EWCA Civ 1539 is not present in any of the Connecticut authorities to which I have been referred. The third difference relates to the conduct of the parties after the contract. Professor Brunstad and Mr. Riley were in agreement that if, but only if, a contractual provision was ambiguous (or there was a missing term, or a collateral agreement, neither of which is alleged here), the court could have regard to the course of performance, that is evidence of the conduct of the parties after the contract in the course of performing it, as an aid to interpretation of the provision; neither suggested that such evidence would be conclusive on the issue. As to what constituted an ambiguity, Mr. Riley referred to certain of the leading authorities:- … a contract is ambiguous if the intent of the parties is not clear and certain from the language of the contract itself. See Levine v. Massey, supra, 232 Conn. at 278-79. Any ambiguity in a contract must emanate from the language used by the parties. Id. at 279 (internal quotation marks omitted). If the language of the contract is susceptible to more than one reasonable interpretation, the contract is ambiguous. Lopinto v. Haines, 185 Conn. 527, 538 (1981). See also Travelers Indem. Co. v. Scor Reinsurance Co., 62 F.3d 74, 78 (2d Cir. 1995) A contract is ambiguous under Connecticut law if its meaning regarding the point at issue is not clear simply from reading it, and a trier of fact interpreting the document is thus forced to choose between two or more possible meanings.); Wards Co., Inc. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir. 1985) (applying Connecticut law; where the text of an agreement reasonably allows for varying interpretations — whether by the inadvertence or design of the draftsmen – the need for judicial construction cannot, and may not be avoided.). In the event of an ambiguity, a determination of the intent of the parties, and what they intended to encompass in their contractual agreement, is a question of fact, which requires the trier of fact to draw inferences, based upon the circumstances surrounding the transaction. Gaudio v. Griffin Hosp. Servs. Corp. 249 Conn, 523, 533 (1999). The difference between the expert witnesses was more a matter of emphasis than anything more fundamental. Professor Brunstad was inclined to the view that investigation of the course of performance was usually an integral part of the interpretation of a contract; in cases of dispute there was some ambiguity in most contracts and the court then inevitably looked at any available evidence of how the parties had operated the provision. Mr. Riley regarded reliance on evidence of the course of performance as the exception, not the rule, and referred to a number of authorities to that effect, of which the most striking was Taylor v. Guendelsberger 2012 WL898875, a first instance decision of the Connecticut Superior Court concerning the settlement of a partnership dispute, in which the court disregarded evidence as to how money had been distributed in a way which did not accord with the express terms of the settlement because, in the absence of an ambiguity in them, the court could not look beyond the four corners of the contract:- The next claim of ambiguity is that, post-settlement, someone in the defendant law firm distributed to the plaintiff some reimbursements that it need not have given to him, since the reimbursements were the product of advances made during a gap period. Post-settlement agreement conduct, particularly post-settlement agreement conduct that gave the plaintiff monies to which he was not entitled, cannot serve to make the settlement agreement ambiguous. It may be that the person distributing the monies did not understand the settlement agreement, or it may be that the person distributing the monies did so in error. Regardless of the reason for the errant distribution, that post-agreement act does not make the settlement ambiguous. Whether the agreement is ambiguous is a question that is resolved by examining the terms of the agreement, not by a post-settlement agreement interpretation by a party or, as the defendants claim, by a non-party. [A]ny ambiguity in a contract must emanate from the language used in the contract rather than from one partys subjective perception of the terms. (Internal quotation marks omitted.) McCarth v. Chromium Process Co., supra, 127 Conn. App. at 330. Professor Brunstad referred to other passages in the judgment which concerned course of dealing (pre-contract conduct), but I think that the passage set out above clearly relates to the course of performance. Porter also relied on the following passage from the judgment in Putnam Park Associates v. Fahnestock and Co Inc 73 Conn. App. 1, 13, 807A 2d 991 (2002):- [w]here an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. 11 S. Williston, Contracts … (Practical Interpretation or Construction – Given that the purpose of judicial interpretation is to ascertain the parties intentions, the parties own practical interpretation of the contract, how they actually acted, thereby giving meaning to their contract during the course of performing it – can be an important aid to the court … Courts give great weight to the parties … practical interpretation … unless it is contrary to the plain meaning of the contract. I have concluded that I should be cautious about evidence of the course of performance in this case. Professor Brunstad agreed with the proposition that a court would be reluctant to rely on evidence of the course of performance, where there was a carefully drafted written agreement and how it was performed was largely the choice of one party, although he still maintained that evidence of course of performance might have a role to play, if a provision was ambiguous. Professor Brunstad did not accept that Curas weak bargaining position was relevant in this context, but no authority in Connecticut law was cited either way on this point. It seems to me that if one is considering the evidential weight to be attached to Curas acceptance of particular charges, it is necessary to keep in mind what the issue is, namely whether the course of performance evidences an understanding of what the original agreement meant, not whether it has been amended. Therefore, it is necessary to consider the extent to which Cura was in a position to argue, given its frequent urgent need for funds, and Porters almost unfettered discretion to regulate the amount it advanced. It could, and often did, advance nothing against invoices submitted to it, while charging full fees for its collection services. A failure to dispute charges in this case might easily be due to Curas weak financial position and Porters dominance, or to a failure to understand the complexities of the CFA, rather than to any recognition that the charges accorded with what had been agreed. It is significant that, even though it is now accepted by Porter that it was wrong to charge compound default interest, as the CFA unambiguously provided for simple interest, Cura did not object when it did. Summary of main events It is not in dispute that, at the outset of the agreement, Cura was provided with a web portal that allowed it to log on and view its account at any time, and that it had access to the web portal, and used it, throughout the relationship. However, exactly what it showed, and whether what could be seen gave a clear view of all the ways in which Cura was being charged was not addressed in the evidence. It seems likely that major points, such as the charging of monthly compounded interest will have been obvious, but other, finer, points of the charging structure may not have been. Curas Factoring Relation Account was set up within Porters Distinctive Solutions factoring software. Curas factoring account was referred as Relation #117, over-advances as Relation #1117 and over-advances related to inventory as Relation #11117. In 2006-7, Cura engaged a business consultant, Jim Prouty, who was very critical of the Cura facility and concluded that it was excessively expensive, and was causing Cura great harm. His reports went into considerable detail, and Mr. Masters saw them. From then on, Curas directors tried, unsuccessfully, to find a buyer for the company. Porter has demonstrated that in January of each of the years 2007 to 2010, Cura confirmed to Porters external auditors the year end balance shown on its account. In January 2010, it confirmed an overdrawn balance as at 31st December 2009 of $1,268,013.76. Porter states that this did not include monies advanced in relation to invoices purchased, totalling $416,510.46, and that the total balance as at 31st December 2009 on its reserve account was US$1,684,524.22. By this stage, Cura was in difficulties, and on 2nd March 2010 Porter declared Cura in default, and wrote to the guarantors seeking payment of $1,716,921.21 due under the CFA and the PCW. On 5th October 2011, Porter brought proceedings against Mr. Young in Australia, and on 9th November 2011 brought foreclosure proceedings against Mr. and Mrs. Lanzieri in New Jersey. On 3rd September 2012, Porter and Mr. Young entered into a Settlement Agreement with Mr. Young under which Mr. Young paid $1.2 million and Porter covenanted (a) not to pursue the actual proceedings against Mr. and Mrs. Lanzieri or bring fresh proceedings against them and (b) to give credit for the sum received in these proceedings (which has been done). Over the whole period of the facility, Cura assigned invoices with a total value of some $64.5 million to Porter, receiving in return advances of $13.2 million, a little over 20% and far from the originally contemplated 75%. There were advances not made against receivables, charged as over-advances, totalling some $24 million, on which interest of 1.5% per month and from 2008 2% per month was charged. Issue (1): the scope of the guarantee There is an issue between the parties as to the scope of the guarantee, and in particular whether it covers debts owed by Cura to Porter otherwise than under the CFA. Professor Brunstads view is that clause 15 of the CFA and clause 1 of the PCW (paras. 14 and 32 above), supported by and effectively reiterated in clauses 12, 14 and 19 of the PCW, are unambiguous and make the guarantors liable for all or any liabilities of Cura to Masters of any kind however incurred and whether pursuant to the CFA or not. While acknowledging the width of the relevant provisions, Mr. Riley stated that there was a principle of Connecticut law whereby a continuing guarantee is limited to transactions within the contemplation of the guarantee, and that it is for the court to decide what those transactions were, as a matter of fact. In his opinion, applying the principle that the PCW was to be construed narrowly, and taking into account the absence of any provision of the PCW explicitly extending its scope beyond transactions under the CFA, and the wording of clause 13 (see para. 38 above), the PCW covered only liabilities arising under the CFA. All that was contemplated as being subject to the guarantee was liability under the CFA, and therefore any other liability would be outside the scope of the guarantee. In support of this, Mr. Riley relied on a passage from the decision of the Supreme Court of Connecticut (the decisions of which are binding) in Connecticut Bank and Trust Co. v. Wilcox (1986) 201 Conn. 570:- The defendants alternate claim of Appellate Court error argues that the guaranty was unenforceable as a matter of law because of an alleged absence of consideration. This argument apparently hinges upon the fact that there was an interval of several months between the execution of the guaranty and the execution of the corporate notes whose payment the defendants are alleged to have guaranteed. As a matter of law, this argument is untenable. A continuing guaranty is enforceable, for those transactions within its contemplation, if the creditor make subsequent advances by reason of the outstanding guaranty. Both our case law and the modern law of contract eschew any requirement of contemporaneity between a continuing guaranty and the obligations secured thereby. … Whether