Crown Copyright ©
Mr Justice Andrew Smith:
1.In July 2007 there were exchanges between the claimants and the
defendants in which the claimants contend and the defendants deny
a contract was concluded between them. The first claimant ("Maple
Leaf") also alleges that the defendants fraudulently misrepresented their
intentions and claims damages in deceit. (The second claimant ("Astin")
abandoned its claim in deceit in the course of the trial.) The defendants
bring a counterclaim against Astin for any sum for which they are liable
under the contract if (contrary to their case) they are party to one. In
this judgment I shall refer to the contract that the claimants allege as the
"Funding Agreement".
2.Maple Leaf is a Cayman incorporated hedge fund, managed in London
by Maple Leaf Capital LLP, a Financial Services Authority ("FSA")
registered investment manager. The portfolio manager is Mr. George
Castrounis. Astin is an investment manager that specialises in arranging
capital market transactions. It is authorised by the FSA and also, under
the "passport" system, by the French regulatory authority, the Authorité
des Marché Financier. Its chief executive officer is Mr. Charles Bray and its
managing director is Mr. David Ummels.
3.The defendants, Mr. Jacques Rouvroy and Mr. Krzysztof Trylinski, are the
chief executive and deputy chief executive of Belvédère SA ("Belvédère"),
a French company of which they are also the majority shareholders.
Belvédère is the head of a group of companies whose main activity is
the production and distribution of vodka and other drinks. It operates
internationally and has a turnover in excess of €500 million per year. Mr.
Rouvroy is largely concerned with the financial management of Belvédère
and Mr. Trylinski, an engineer, concentrates upon operational matters.
Both are French residents, although Mr. Trylinski originally came from
Poland.
4.The claimants contend that by the Funding Agreement made in July
2007 Maple Leaf agreed to provide funding of some €30 million to the
defendants to assist them to complete the funding of a private placement
of the securities in Belvédère held by the group of CL Financial Limited
("CLF"), CLF being the head of a group, including Angostura Holdings
Limited, that carries on an investment business based in Trinidad and
Tobago. CLF was then the majority shareholder of Belvédère. Astin was to
be paid a fee for arranging the funding. The claimants say that, subject
to some consensual variations, the terms of the Funding Agreement
are set out in a "termsheet" that was signed by the claimants and the
defendants late in the evening on 25 July 2007. I shall have to examine
in some detail the provisions of the termsheet (to which, for reasons that
will become apparent, I shall refer as "Version 9") and the circumstances
in which it was signed. In broad terms the scheme was that the funding
provided by Maple Leaf was to be used to finance the purchase from CLF
of warrants in Belvédère; and the warrants were to be transferred to a
company variously referred to as a special purpose vehicle ("SPV") or a
share acquisition vehicle ("SAV") to be established by the defendants,
and were to stand as security for repayment of the funding. In return, the
defendants agreed (amongst other things) that they would place other
securities in the SPV by way of further collateral for the funding; that on
1 August 2008 or, if earlier, one year from the funding date Maple Leaf
would be repaid the amount of the funding, together with an uplift of
25%; that the SPV or the defendants would grant to Maple Leaf and Astin
a call option over the warrants; and that "the Lenders" should have the
right to "borrow" the securities held by the SPV during the term of the
"transaction". The scheme also contemplated that further funding was to
be provided by a London based private equity investor called Lion Capital
LLP ("Lion Capital"), who was to subscribe some €20 million for 120,000
shares, and Lion Capital too was to transfer the shares to the SPV and to
have rights similar to those of Maple Leaf.
5.On 26 July 2007 Maple Leaf subscribed for warrants in Belvédère
worth €29,999,946. The private placement was successful in that the
defendants regained control of Belvédère, but they took no steps to
establish a SPV. Maple Leaf has paid for the securities but has not been
reimbursed for what it paid, or had the other benefits to which it says
that it is entitled. It received and still holds the warrants but they have
plummeted in value. The claimants say that therefore the defendants are
in breach of the Funding Agreement and claim money due under it and
damages. (They abandoned a claim for specific performance during the
trial.)
6.Version 9 was headed with Astin's name and address, and was
introduced by a "Summary" that read as follows:
"Summary: The founding shareholders of Belvédère S.A. (specifically
Jacques Rouvray ("JR") and Krzysztof Trylinski ("KT") together referred
to as the "Management") and the SAV principals are presently in a share
holding dispute with the majority shareholder, CL Financial. The founders
have negotiated the option to purchase the entire share warrant and
bondholding of CL Financial for 345.0m euros. The founding shareholders
wish to borrow funds to allow for a vehicle to purchase those securities
not taken up or placed as part of the share placement.