the parties contemplated that the continuing guaranty in this case was to cover the notes that were made by the corporate debtor is a matter of interpretation of the letter of guaranty that is principally a question of the intention of the contracting parties, a question of fact to be determined by the trier of facts. Monroe Ready Mix Concrete, Inc. v. Westcor Development Corporation, 183 Conn, 348, 351, 439 A.2d 362 (1981). The Appellate Court was therefore correct that the enforceability of the guaranty in this appeal turned on findings of fact by the trial court. Mr. Riley also relied on an earlier Supreme Court decision, Munroe Ready Mix Concrete Inc. v. Western Development Corp. (1981) 183 Conn. 348, in which the court had upheld the decision at first instance that a continuing guaranty for cement supplies, which had not been revoked, was not intended by the parties to cover cement supplied after a 31 month gap. Applying the principle of Connecticut law explained by Mr. Riley, I must consider what the parties, as a matter of fact, intended. Clause 1 refers to indebtedness and obligations in their most comprehensive sense and clause 2(a) explicitly provides that the guarantee covers liabilities outside the CFA. The CFA must in my view have been intended to cover, at least, any liability of Cura to Masters connected with Curas business as constituted at the time of the guarantee. The principle identified by Mr. Riley might apply to some wholly different transaction which had nothing to do with Curas pharmaceutical business, such as for example if Cura had entered into a joint property venture with Porter and incurred a liability in connection with it. But there is no liability of that kind on the facts of this case. Issue (2): has Porter proved its case? Mr. Pester submitted that Porter had failed to prove its case, because all that it had done was to provide schedules attached to its Further Information which were confusing and hard to follow without significant evidence in support. I reject this. If Mr. Masters advisers had difficulty in understanding the Further Information, it was open to them to make a further request, but they did not do so, and I do not accept that there was no other evidence. Since Mr. Masters guaranteed all Curas liabilities to Porter, all that Porter has to do to establish a prima facie case is show on the balance of probabilities that Cura owed it the sums claimed. This is has done in a number of ways including:- The schedules produced by it, attested to by Mr. Land and the chief financial officer, Mr. Romanowski. The various confirmations of the outstanding balances between 2007 and 2010. The absence of any dispute (except as to a sum of about $40,000, which is no longer claimed) by Cura. Curas voluntary bankruptcy petition, confirming the amount due. This does not mean that there is conclusive evidence of the debt, but the case is amply proved in the sense that the evidential burden is transferred to Mr. Masters to show that all or some of the amount claimed was not due from Cura, or that he has been released: see Robins v. National Trust Co. [1927] A.C. 515 at 520 per Viscount Dunedin. Issue (3): Curas acceptance of the debt There are two questions: whether Cura is prevented from disputing the debt; and whether, if it is, that would prevent Mr. Masters from disputing it. Taking (b) first, Mr. Pester submitted that Mr. Masters could dispute the debt even if Cura could not. I reject this submission. The guarantee is an all monies guarantee, not limited to what is due under the CFA: see para. 75 above. It covers any indebtedness by Cura to Porter. Therefore if Cura had agreed to vary the CFA (as clause 12 of the PCW permits: see paras. 108 onwards below), or if it had entered into a binding contract to accept a specified amount as the debt due, that would be covered by the guarantee because the amount of the debt would have been established. Equally, that would have been so if Porter had obtained a judgment. Mr. Riley referred to his report to the principle that a party is not bound by the admission of another party, with whom he was not in privity, in separate proceedings. Professor Brunstad agreed with the principle, but regarded it as irrelevant, because the guarantor is liable for the indebtedness of the principal debtor, whatever that is established to be: a guarantor is liable by virtue of his guarantee. I accept his evidence on this. Therefore, for example, if Cura had allowed a default judgment to be entered against it, that would of itself have established the amount of the indebtedness, even if the guarantor could show that the principal debtor could successfully have disputed all or part of the claim. The remaining issue is therefore whether Cura (or its liquidator or trustee in bankruptcy) is prevented from disputing the debt or raising any of the issues as to the amount of the debt that Mr. Masters has raised. It is important here to consider the limits of what Porter has pleaded in its re-re-amended Reply:- (a)(i) In response to para. 10.2 III of Mr. Masters re-amended Defence, which reads:- III. On its true construction, any liability of the Defendant under the Performance Covenant and Waiver is solely in respects of indebtedness genuinely owed by Cura to the Defendant under the Agreement. The Defendant will rely in this regard on clauses 1 and 12 of the Performance Covenant and Waiver, the combined effect of which is to provide that such further extensions of credit as may have been granted by the Claimant to Cura (which are not admitted, and which the Defendant requires the Claimant to prove) do not give rise to any additional liability under the Performance Covenant and Waiver save where notice of or assent to such further extensions has been given to or obtained from the individual guarantor or guarantors sought to be made liable under the Performance Covenant and Waiver. No such notice to or assent to such further extensions has been given or sought from the Defendant. Porters response at para. 12(3) relies only on the following:- (3) Paragraph 10.2 III is denied. (i) By letters dated 9 January 2007, 9 January 2008, 13 January 2009 and 12 January 2010 sent by the Claimant to Cura, the Claimant expressly or impliedly requested Cura to provide audit confirmations of the amounts of the overdrawn reserve balance due from Cura to the Claimant. Cura was specifically asked in each letter to indicate in the space provided therein if the amount was in agreement with Curas records or if there was any difference, to provide any information that would assist Cura in reconciling such differences. The space provided in each letter was signed and dated by Curas Controller or Director of Operations signifying its confirmation of the accuracy of the stated sum. None of the sums was qualified by any stated exception. (ii) According to the Claimants accounts the balance of the capital sums owed by Cura to the Claimant as at 31 December 2009 was $1,684,524.22. The balance owed by Cura as at 19 March 2010 was $1,675,303.68. (iii) Cura, on 18 March 2010 in its voluntary Petition to the United States Bankruptcy Court expressly admitted that it owed the Claimant the sum of US$1,716,921.21. Furthermore, Cura did not qualify the amount of the debt owed as contingent, unliquidated or disputed. … (There follow further sub-paragraphs which do not affect this point.) (b) In response to para. 10.2 V. of Mr. Masters re-amended Defence, which relates only to the float charge issue, Porter effectively repeats the same material at para. 12(3):- Further or alternatively, by letters dated 9 February 2007, 9 January 2008, 13 January 2009 and 12 January 2010 sent by the Claimant to Cura, the Claimant expressly or impliedly requested Cura to provide audit confirmations of the amounts of the overdrawn reserve balance due from Cura to the Claimant, Cura was specifically asked in each letter to indicate in the space provided therein if the amount was in agreement with Curas records or if there was any difference, to provide any information that would assist Cura in reconciling such differences. The space provided in each letter was signed and dated by Curas Controller or Director of Operations signifying its confirmation of the stated sum. None of the sums was qualified by any stated exception. For the avoidance of any doubt rebate fees were included in the overdrawn reserve balances. The Claimant contends that Curas confirmations above and its decision to further confirm the accuracy of the said figures in its voluntary petition for Chapter 7 Bankruptcy affirmed and/or ratified Curas liability in respect of the figures alleged in the said letters and under the terms of the Agreement. Further or alternatively, the method of calculation of the rebates was carried out in accordance with the agreement of Cura and the Claimant as affirmed and/or ratified by Cura above. Accordingly the true indebtedness owed by Cura to the Claimant is evidenced in part by the said letters, the Claimants own accounts at the relevant dates and Curas admission of indebtedness in its affidavit sworn in support of its petition for bankruptcy. Mr. Jacobson submitted that the effect of (a) Curas confirmations to the auditors and (b) the evidence of debt submitted by Cura in the bankruptcy was to make the amount of the debt binding on Cura, and therefore on Mr. Masters. I do not accept either of these submissions. Porters pleaded case alleges neither a contract to accept the sum as binding nor estoppel, and its case is not supported by the evidence of Professor Brunstad, who goes no further than to say that a court in Connecticut would or might take judicial notice of evidence on another courts file, and that the fact that the evidence is given in a form which would render the maker of a deliberately false statement liable for perjury gives added weight to it. He does not suggest either that Cura is bound by the statement, or that a court would necessarily accept it as conclusive. Professor Brunstad makes no comment on the letters to the auditors. The facts alleged in the re-re-amended Reply certainly have evidential value, as is pleaded and as I have held. But they do not amount to a contractual agreement. When a company writes a letter to a customer asking him to confirm a balance for the purpose of the audit, it is reasonable to assume that the customer will take normal steps to check the amount due, but it cannot seriously be suggested that it becomes contractually bound, and unable to challenge the amount if it later discovers, for example, that accounting mistakes have been made, or goods supplied have proved to be faulty. The object of the exercise is to assist the companys audit process, not to enter into a contract. There is nothing in the evidence of Connecticut law to suggest otherwise. Equally, it cannot be suggested that the amount of the debt is immutably fixed by the information given in the bankruptcy petition; clearly, again, this has evidential value, but it is not part of a contractual negotiation and does not give rise to a contract. Indeed, it would be extraordinary if the liquidator or trustee in bankruptcy were precluded from questioning the amount which, if overstated, might adversely affect other creditors. There is again nothing in the evidence of Connecticut law to suggest that this analysis is incorrect. Further, the facts pleaded do not give rise to a case of estoppel. There is no allegation of reliance on, or detriment arising from, either the confirmations or the petition which are essential requirements of estoppel in Connecticut law, just as they are in English law: see Professor Brunstads 2nd Supp. Rep. para. 4-2, citing Brown v. Employers Reinsurance Comp. 206 Conn. 668 (1988). (There is a separate allegation of promissory estoppel, not arising from these facts, based on clause 1 of the PCW and relating to only one issue, to which I refer at para. 110 below.) After all the factual evidence had been heard, Mr. Jacobson applied to re-re-amend the Reply by adding the following:- Further or alternatively, the Claimant relies on the particulars contained in the second witness statement of John Land in response to paragraph 10.2.V.c of the Re-Amended Defence and the Defendants accountancy report Further or alternatively, by a course of performance and/or dealing between the Claimant and Cura at six monthly intervals between 18.11.04 and 19.3.10, the Claimant without any objection from Cura, would calculate the net charge due to the Claimant by including both the terminal days stated in Exhibit B to the Agreement and send out to Cura a monthly reserve Statement containing, amongst other things, details of any rebates. Further or alternatively, the accounts between the Claimant and Cura were stated and settled on that footing. Further or alternatively, Cura having accepted without objection and Claimants method of calculation throughout the course of their 5.5 year commercial relationship and/or having had the opportunity to establish any matters of breach in the operation of the account, is estopped from denying the validity or method of such calculation and/or re-opening the Claimants factoring account with Cura. The Claimant, in reliance on, among other things, Curas acceptance and payment of the net charges during the 5.5 year relationship, continued to purchase Curas Accounts Receivables, make advances and over-advances and to suffer loss from the failure of approximately half of Curas customers to make payment on the invoices purchased. Further or alternatively, at all material times the facts and matters alleged above, were known to and accepted by Cura and/or its agents. In the circumstances it would be inequitable if Cura and/or the Defendant were entitled to act inconsistently with Curas promise not to enforce its strict rights. I refused the application, in essence for the obvious reason that it was far too late, but also because the allegation was under-particularised. To have allowed it would have meant that Mr. Masters would have been entitled to further information, for example identifying exactly what was disclosed on the website from day to day, to re-open the factual evidence and to consider calling other witnesses as to what had transpired over the 6 years in which the CFA had operated; such evidence as there was of little relevance, except as background on the pleaded issues. It would almost certainly have led to the adjournment of an expensively arranged trial. Undaunted by this temporary set back, Mr. Jacobson made another application to re-re-amend in his written closing submissions, in the following terms:- Paragraph 12(5)(10): The Defendant, in or about June 2007, whether as director or de facto director at Cura or pursuant to Clause 8 of the PCW knew that the Claimant and Cura had agreed previously and continued to agree that the contract between them would be performed as follows: All Over Advances would attract interest at the date of 1.5% per month; All fees would be added to the Net Funds Employed balance at the end of each month and collect interest; Cura would pay the Claimant interest by way of float charges between the date the Claimant received any cheques from Curas customers and the date they were cleared; The net charge would be calculated by a method which included both the terminal days; Interest charges would be accumulated and compounded; and In any other matters and dealings concerning the account between the Claimant and Cura and the computation of the same Cura and C would continue to perform the contract in the same way as they had done previously. Paragraph 12(5)(11): Between 2007 and January 2011 neither the Defendant nor Cura objected to the manner in or the basis on which the contract, alleged in sub-clause (10), was performed by the Claimant. Paragraph 12(5)(12): The Claimant in reliance on the Defendant and/or Curas acceptance of and/or agreement and/or consent to the manner in and basis on which the contract was performed continued to purchase Curas Accounts Receivables, make advances and over-advances and to suffer loss from the failure of approximately half of Curas customers to make payment on the purchased receivables Paragraph 12(5)(13) In the period between January 2010 and January 2011 the Defendant knew that Curas debt to the Claimant had been calculated on the basis set out in sub-paragraph (10) above. Paragraph 12(5)(14): In the circumstances and under the laws of Connecticut and the United States of America the Defendant is estopped from denying that Cura owed a primary debt to the Claimant in the sum of $1,666,148.21 and/or alleging that the contract is otherwise than the one which was performed by Cura and the Claimant since at least 2007 Paragraph 12(5)(15): In the circumstances it would be inequitable if Cura and the Defendant were entitled to act inconsistently with their previous agreement and consent. Mr. Jacobson sought to justify what was in substance the renewal of the application which I had refused, but now on the basis of Connecticut law, by asserting that the estoppel case was now supported by the evidence of Professor Brunstad, and the decision in Horn v. ABTS (1927) (Circuit Court of Appeals). I have no hesitation in refusing this further application, essentially for the same reasons, and for the following additional reasons:- As with the previous application, there is no presently pleaded factual basis for the allegation, since it would not be supported by reference only to the audit confirmations and the bankruptcy petition, and it would clearly be even more wrong now to allow further facts to be pleaded than it was in the middle of the trial. In particular, the position in Connecticut law is, as stated earlier, that reliance and detriment are essential elements, and they are not pleaded. Horn was no more than a decision on its own facts, which bore no similarity to the present facts; it certainly would not conclude the issue in the present case. Mr. Jacobson seeks to rely on it for the proposition that it is not necessary to plead estoppel, if the plaintiffs own evidence discloses the fact that he cannot justly urge his claim because of conduct inconsistent therewith, but What requires to be pleaded is obviously a matter for the lex fori, not for Connecticut law; and Mr. Masters conduct was not inconsistent with his present case. He was a non-executive director who should certainly be aware of Curas general financial position, but he had no reason to involve himself in either a detailed interpretation of the intricacies of the CFA, or a detailed examination of Porters methods of charging. He acquired some knowledge of the latter from Mr. Prouty, but Mr. Prouty never suggested that Porter was in breach of contract. Neither estoppel in the form now sought to be pleaded nor the decision in Horn was ever put to Mr. Riley in cross-examination. Indeed, Mr. Riley was asked nothing about estoppel in the course of his cross-examination. Finally, on this issue, Mr. Jacobson sought to rely on the decision of Lord Ellenborough in Jackson v. Irvin (1809) 2 Camp. 48 to support his argument that it was not open to Mr. Masters to dispute the debt. The case concerned various issues which had arisen in a bankruptcy, and the passage relied on by Mr. Jacobson is as follows:- An objection was likewise taken to the evidence of the petitioning creditors debt. – An entry in the bankrupts books was relied upon, made some months before the act of bankruptcy. This stated him to be then indebted to Ritson above 200; but there was no evidence that the debt continued down to the time of the bankruptcy. However, Lord Ellenborough held, that the debt being proved to have once existed, its continuance would be presumed. This goes no further than to show that, in the absence of any evidence that it has been discharged, a debt is presumed to continue to exist. It has nothing to do with a case in which a party potentially liable for the debt seeks to establish as a matter of substance that it never existed, or was less than claimed. It follows from all the above that the amount of Curas liability to Porter has not been conclusively established and that it is open to Mr. Masters to dispute its amount unless he is precluded by his own conduct. Issue (4): Mr. Masters acceptance of, or failure to dispute, the amount of the debt Porter also contends that, irrespective of Curas position, Mr. Masters is debarred from raising the issues he has raised because of his own conduct. This is put in three ways:- that Mr. Masters actually knew how Cura was being charged by Porter from his involvement as a director in the companys affairs, and from his knowledge of Mr. Proutys investigations; that, even if he did not actually know, he had deemed knowledge because of clause 8 of the PCW (see para. 34 above); and that, again if he did not actually know, he had deemed knowledge by virtue of a principle of Connecticut law he was chargeable with knowledge of the Curas affairs. I reject Porters case on this issue for the following reasons, which are in part essentially the same as those summarised at para. 92(c)(ii) above:- Even if Mr. Masters actually knew how Cura was being charged, it does not follow that he knew that this was in breach of contract. His position in the company was not such as to require him to take legal advice on the interpretation of the CFA and, while Mr. Prouty severely criticised the operation of the CFA, he did not suggest that any of its terms had been broken. I find that Mr. Masters, while understanding that Porters facility was very expensive, did not at any material time have a detailed appreciation of the terms of the CFA, or any knowledge that Porters charges exceeded those permitted by it. In any event, whatever Mr. Masters knew, on the assumption that Cura is not precluded from disputing the amount of the debt, as I have held is the case, Mr. Masters could only be so precluded if he had contracted to accept the amount claimed as his liability under the PCW, irrespective of Curas liability, or if his failure to object in the circumstances gave rise to an estoppel, neither of which is pleaded or justified by any of the evidence. The ambit of the principle that directors are chargeable with knowledge of corporate affairs in Connecticut law is, on the evidence of both experts, uncertain. But the principle as applied in other States appears to be that directors are required to have knowledge of such corporate affairs as it is their duty to know (see Professor Brunstads report para. 20) which, in the case of Mr. Masters, would not extend to knowledge of the intricacies either of the terms of the contract or Mr. Porters methods of charging. In any event, the principle appears to be directed towards the performance of directors duties, and therefore to have no relevance to contractual issues as between Mr. Masters in his personal capacity and Porter. I accept Mr. Rileys evidence that:- … the concept that a director is going to have knowledge imputed to him of the particulars of corporate transactions is fanciful … the fact that he is a Vice President I do not think in and of itself would give rise to any imputation of knowledge … As to clause 8, in the absence of any particular applicable rule or principle of Connecticut law affecting its construction, the issue is to be decided according to its general principles of interpretation, and I agree with Mr. Rileys analysis (in a passage not objected to):- … in paragraph 2(6) of its Amended Reply, the Claimant alleges that knowledge of Curas particular transactions and indebtedness would be imputed to the Defendant under clause 8 of the PCW. In fact, clause 8 (in which the guarantors represent that they are and will be familiar with the business, operation and overall economic condition of Cura) was, on its face, intended to relieve the Claimant of any obligation to disclose to the guarantors the financial condition of Cura. In other words, it may serve as a defence in the event the guarantors asserted claims against the Claimant for failure to disclose information concerning Curas financial condition, but it does not give rise to an estoppel or otherwise cause knowledge to be imputed to a director. Moreover, the information about which the guarantors represented they