The Lenders will participate in the offering arranged by H & Associés and
contribute the purchased securities to a special purpose vehicle "SAV"
in exchange for the loan as agreed and detailed below. SAV shall be
established by the Belvédère's management who personally undertake to
use their best endeavours to complete any further documentation which is
necessary to carry into effect the terms agreed below."
7.After the Summary there was a heading in bold type that said, "Share
Acquisition Vehicle with option to purchase Warrants. Outline Heads of
Terms". Under the heading Version 9 read as follows:
Underlying Security: Belvédère S.A.; ISIN FR0000060873; Bloomberg
symbol: BVD FP.
Borrower: SAV (representing JR & KT, the Management).
JR & KT undertake to take all steps to establish SAV.
Until such time as the Borrower is established the Management agree that
they shall act on behalf of the Borrower and that they undertake all of its
obligations personally.
JR & KT shall be jointly and severally liable for any and all obligations
of the Borrower in the event that the Borrower is unable to perform
such obligation, including for the avoidance of doubt paying any sums of
money due from the Borrower.
Seller(s): Angostura Holdings ("Angostura"), CL Financial and the related
and affiliated companies of the CL Financial Group ("CL").
Purchase Price: €50.070 million.
Purchased Securities &
Contributions: +330,000 warrants (ISIN: FR0010134247) expiring in
November 2011 with an €85.0 exercise price @ €91.00 per warrant as
purchased by Maple Leaf Macro Volatility Master Fund.
+120,000 ordinary shares of BVD as purchased @167.00 per share by
Lion Capital's Fund(s).
+ 4.0% of the Purchase Price for Astin Capital Management Ltd's
participation for the arrangement of the funds.
Loan Amount: €52.073 million – through the contribution of shares and
warrants assets by the Lenders and acquired from the placing executed
by Hottinguer including the contribution of Astin equal to 4.0% of the
Purchase Price for arranging the transaction.
Lender(s): - Maple Leaf Macro Volatility Master Fund.
- Funds to be named managed by Lion Capital,
- Astin Capital Management Ltd.
Loan Maturity Date: 1 August 2008 or one year from the funding date
whichever is earlier.
Loan Redemption Amount: €65.091 million.
Redemption Price: 125% of the Loan Amount.
Collateral: + 325,000 ordinary shares (unencumbered and non-pledged)
in BVD provided by SAV principals JR & KT.
+ 380,000 warrants (unencumbered and non-pledged) in BVD (ISIN:
FR0010304733) provided by SAV principals JR & KT.
+ all of the purchased Securities plus any rights, cash, distributions, and/
or proceeds resulting from any corporate actions.
In the event of default the Lenders shall have equal security interests over
the assets of the SAV with any proceeds realised.
Collateral Value: €58.44 million of ordinary shares (based on placing price
valuation).
€19.0 million of warrants (bases on a value of €50.0 per warrant).
Plus, €50.07 million of the Purchased Securities.
LTV: ~40.87% initially.
Warrant Purchase Options: Maple Leaf Macro Volatility Master Fund
and Astin Capital Management Ltd. shall have the option at any time
over the term of the loan to purchase the 330.000 warrants (ISIN:
FR0010134247 expiring in November 2011) held by the SAV vehicles [sic]
for a consideration equal to €91.00 per warrant. The Lenders may cancel
any portion of their outstanding loans at their Redemption Price in lieu of
paying to the SAV the exercise price for the purchase of the warrants, i.e.
€91.00 per warrant.
Default Event: The Lenders shall have recourse to all of the assets of SAV
to be made whole with respect to the Loan Redemption Amount should
the Borrower fail to repay the due amounts in full on the Maturity Date.
For the avoidance of doubt, if SAV is unable to repay the Loan Redemption
Amount, JR and KT shall be jointly and severally liable to repay the Loan
Redemption Amount.
In the event of default Maple Leaf Macro Volatility Master Fund and Lion
Capital funds shall have an equal ranking with respect to recovery and the
assets of the SAV but with any proceeds distributed on a pro-rata basis
according the then outstanding loan amounts of the Lenders.
Security Lending: The Lenders shall have the right to borrow on a pro-
rata basis all of the securities held by the SAV over the term of the
transaction.
Documentation: The parties agree to use their best endeavours to
complete further documentation as to the loan, securities lending, and
as required perfection of all security interests shall be completed by 1
August 2007 or such later date mutually agreed by all of the parties with
full reimbursement of all legal and professional expense by the Borrower
to the Lenders.
Assignment: The Lender(s) shall have the right to assign any portion of
the Loan to qualified third parties at any time prior to completion or the
maturity date of the transaction.