would be familiar (the business, operation and overall economic condition of Cura) is far more general than the information that the Claimant now seeks to impute. Thus, a Connecticut court would conclude that clause 8 does not impute to the Defendant knowledge of the indebtedness that is the subject of these proceedings. In his response to this, Professor Brunstad says merely that the issue would be for a Connecticut court to determine, which effectively means that it is for me to decide in accordance with the principles of Connecticut contract law, which for present purposes is the same as English law. For all these reasons, I do not consider that Mr. Masters is deprived, by his own conduct, of the ability to raise any of the issues that he has raised. Issue (5): PCW clause 19 In the middle of the almost impenetrable thicket of verbiage that is clause 19 of the PCW (see para. 40 above) there are to be found the words:- This Guaranty sets forth the entire agreement and understanding of Porter Capital and the Undersigned, and the Undersigned absolutely, unconditionally, and irrevocably waive any and all rights to assert any defence, set off, counterclaim or cross claim of any nature whatsoever with respect to this Guaranty … Porters case is that this is a natural provision to be found in a relationship in which, as Mr. Jacobson submitted, one would expect Porter to arm itself, with no chink in the armour, for a smooth ride, and that its effect was to prevent Mr. Masters from doing what he now seeks to do, that is to assert defences to Porters claim under the PCW. If they are right, absent fraud or bad faith, the court has to accept that Cura is liable to Porter for whatever amount it claims, whether or not this is so. Professor Brunstad and Mr. Riley are agreed that, while waiver of defence clauses in guarantees are valid, they are to be construed against the creditor, if ambiguous, although they are not agreed as to the ambit of this principle. However, there is a prior question, namely whether if Mr. Masters contends that some or all of the debt is not due from Cura, he is assert[ing] [a] defence – with respect to [the] Guaranty. It seems to me that on any sensible view (applying the general principles of interpretation in Connecticut law summarised at para. 55 above), this is not asserting a defence but relying on the terms of the PCW itself to contend that nothing (or less) is due from Mr. Masters because there is no (or a smaller) indebtedness or obligation within clause 1. To put it another way, Porters argument on clause 19 requires the court to disregard the earlier part of the extract from its wording quoted above This Guaranty (i.e. the whole of it) sets forth the entire agreement and understanding …: part of the agreement and understanding is that Mr. Masters is to be liable for Curas Obligations and for no more. Accordingly, without needing to consider the extent to which Connecticut law is cautious about waiver of defence clauses, I agree with Mr. Rileys analysis, according to which the issue does not arise:- 3.1.31 Connecticut law will give effect to waiver of defenses provisions in guaranty agreements. Connecticut Nat. Bank v. Douglas, 221 530, 546 (1992). However, at the outset, it should be recognized that clause 19 does not constitute a waiver of the rule of Connecticut law that a claimant must prove certain facts before it can recover on a contract. Even if a defendant propounds no defenses at all, a plaintiff, in order to prevail in an action for breach of contract in Connecticut, must affirmatively establish as part of his case that he fully performed his own obligations under the contract. As the Connecticut Supreme Court has held repeatedly: One cannot recover upon a contract unless he has fully performed his own obligation under it, has tendered performance, or has some legal excuse for not performing. Automobile Ins. Co. v. Model Family Laundries, 133 Conn. 433, 437 (1947). See also 300 State, LLC v. Hanafin, 140 Conn. Appellant. 327, 330 (2013) (The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages.). 3.1.32 There is no inconsistency with a waiver clause like clause 19 and a requirement that the Claimant prove the required elements of a breach of contract claim before it may recover upon the PCW. Requiring the Claimant to prove each element of its claim is not a waiver of a defense, and thus cannot under any circumstances be within clause 19. For these reasons, clause 19 has no effect on Mr. Masters case. The nature of all the issues he seeks to raise is that the amounts claimed are not due, or due only in part, except for the issue discussed next, on which I reject his case for other reasons. Issue (6): the Settlement Agreement The question here is whether the Settlement Agreement, and in particular the release of the property charged by Mr. and Mrs. Lanzieri, discharged the guarantee, absolutely or pro tanto, to the extent of the prejudice to Mr. Masters if any. The answer depends mainly on the proper interpretation of clause 12 of the PCW (para. 37 above) in 2 respects. The first question is whether the Lanzieris property was security for any obligation of the Company within the meaning of clause 12. Mr. Jacobson submitted that it was not; it was security only for the guarantors obligation. This seems to me to be clearly wrong. The guarantees are security for Curas obligations, and it follows that any security for the guarantees is also security for Curas obligations, to which Porter may have resort if neither Cura nor the guarantors discharges all Curas Obligations. The second question of interpretation is whether clause 12 requires notice or assent for any release of security, which Mr. Pester submits was not given, or whether with is an obvious mistake and should be read as without, in which case the Settlement Agreement involved no infringement of Mr. Masters rights, since clause 12 expressly permitted Porter to release security, and it was common ground that Connecticut law permitted such provisions. Again, there was a difference of emphasis between Professor Brunstad and Mr. Riley, but it is clear:- that in some cases, as under English law, an action for reformation (similar to rectification under English law) is required, in which it is necessary to establish by clear evidence that the contract as written does not represent the intention of the parties because of a literal mistake or omission; in other cases, where there is an inconsistency between different provisions, the court cannot apply both provisions literally, and has to choose between them, this is part of the ordinary process of interpretation and does not require an action for reformation: see Shawmut Bank, Connecticut, NA v. Connecticut Limousine Service, Inc. 40 Conn. App. 268 670 A.ZA 880 paras. 8-11; a court may alter the literal language of a contract without resort to the equitable doctrine of reformation to correct errors or omissions which are plain on the face of the document and where only one reasonable interpretation is possible. Mr. Rileys view is that (c) is possible only if the correction involves no change in the meaning of the language. I do not accept this; in such a case no alteration would be needed. I consider that both (b) and (c) above are engaged in this case. It is in my view obvious that with is a mistake for without, partly because otherwise there is an inconsistency with other terms, and it should therefore be corrected without the need for an action for reformation. The following reasons cumulatively lead to that conclusion:- A requirement that Porter should have to give notice or obtain consent from the guarantors for a wide variety of normal commercial actions is highly unlikely to have been intended as between a factoring company and a customer. Such a requirement would be inconsistent with the other terms of the PCW, which favour Porter and restrict the guarantors rights, including any entitlement to withhold consent otherwise available: see clauses 13, 14, 17 and 19. Clause 14 in particular specifically provides that any right to require Porter to resort to any security is waived. The opening words The Undersigned hereby consent that from time to time… suggest that the Undersigned are now consenting to actions to be taken by Porter in the future, in which case a requirement for subsequent notice or assent makes no sense. With notice or assent anyhow makes no sense, since if it is enough that notice is given, the alternative of assent, which necessarily requires prior notice already to have been given, is meaningless. If all that is required is notice, the provision is pointless, since – once notice is given – Porter can go ahead, and the guarantors have no right to stop it. If I had taken a different view it would have made no difference, for the following reasons:- It is common ground between Professor Brunstad and Mr. Riley (Professor Brunstads report para. 45, Mr. Rileys report paras. 3.3.19 to 3.3.23) that the effect of a unauthorised release of security is to release the guarantor pro tanto, that is to the extent of his loss. As Mr. Jacobson rightly submits, all that clause 12 would have required on Mr. Pesters argument was notice, not consent; having given notice Porter could have gone ahead anyhow. It is therefore impossible for Mr. Masters to show that the breach of clause 12 caused him any loss, whatever the property was worth. It is unnecessary for me to lengthen this judgment still further by dealing with the other points argued on this issue, and I hope counsel will forgive me if I deal with them shortly:- If I had held that clause 12 did specifically require notice or assent, I would have rejected the argument that this was trumped by other general provisions of the PCW, including clauses 14 and 19. I do not think that notice was given. Mr. Jacobson relied on a communication of 22nd December 2010 informing Mr. Masters that Porter proposed to foreclose on the property, but that is not the same as notice that it proposed to release it from the charge. There was no promissory estoppel based on the wording of clause 1 of the PCW, either as a matter of English law or as a matter of Connecticut law. Nevertheless, for the reasons given earlier, the Settlement Agreement does not extinguish Mr. Masters liability or any part of it. Issue (7): March and June 2006 advances of $600,000 and $500,000 Para. 10 IV of the Re-Amended Defence alleges as follows: As admitted by the Claimant, in its Response to the Request for Further Information, dated 10 September 2012, the Agreement between the Claimant … was in the nature of a factoring agreement. Nevertheless, the Claimant appears to have included the following items as part of the balance owing to the Claimant which do not appear to have any reference to the Agreement, or to relate to the sale of receivables by Cura to the Claimant: … c. An alleged inventory loan (allegedly taken out by Cura in or around June 2006) which resulted in the sum of US$500,000 being withdrawn in the period from June 2006 to September 2007 from the invoice discounting facility established pursuant to the Agreement, apparently to discharge the alleged inventory loan, together with interest thereon of US$13,970. d. An advance of US$600,000 made on or about 29 March 2006, secured by a mortgage on the residence of Fabio Lanzieri. … (Other items under this paragraph have not been pursued.) There are two obvious reasons why there is unlikely to be anything in this:- it seems inconceivable, however timorous Cura might have been because of its weak financial position, that it would not have objected to being charged by mistake with such large amounts over a period of 4 years; and although the CFA was a factoring agreement, it also provided in clause 8 for over-advances i.e. advances not arising from the sale of receivables; there is nothing in the least surprising about such advances being made under the CFA. I have in any event held (para. 75 above) that the PCW covers indebtedness which is not under the CFA. In his written opening submissions, Mr. Pester said that these advances appeared to have been made outside the terms of the CFA, and referred to Mr. Porters evidence that the first of these advances was authorised by him personally, and that the second had been recorded in a separate account Relation #11117. Neither of these points leads to the (anyhow irrelevant) conclusion that the advances were made outside the CFA. In cross-examination, Mr. Pester put a new, and unpleaded, point to Mr. Porter, to the effect that the $600,000 advance had been made by one of Porters associated companies, Porter Bridge. Somewhat taken by surprise, Mr. Porter said that to the best of his recollection Porter Bridge had lent the money to Porter, which had advanced it to Porter. It is inherently likely that this is what happened; in all probability, great care would have been taken that advances to Cura were made by the company which had security over its assets and the PCW guarantees. It would have made no sense for Porter Bridge to make an unsecured loan, and these companies do not strike me as having been run in a way in which such a mistake is likely to have occurred. I therefore find that these advances were made by Porter to Cura, and I see no reason to think, just because the amount was booked in an account with an extra digit, that it was not made under the CFA and, even if they were, they are covered by the PCW. Issue (8): Compound interest There are three separate provisions for interest, relating respectively to advances, over-advances and default interest. The provision for advances is in Exhibit B (paras. 20 and 21(d) above): … on an annualised basis, charged daily, collected at the end of each month until all advances are satisfied in full …. The term relating to interest on over-advances is in clause 8, and provides just for interest at 1.5% per month. The term relating to default interest is in clause 25.8 and again this provides just for interest at 2% per month. Professor Brunstad and Mr. Riley are agreed that, unless otherwise specified, a provision for interest means simple interest. It follows that compound interest cannot be charged on over-advances and that such compound interest charges as have been levied are unjustified. Curas failure to object can make no difference since, in the absence of any ambiguity, the course of performance is irrelevant. Equally, default interest cannot be compounded. This appears, from post-hearing exchanges, to be accepted, or at least not disputed by Porter, and in any event is beyond dispute given the expert evidence: however, some default compound interest has been charged, and default interest may have been charged on over-advances. On interest charged under Exhibit B, Mr. Rileys evidence is that interest provisions will only be construed as giving rise to compound interest if they clearly so provide, and that there is no decision of the Connecticut courts in favour of compound interest in which the word compound has not appeared in the relevant clause. However, he does not suggest that the use of the word is essential, and I did not understand him to disagree with the proposition that interest clauses like any other have to be construed in their commercial context. In my opinion, the present context of this clause, in a factoring agreement in which, by the terms of Exhibit B, all payments are collected in the Lockbox Account in Birmingham, Alabama, administered by Porter, is material. In practice, when money is collected it will be Porter that decides to what it is to be credited, unless Cura gives specific instructions. Against that background, I think that the most natural construction of collected at the end of such month is that the interest is to be debited to the account at the end of each month, with the result that it will be added to the balance monthly and so will automatically result in monthly compound interest. I do not think that Cura, which had no direct access to its income, was expected to pay in the interest at the end of each month. I also consider that Mr. Jacobson is right in his alternative argument that interest, if unpaid at the end of the month, became part of the outstanding balance on all advances and was therefore taken into account in the calculation of the following months interest. On this issue, I think that the course of performance – that is, the fact that Cura must have known what was happening but did not question it – does provide credible evidence, if there is an ambiguity, that this was how it understood the agreement. It was too big and regular a point to overlook and for nothing to be said about it, however dominant Porter was. Even if I had taken a different view, the result would have been the same. If Porter was not entitled to do what it did, but was obliged to use the proceeds of receivables to pay interest first, or indeed if Cura was obliged to give instructions to allocate proceeds to interest, then the account would have to be reconstituted so as to do this, by reducing the amounts shown as repayments, with the result that the interest charges would be unaltered. Mr. Pester argues that the eggs could not be thus unscrambled in this way, but it seems to me that this would be the consequence of his argument, had it succeeded. Otherwise, the eggs would be half unscrambled. For these reasons, Porter succeeds on this issue. Issue (9): Clauses 25.8 and 25.9: penalties? Clauses 25.8 and 25.9 provide for remedies on any default, a term very widely defined by clause 24 to include any failure to pay any amount due, or any breach of any term, provision, warranty or representation; it includes, for example, any infringement of the detailed obligations concerning the delivery of accounts receivable in clauses 3 and 9, or of any of the many warranties in clause 14, or the covenant as to its net worth in Exhibit B. In any of these circumstances, Porter can demand payment of all outstanding amounts, plus 10%, and charge default interest at 2% per month from then onwards. The evidence as to the rationale for these provisions is to be found in para. 67 of Mr. Porters witness statement, where he states that both provisions formed part of the CFA because of the inherent risks of conducting business with a company such as Cura, with negative net worth, not yet profitable and with receivables concentrated on two or three customers, in an industry which was regarded as risky. However, as I have said earlier, the agreement to advance 75% suggests that he took a more favourable view of Cura in 2004, and in cross-examination he had some difficulty in reconciling his evidence with a statement he had made to the effect that Cura was an excellent company. In any event, these provisions were always included in what was in effect a standard form agreement entered into with all its customers. On the law, I start with what is agreed between Mr. Riley and Professor Brunstad, as set out in the joint experts report:- GEB and JCR agree that a contractual provision that imposes a penalty for breach of a contract is invalid under Connecticut law, but that a liquidated damages clause is enforceable if its real purpose is to fix fair compensation for the injured party for breach. In other words, if the clause imposes a penalty for breach of the contract, it will be deemed contrary to public policy and therefore invalid. It will be enforceable, on the other hand, where it satisfied three conditions: (i) the damage which was to be expected as a result of the breach of the contract was uncertain in amount or difficult to prove; (ii) there was an intent on the part of the parties to liquidate damages in advance; and (iii) the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties look forward, seemed to be the presumable loss which would be sustained by the contractee in the event of breach. GEBER 27-28; JCRER 3.2.27-3.2.28. GEB and JCR also agree that a party may not retain a stipulated sum as liquidated damages and also recover actual damages if doing so would provide the party with double compensation for the same item of loss. … JCR and GEB agree that Connecticut courts evaluate the validity of default interest clauses in commercial agreements (i.e., clauses that provide for a different rate of interest upon default) under the standards governing liquidated damages clauses. It is important to note from (iii) that the provision must be reasonable at the time of the contract, having regard to the likely amount of damage which would be sustained, even though (i) requires that the amount would be likely to be uncertain or difficult to prove. Both experts consider that the usury law prohibiting interest at a rate greater than 12% in Connecticut General Statutes 37-4 is inapplicable, and Mr. Masters has not relied on unconscionability as a separate point in relation to interest. Professor Brunstad and Mr. Riley do not agree on the effect of these principles on the particular provisions in this case. Notwithstanding what was said in King, above, in the absence of an authority directly in point, evidence as to how these principles operate in practice in the Connecticut courts is helpful and admissible: see MCC Proceeds Inc. v. Bishopsgate Investment Trust Plc [1999] C.L.C. 417. Professor Brunstads opinion may be summarised as follows:- Even though these provisions allow for two forms of compensation in the event of a default, this is permissible if they compensate for different heads of loss; double compensation for the same kind of loss would not be permissible. Although the issue would be for the Connecticut courts to decide, neither the liquidated damages clause nor the default interest rate would be likely to be regarded as excessive or unconscionable. In considering decided cases in which the courts may have regarded a particular rate of default interest as excessive, it is necessary to have regard to the particular facts, and the extent of the risk in each case. Mr. Rileys opinion may be summarised as follows:- The liquidated damages clause is a penalty because it … specifies an arbitrary amount which does not rationally represent any losses which the Claimant might incur as a result of Curas default. Further the fact that this remedy purports to be in addition to other cumulative remedies under clause 25, rather than in substitution for such remedies, conclusively demonstrates that this clause is a penalty and not a provision for liquidated damages. An increase from 8.5% to 24% (almost triple the original contractual interest rate) does far more than compensate the claimant for the increased risk and expenses associated with collection, particularly if considered in combination with various other default provisions, and is therefore a penalty. I was referred to numerous authorities on this issue, and set out below those which I consider to be most helpful. The decision of the Supreme Court of Errors of Connecticut in May v. Young 125 Conn. 1 (1938), which concerned an employment contract, sets out the applicable principle:- The contract provided that if the defendant should, in violation of its terms, enter into the employ of any client of the plaintiff or of any person or corporation engaged in the same or a similar general line of business as that of the plaintiff, or himself engage in any such business, the plaintiff should be entitled to an injunction restraining such violation and in addition thereto [the defendant] shall pay to [the plaintiff] as liquidated damages to compensate [the plaintiff] for damages sustained by it, the sum of Ten Thousand Dollars. The designation of this sum as liquidated damages does not necessarily make it such rather than a penalty. If the provision was inserted for the purpose of deterring the defendant from breaching his contract and of penalizing him for doing so, instead of specifying a sum which the parties in good faith agreed upon as representing the damages which would ensure from a breach, it is to be regarded as imposing a penalty. The decision of the same court in King Motors, Inc. v. Delfino 136 Conn. 496, 72 A. 2d233 (1950) concerned a covenant in a contract for the sale of a motor car by a dealer, requiring the buyer to offer it for repurchase at the sale price less 3% before being able to sell to a third party, with liquidated damages clause of $300. The trial judges decision that this provision was valid was upheld, in the following terms:- As a general rule parties can contract to liquidate their damages, and courts have not interfered with such contracts where the proof of damages would be uncertain or difficult and the amount agreed upon is reasonably commensurate with the extent of the injury. … The conditions for recovery on such contract are … (1) the damages to be anticipated as resulting from the breach must be uncertain in amount or difficult to prove; (2) there must have an intent on the part of the parties to liquidate them in advance; and (3) the amount stipulated must be a reasonable one, that is to say, not greatly disproportionate to the presumable loss or injury. … If the provision was inserted for the purpose of deterring the defendant from breaching his contract and of penalizing him for doing so, instead of specifying a sum which the parties in good faith agreed upon as representing the damages which would ensure from a breach, it is to be regarded as imposing a penalty in such a case recovery will be limited to the actual damage and if no damage is proved no recovery may be had. Professor Brunstad placed reliance on the decision of the Supreme Court of Connecticut in Vines v. Orchard Hills Inc. 181 Conn. 501, 435A.2d1022 (1980), in which it was held that a liquidated damages clause in a contract for the purchase of realty allowing the vendor to retain 10% of the contract price as earnest money was presumed, but rebuttably, to be valid as a reasonable allocation of the risks associated with default. Professor Brunstad draws from this the proposition that while this presumption is rebuttable, it cannot be said that the liquidated damages provision in the CFA is per se invalid. It does not seem to me that this case assists much one way or the other; a liquidated damages clause in a contract for the purchase of realty is a very different thing from a clause which operates in a wide variety of circumstances in a very different contractual context. The first instance (and therefore persuasive rather than binding) decision of Judge Tierney in Begin v. Reissman [1995] WL 348043, on a reference from an Attorney Fact Finder, is instructive, in that it shows how the court, in assessing whether charges are reasonable, look at the detailed facts. The court found that a constantly accruing $5 late payment charge, in a lease with a monthly rent of $1,400, was a penalty. On the evidence before the court, many Connecticut leases contained a late payment not exceeding 5% of one months rent, others charged a flat fee of about $25, and in both cases these could be justified by the administrative costs necessary to monitor late payments, but a continually accruing charge of $5 per day could not be justified. Under statutory provisions applicable to that kind of case, the court substituted what it considered to be a reasonable charge. In Federal Deposit Insurance Corporation v. Napert-Boyer Partnership 40 Conn. App. 434, 671A.2d 1303, an appellate court decision, it was held that a bank could not recover late payment charges after the promissory notes were accelerated, because from that point on the instalments were no longer due. In that situation, to permit recovery of both forms of charge would amount to a penalty, because the default interest by itself provided for compensation for the breach. As Professor Brunstad put it, if late charges are included on top of default interest this could constitute a form of double compensation. But it does not follow that there can never be two forms of compensation which validly co-exist. Professor Brunstad refers to another appellate decision, also of persuasive authority, in Putnam Park Associates, above, in which the court reversed the trial judges refusal to allow both interest and late charges arising from late payment of rental due under a lease, albeit that the question of whether this might involve double compensation was not addressed in detail in the judgment, which was largely concerned with other issues: therefore, the persuasive weight of the decision is slight. Velenchik v. First Union National Bank (2003) WL 21152 967, a first instance decision, concerned a case in which a bank had accelerated a loan, imposing a late charge of 4% of the whole balance, as well as default interest. The court held, following the Napert-Boyer case, that this was double compensation, and also held that, whilst 4% of a monthly instalment payment might reflect costs incurred by the defendant as a consequence of a late payment, 4% of the whole balance was exorbitant. Professor Brunstad relies on Emigrant Mortgage Company Inc. v. DAgostino, 94 Conn. App. 793, 896A 2d814 (2006), where it was said that a bold assertion of unconscionability, without more, was insufficient to establish that a default interest rate of 18% was unconscionable. Mr. Riley places some reliance on the decision of Judge Tierney at first instance in North Water, LLC v. North Water Street Tarragon, LLC 2009 WL 3740632, which concerned a promissory note covering the unpaid balance of the price of properties sold by the plaintiff to the defendant for $7,410,000. The interest payable was 8%; in the foreclosure action following default, the plaintiff claimed 18% default interest and a 5% late fee in accordance with the loan agreement. The court held, following the Napert-Boyer case, that late fees following default could not be charged. On the issue of whether the default interest rate was a penalty, the court said that the issue was whether an..18.0% default interest rate on a … 90 day note which contains … 8.0% fixed interest rate secured by a first mortgage of no more than … 50.0% equity was unconscionable as a matter of law and void as a penalty. The court pointed out that the difference was more than double the agreed rate of interest, and that the default interest rate exceeded the statutory usury rate by half. The court noted that, whilst there might be reasons why a party needed a higher rate of interest after the maturity date, such as investing in another project, the need for cash at a specific point in time related to the maturity date, and so on, and no evidence of any kind had been offered by the plaintiff of the fiscal impact to the plaintiff in excess of the normal contractual interest rate. Against that background, the court held as follows:- In this case both parties were represented by counsel. The plaintiff is a well known successful developer of commercial and residential property in Connecticut with offices in Norwalk. The defendant, Tarragon Development Corporation, is a nationally known corporation publicly traded and engaged in the same business. Both are sophisticated consumers who presumably had knowledge of the cost of money and cost of doing business. The parties agreed to an interest rate of 8.0% in the promissory note. That establishes the current fair market interest rate for a commercial first mortgage in April of 2007. Connecticut holds that usury commences interest rates higher than 12%. This 12% usury cap is 150% higher than the agreed upon commercial reasonable rate of 8.0%. Though it is true the defendants did not offer any evidence of unconscionability, cite authority for a commercial interest cap on Connecticut bona fide mortgages or offer expert testimony on unconscionability. Connecticut case and statutory authority give this court sufficient guidance. The plaintiff offered no evidence on its post Maturity Date damages. The court on the record gave the plaintiff the opportunity to offer evidence as to default interest. The plaintiff did not accept the courts many invitations. The note and deed are silent on the reasons why 8.0% was increases to 18.0% upon default. There may be reasons why a party needs a higher rate of interest after the Maturity Date, such as investing in another project, the need for cash at a specific point in time related to the Maturity Date, the possible sale of assets to pay obligations when the expected cash due on the note was not paid by the Maturity Date and a higher rate of return on an alternative investment contemplated to be made with the loan payoff proceeds. No evidence of any kind was offered by the plaintiff on the fiscal impact to the plaintiff in excess of the 8.0% interest at the defendants failure to pay the loan when due. 26 If the plaintiff meets all three conditions, the 18.0% default interest will be a valid liquidated damage clause and not void as a penalty. (1) The plaintiff failed to offer any proof that the damage that was to be expected as a result of the non-payment of the note was uncertain in an amount or difficult to prove. The plaintiffs proof was silent as to its projected use of the $7,410,000 principal after the July 29, 2009 maturity date. The note used an 8.0% interest rate, a rate deemed commercially reasonable by the parties for a well secured short term first mortgage on real property that had substantial equity. The note and mortgage deed were silent on the reasons why a default rate far in excess of the 8.0% was selected. The plaintiff has not satisfied the first condition of the liquidated damage rule. (2) The plaintiff has satisfied the second condition since the agreement, the note, was signed by both parties establishing in advance an interest rate on all unpaid principal after default of 18.0%; (3) There was no evidence introduced at trial for the court to determine that the 18.0% default interest rate was reasonable in the sense that it was not greatly disproportionate to the amount of the damage, which as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of contract. This court repeatedly, sometimes on a daily basis, inquired of the plaintiff if it was going to offer evidence on the subject of default interest. The plaintiff refused the courts invitation and argued that since there is no statutory cap on commercial loans secured by a bona fide mortgage in Connecticut, the parties were bound by the 18.0% default interest rate established by the note. The plaintiff has failed to satisfy this third condition of liquidated damages. Exxon v. Baker holds that punitive damages are limited to one times the compensatory damages under maritime common law. Using the Exxon formula 16.0% is the highest default interest permitted. It is recognized that the Exxon v. Baker 1:1 ratio is applicable in maritime cases. Regardless, the trend is toward single digit punitive awards. Connecticut has participated in that trend by enacting a series of statutes that limit damages to double the 16% rate. Dougan v. Dougan cried commercial penalty at a 10% interest rate; the exact difference i this case. The plaintiff has not proven two of the three elements of a liquidated damage claim and is merely relying on the default rate of interest stated in a note signed by defendants. The eighteen percent (18.0%) default interest rate exceeds by more than double the commercially agreed upon interest rate. The court finds that the general commercial background at issue between the parties was a real estate sale of a mixed use residential and retail former factory building with a ninety (90) day loan for 50% of the fair market value of the real property secured by a first mortgage with both parties expecting that new third party financing will be available to the defendants within three (3) months in order to pay off entirely the first mortgage. The parties had agreed that the fair market value for borrowing such short term money was the agreed upon 8.0% interest rate. The note, mortgage deed, exhibits and testimony were silent on why the 18.0% default interest rate was agreed on and contained in the note. There was no evidence of the future commercial needs of the plaintiff after the July 29, 2007 maturity date. Based on the evidence in this case, the case law and statutes cited, this court finds that the eighteen percent (18.0%) default interest rate is unconscionable and punitive. The default rate of interest under the facts of this case is void. The plaintiff is therefore entitled to eight percent (8.0%) interest on the unpaid principal both before and after default. Mr. Riley relies on this decision to support the proposition that a default interest clause which imposes a disproportionate increase will be void as a penalty; Professor Brunstad points out that both the absence of any evidence justifying the increase (so that the first condition was not satisfied) and the fact that the loan was amply secured (making a large increase in the default rate difficult to justify) were important elements in the decision. By way of contrast, Mr. Riley referred to Cable Co. v. DAddrio 131 Conn. App. 223 (2011) as an example of a default interest provision allowing for a modest increase of 2% in the interest rate, held not to be a penalty. Professor Brunstad referred to Wells Fargo Bank N.A. v. Thermodynamics Inc. 2012 WL 670815, to show that there was in that case a default interest rate of 3% above the standard interest rate and a 5% late charge for any payment not made in time. The court did not decide whether these provisions were penalties, but Professor Brunstad relies on them to show that provisions of that kind were common. Similarly, in Noroton Props., LLC v. Lawendy 2013 WL 539733, the mortgage note contained a late payment charge of 10% and a default interest provision for the lesser of 12% per year or the maximum allowed by law. Finally, there is another decision of Judge Tierney at first instance in Three Sixty Five Cherry, LLC v. 12 Willard, LLC 2013 WL 388190, in which he held that a clause providing for a default interest rate of 24%, instead of the normal rate of 13% was void as a penalty:- 7 Samuel Mermelstein, a real estate and mortgage consultant, who is employed by both plaintiffs, was in court for all three days of trial and testified on the last trial date. He is fully familiar with all the books and records of both plaintiffs and their various mortgage and real estate transactions. He testified that the $4,675,000 loan was a hard money loan that a bank would not do. A loan decision had to be made quickly. He classified this loan as a relatively high risk loan and that 13.0% is an appropriate rate of interest. He stated that a bank would not do this loan since the sales prices of the new condominium residential units would be speculative and there would be a possibility that the borrower could go bankrupt. As to the 24.0% default interest, he testified that its purpose was to be an incentive to the borrower to pay the loan on time and an incentive for the borrower to come to the table and work out the loan in the event of a default. He noted the increased costs on a defaulted loan such as back office expenses, extra bookkeeping, purchase of expensive forced placed insurance, real property taxes, repair obligations on the premises during the default/foreclosure period and concerns over the resulting depreciation in the value of the real property. He also stated that it was the plaintiffs intent to reinvest the $4,675,000 when paid off by Twelve Willard, LLC into a new loan investment at a similar 13.0% interest rate with a similar 24.0% default interest rate. The court finds that this testimony has failed to demonstrate a factual justification for the 24.0% default interest rate other than as an incentive for Twelve Willard, LLC to pay on time. The court concludes that the 24.0% default interest is a penalty. This court will not enforce the 24.0% default rate of interest. Most of the other costs mentioned by Samuel Mermelstein could be awarded by this court as disbursements made by the plaintiffs in a foreclosure judgment pursuant to the terms of the note and mortgage and Connecticut law. These expenses are not contained in the January 27, 2012 Affidavit of Debt (#232.00), February 1, 2012 Bill of Costs (#235.00), January 11, 2012 Affidavit Re. Attorneys Fees (#228.00), January 26, 2012 Affidavit Re. Attorneys Fees (#233.00), and the January 12, 2012 Foreclosure Worksheet (# 234.00). The plaintiffs did not offer any evidence that the paid either real estate taxes or property and liability insurance. There was no evidence of the amount of any real estate taxes and insurance nor of any increased office, bookkeeping and overhead expenses. The plaintiffs offered no evidence why those post-default disbursements have not been claimed as part of the debt. The court will calculate the debt based on the 13.0% rate of interest contained in the Building Loan Note. I have concluded that, applying the basic principle of Connecticut law set out at para. 128 above, and taking into account the approach to liquidated damages and default interest clauses shown in the authorities considered above, neither clause 25.8 nor clause 25.9 is enforceable. My reasons are as follows:- There is no doubt that both the first and the second requirement for enforceability are met; the issue in relation to both clauses is whether it is reasonable and proportionate having regard to the amount of loss arising from default that the parties would have foreseen at the time of the contract. While the courts are prepared to presume reasonableness where the clause provides for obviously modest damages, such as 10% of the purchase price in a sale of land, or 3% additional default interest, in other cases the courts require evidential justification; in effect the burden of proof lies on the party seeking to enforce the clause. There is no absolute bar on two provisions in the same contract, but the court will expect it to be shown that they are included to compensate for different kinds of loss. The risks involved in the contract, and the extent to which there is security for the risks, are of importance. In the present case, the provisions are far from modest, consisting as they do of a provision for 10% of the whole amount outstanding and an increase from 8.5% (or possibly more if the Prime Rate increases) on advances, and from 18% on over-advances, to 24%. The provisions are not modest for another reason, namely that they apply to any default, however trivial, whether or not the contract is terminated and whether or not all obligations have been declared due under clause 25.1. There is not even a provision giving Cura a short period to remedy a default before clauses 25.8 and 25.9 take effect automatically. This is therefore a clear case in which detailed evidence is required to justify these provisions, but there is virtually none, and what there is does not identify separate risks for the two provisions. While there is generally justification for default interest to be charged because of the increased risk of irrecoverability, it does not follow that this can justify any rate, and I do not consider that the CFA would have been seen, in 2004, as an exceptionally risky transaction whatever might have been the position later; otherwise Mr. Porter would hardly have been prepared to agree the unusually high 75% normal rate of advance. Another point relating to risk is that this was not a transaction in which all the money was advanced at the outset. The terms of the CFA enabled Porter to minimise risk by refusing invoices, or by making a lower advance, or no advance at all, on receivables tendered for purchase, and it had complete discretion whether to make any further advances or over-advances. In some cases, the increased costs of trying to recover the debt are a separate and additional head of likely loss, but in this case the 6% collection fee and clauses 10 and 22 of the CFA leave little room for this. In short I am far from convinced these provisions are reasonable and proportionate, having regard to the risks of the transaction, from the viewpoint of 2004, or having regard to the likely scale of loss arising from default. In accordance with the decisions in North Water and Three Sixty Five, above, the provision for default interest is void, and the normal contractual rates for advances and over-advances apply. In his written, post-hearing, closing submissions Mr. Jacobson referred me to the English decision of Colman J. in Lordsvale Finance v. Bank of Zambia [1996] Q.B. 752 in which he held that the evidence before him of the New York Court of Appeal decision in Citibank NA v. Nyland (CFB) Ltd in 1989 established that it was settled New York law that default interest rates charged prospectively will not generally be struck down as penalties. Mr. Jacobson submitted that the decision was binding in Connecticut, which is part of the 2nd circuit. This has not changed my view for the following reasons: I agree that default interest rates charged prospectively will not generally be struck down; it depends on their terms and the circumstances, and what engages them. Professor Brunstad did not refer to this decision, or to any other New York case, on this issue, Mr.Riley was not referred to any New York case on this issue, and there is no reference to the decision in the Connecticut cases to which I have been referred, some of which are very recent. Therefore, this decision does not form part of the expert evidence in this case. Even if it did, I do not think that either this case or the later case in the U.S. Bankruptcy Court of re 785 Partners LLC decides that a default interest provision can never be a penalty. Indeed, the court in the latter case considered the point at some length on the facts relating to the transactions. In both cases it was seen as relevant that the parties to multi-million dollar property transactions were sophisticated business people, which I do not think Cura was, or at least not to the same extent. Issue (10): the Reserve Account This issue was introduced by a re-re-amendment of the Defence, which I allowed (a) because it had been notified sufficiently long before the trial to enable Porter to deal with it in evidence (as Mr. Land did) and (b) because I thought that there was force in Mr. Pesters submission that Porters schedules and charging methods were not all that easy to follow and that they had not realised how the account had been operated. However, I ruled that the amount of any adjustment to the account should be dealt with separately, as Porter could not be expected to address the complex calculations of Mr. Nunns, the forensic accountant called on behalf of Mr. Masters. The re-re-amendment to para. 10 read as follows:- (IX) In breach of clause 5 and Exhibit B of the Agreement, from November 2004 to March 2010, the Claimant has, in respect of the schedules of invoices purchased from Cura pursuant to the Agreement, failed to credit the correct amount of the invoice, being the difference between 94% of the face value of the invoice and the Advance Amount (if any), to the Reserve Account. In consequence, the Reserve Account has carried a negative balance in circumstances where, if the Agreement had been administered in accordance with its express terms, the Reserve Account would have for the part of those periods carried a positive balance. As a result of such persistent failure to administer properly the Reserve Account, Cura was wrongly charged an additional US$404,297.69 in interest to Cura. Full particulars of this breach of the Agreement by the Claimant and its financial consequences are contained in the Supplemental Report of Graham Nunns dated 20 June 2013. In my opinion, the provisions of the CFA are clear and unambiguous. Clause 8 provides that an Over-Advance, carrying the higher interest rate and an extra processing and administrative fee arises when there is a negative balance in the Reserve Account. The effect of Clause 5 and Exhibit B (Advances and Reserves) is that normally what is transferred to the Reserve Account is 19% of the face value of the invoices (the 25% withheld less the 6% fee) but, if Porter exercises its discretion under clause 5.2 to advance less than 75%, it will transfer the difference between what it does advance and 75% to the Reserve Account. It is obvious from the overall figures set out at para. 69 above that this is what will, or should, have happened on a large scale: the average advance was about 20% not 75%. It follows that, if Cura sought an advance which was not against receivables, and Porter agreed to provide it, if and to the extent that the required amount was matched by a credit balance in the Reserve Account, it was not an over-advance. However, Porter has taken the view that, in such cases, the whole advance is an over-advance and has charged accordingly. Therefore, interest has been charged at 1.5% per month, and not at the normal rate of interest, on very substantial amounts which, according to the clear terms of the CFA, are not over-advances. Mr. Lands evidence about this is that there are two reserve accounts. The first is the cash reserve, otherwise known as the earned reserve, and this is the reserve out of which advances are made, with interest charged only on a negative balance. The other is the accrued, or unearned reserve, into which any amount not advanced on receivables is put; this is not a cash account, the customer cannot in any circumstances touch anything in it and advances which are not advances against receivables are not made out of it. Therefore the balance in this reserve account is not taken into account in calculating the amount of an advance which is an over-advance. The result of both sides case makes good commercial sense. It makes good sense for Porter to have a discretion whether to make special advances in addition to the amount originally advanced with a higher rate if the amount advanced exceeds the balance in the Reserve Account. It also makes good sense for Porter, having exercised its discretion to restrict an advance, not to agree to make a later advance except at a higher rate. But the issue is concluded by the language which, if unambiguous, prevails in Connecticut law as in English law. The CFA clearly refers to the Reserve Account which is described by Mr. Land as the accrued or unearned reserve. There is nothing in the CFA to suggest that there will be a transfer of cash into it. The CFA makes no mention at all of a second, cash or earned, reserve account. Clause 8 of the CFA defines an over-advance as an advance which exceeds the balance in the Reserve Account, as defined. The process described by Mr. Land is not provided for in the agreement. Since there is no ambiguity, evidence of the course of performance is not relevant. Mr. Land also said that anyone who knew anything about factoring would understand that the position was as he stated it. That may be so, but it does not assist Porters case. There is no direction for expert evidence and, contrary to Mr. Jacobsons submission, I do not think that Birss J. gave permission for Porters factual witnesses to give expert evidence of factoring practice. Mr. Masters had no opportunity to obtain such evidence, nor was there any evidence of Connecticut law on the question whether a factoring companys clients would be bound by the practice of the factoring industry. Therefore, Mr. Masters succeeds on this issue, and there will have to be an enquiry as to the amount involved, if this cannot be agreed. Issue (11): Attorneys fees As shown above, there is a substantial claim for legal fees and other collection expenses, which is supported by Further Information consisting of a schedule identifying the amounts charged by particular firms of lawyers, and the amounts of some expenses for FEDEX deliveries, flights etc., but no copies of lawyers bills or evidence supporting claimed expenses, or detailed evidence as to the work done. Clause 22 of the CFA is referred to above. It provides (inter alia) for reimbursement by Cura on demand of attorneys fees and other fees arising from the enforcement of the CFA or the PCW. Mr. Rileys view is that the guarantors are not liable under the PCW, unless reimbursement has been demanded from Cura under the CFA. Professor Brunstad opines that the requirement for a demand is to be disregarded because the effect of clauses 2 and 19 of the PCW is to prevent Mr. Masters from relying on it. However, I do not think that any particular rule of construction under Connecticut law is engaged, except that where there is an ambiguity, the PCW, as a guarantee, is construed against the drafter. Clause 2 reads as follows:- 2. Default. Any one or more of the following shall be a default hereunder: (a) any default in the payment or performance of any instrument (including without limitation the Commercial Financing Agreement), or of the Obligations hereby guaranteed; … in the event of any of the foregoing, the Obligations hereby guaranteed shall become, for the purpose of this Guaranty, due and payable by the Undersigned forthwith without demand or notice. This clause does not assist Porter. Until there is a demand on Cura, there is no default in payment of any Obligation under the CFA, and the last sentence on its proper construction removes any requirement for a demand on the guarantors, but does not affect the requirement for the demand on Cura required by the terms of the CFA. Clause 19 (para. 40 above) does not assist Porter either, essentially for the reason discussed at paras. 100-1 above: what the guarantors guaranteed was Curas Obligations, and if Porter cannot establish that there was an Obligation, then for the guarantors to dispute the claim does not amount to the assertion of a defence; Porter has simply failed to prove all the necessary elements of a successful claim. Mr. Jacobson submitted that Porter can rely on clause 10(b) of the CFA, which entitles it to recover all enforcement costs and expenses, with no requirement for a demand. Clause 10(b) overlaps with the more detailed and elaborate provisions of clause 22 but, Mr. Jacobson submitted, was more proximate to Porters case than clause 22. Therefore the requirement for a demand in clause 22 is avoided by basing the claim on clause 10. I do not think that either provision is more proximate; they just cover the same ground. But I reject Mr. Jacobsons argument for the following reasons: Clause 10 covers a whole range of expenses arising in different circumstances; the failure to reimburse any of them constitutes a Default, triggering a whole range of remedies. In my view, even if one disregards clause 22, on the proper construction of clause 10, a demand is required under it; otherwise there could be a Default without Cura even knowing that the amount of the expense that it is obliged to repay, or even that any expense has been incurred. That would be absurd. In any event, once clause 22 is taken into account, clause 10 can only be read consistently with it if a demand is required; alternatively, if there is a conflict, clause 22, which has a specific and obviously necessary and sensible requirement for a demand, prevails. Mr. Jacobson also relied on clause 7 of the CFA, but this provision relates to cross-collateralisation in the event of a Default, and contains no provision which would obviate a need for a demand in order to make reimbursement of expenses an Obligation. Lastly, on this issue, Mr. Jacobson submitted that clause 14, which provides that the PCW is a guaranty of collection, and therefore unconditional, makes a demand unnecessary. I reject this submission too. The effect of clause 14 is to make an action against Cura, or resort to security, unnecessary. It has no effect on what is required to constitute Curas Obligations, in this case a demand. Apart from the issue of a demand, the decision of the Supreme Court of Connecticut in Storm Associates, Inc. v. Baumgold 186 Conn. 237 440 A.2nd 306 establishes that a contractual provision providing for reimbursement of fees incurred (whether legal or medical) is enforceable on presentation of an appropriate bill unless and to the extent that it appears from the courts general knowledge, or evidence put before the court by the defendant, that the fees are unreasonable. In the present case:- no such bills have been presented; and therefore Mr. Masters is in no position to consider the question of reasonableness and nor am I. The absence of bills and of documents evidencing other expenses is another reason why Porter has failed to prove its case. There are two further issues:- First, it is questionable whether any fees incurred after a principal debtors bankruptcy can be claimed against the guarantor; there is a consensus between Mr. Riley and Professor Brunstad that a Connecticut court would probably rule in favour of Porter on this. Secondly, there is no evidence before me as to whether, as a matter of Connecticut law, a demand could be served on a principal debtor after it has become bankrupt, or whether the act of bankruptcy freezes its debts as they stood at the time of the bankruptcy. Mr. Jacobson considered that a demand could in all probability no longer be made. For the above reasons, I find that Porter has failed to establish its case on the attorneys fees and other expenses. Issue (12): The float charge This is a short point arising on the constructive receipt wording of clause 9.4, which is the last part of a series of provisions headed Collection of Account Receivable, and is set out at para. 24 above. Porter has, in calculating interest on the outstanding balance in accordance with the provision in the Advances and Reserves section of Exhibit B, applied the constructive receipt provision in deciding what was outstanding at any given time. This seems to me correct; both these provisions are perhaps clumsily placed in the CFA, but read together this is what they provide. Mr. Pester submitted that clause 9.4 has no application, but that would mean that Porter would have to ascertain when the proceeds of each individual cheque were received, which is not a sensible construction of the agreement. Porter succeeds on this issue. Issue (13): The net charge This relates to the rebate schedule in Exhibit B (para. 20 above), which provides for rebates of an amount which depends on when an invoice is paid. Porter has not applied the constructive receipt provision to this, but an issue has arisen as to whether Porter has been correct to include both terminal days in calculating the number of days taken by the customer to pay. The authorities cited by both experts, notably North Water, above, establish that the normal method of counting, where words such as within x days are used, excludes the first terminal day, and Mr. Pester submitted that this is what Porter should have done. Mr. Jacobson submitted that where, as here, the words used were between 1-30 days, this referred to a period separating 2 points in time; in such a case the language of the contract justified the inclusion of both terminal dates. I agree with Mr. Jacobsons submissions on this issue, and Porter therefore succeeds on it. Issue (14): Interest on fees By clause 12.3, the underwriting fee of $45,000 is to be taken out of the money advanced under the CFA, but this was not done. Mr. Pester submitted that there was no provision in the CFA for interest on fees, and that interest has therefore been wrongly charged. He says the same about various other fees identified in the evidence. I reject this. Exhibit B provides that interest is payable on advances. If fees are due, but are not paid, as it is common ground is the case here, then the amount of the fee is ipso facto advanced, and is to be added to the amount on which interest is payable. What I have said earlier about compound interest applies here too. Porter succeeds on this issue as well. Issue (15): 2% per month interest In cross-examining Mr. Porter, Mr. Pester raised another issue relating to interest charged at 2% per month instead of either the normal prime plus 4% rate or the over-advance rate of 1.5% per month from 2008. Not surprisingly, Mr. Porter had no definite answer, although he thought that the most likely explanation was that there had been a specific agreement. This point was not pleaded, and I agree with Mr. Jacobson that it would not be fair to Porter to permit it to be pursued, and Porters charge for this period therefore stands. Conclusion I am not in a position to calculate the financial consequences of my decisions on the above issues. If the parties are able to do so, I will enter judgment for an agreed amount. If not, I suggest that the parties seek to reach agreement on the form of declarations reflecting my decision, on an appropriate interim payment and on directions for taking an account.