Governing Law: England & Wales.
Jurisdiction: The parties agree to the exclusive jurisdiction of the Courts of
England and Wales.
Service of Proceedings: JR and KT agree that in addition to any method
permitted by law, proceedings under this Agreement be validly served on
them by hand-delivery to the registered address on Belvédère.
In the event Borrower(s) and/or Management (specifically JR and
KT) do not complete all steps necessary to complete the transactions
contemplated in the Agreement or the Borrowers and/or Management
are unable for any reason to close the transaction in accordance with
the full terms and conditions of this term sheet (including the delivery
of securities) on or before August 1 2007, that terms of this Agreement
shall automatically terminate (unless extended in writing at the Lenders'
sole and absolute discretion), and Lender(s) shall thereafter be entitled
to immediate payment of 25% of the Purchase Price plus the payment of
any loss resulting from the sale of the Purchased & Contributed Securities
in the market plus any Fees and the reimbursement of any professional
and legal expenses incurred. For the avoidance of doubt, if the Borrowers
are unable to make such payment, JR and KT shall be jointly and severally
liable in respect of such payment."
There was not a side-title against this last paragraph. I shall refer to it as
the "termination provision".
8.At the bottom of each of the four pages of Version 9 there was a
"footer" in small print under the heading "Confidential & Proprietary". It
read: "This termsheet is a financing transaction and contains proprietary
and confidential information. The terms included are intended to create
a binding obligation on the part of the Borrowers, the management
(specifically JR and KT) and their affiliates. This termsheet shall serve
as the legally binding document until such time as agreed amongst the
parties is finalised".
9.At the end of Version 9, under the words, "Please sign to acknowledge
agreement and acceptance of the terms of this transaction. This … day of
July 2007…", there were spaces for the signatures on or behalf of the two
claimants, two defendants and Lion Capital. There were also spaces for
witnesses to the signatures.
10.The claimants say that a contract was concluded between the parties
when they and the defendants (but not Lion Capital) signed Version 9 and
sent signed copies between them, although the parties agreed later to
certain (relatively minor) variations. They have an alternative argument
that, if no contract was concluded when Version 9 was signed, the parties
entered into a binding contract when agreement was reached upon the
variations.
11.While there is no dispute that the claimants and the defendants
all signed Version 9 on 25 July 2007, the defendants deny that they
concluded any effective and enforceable contractual agreement with the
claimants. They say:
i) That there was no intention to create legal relations.
ii) That there was no contract because the defendants' signatures were
not witnessed.
iii) That there was no contract because Version 9 was not signed by or on
behalf of Lion Capital.
iv) That the agreement is too uncertain to be of legal effect.
v) That the termination provision was penal, and the arrangements
were unlawful, ineffective and unenforceable under consumer protection
legislation.
12.Maple Leaf's case in deceit is advanced on the basis that by entering
into Version 9 the defendants represented that "it was their genuine
intention to honour their obligations under the Agreement including
the undertaking to complete any further documentation necessary
to carry out into effect the terms of the Agreement", and that this
representation continued at least until Maple Leaf had subscribed in
the private placement; that it relied upon it in entering the Funding
Agreement and in making its subscription; but that in fact the defendants
had no such intention.
13.The counterclaim against Astin is based upon section 150 of the
Financial Services and Markets Act 2000 (the "2000 Act"), it being
alleged that the defendants suffered loss as a result of Astin contravening
Conduct of Business (or "COB") rules made by the FSA in that it did not,
or did not sufficiently, make clear to them that the Funding Agreement
was legally binding and explain about the security lending provision in the
Funding Agreement.
14.As well as raising defences to the substance of the claim and bringing
their counterclaim, the defendants also dispute the court's jurisdiction,
and have applied for an order that the proceedings be stayed. I should
explain why this jurisdiction question comes to be determined at the
trial of the action. Although their pleaded defence included (in terms
that I shall consider further below) a denial of the Court's jurisdiction,
the defendants did not apply that the court should decline jurisdiction
or that the proceedings should be stayed until the hearing of a pre-
trial review on 24 October 2008. They then applied that the action be
stayed on the alternative grounds (i) that a preliminary investigation had
been started by a Prosecutor attached to the French High Court into a
criminal complaint made by the defendants about the dealings that give
rise to these proceedings, and (ii) that the English court does not have
jurisdiction to determine the claim.
15.On 24 October 2008 I rejected the application to stay these
proceedings because of the criminal investigation. With the parties'
consent, I adjourned the question of jurisdiction for determination at this
hearing, partly because the claimants had had too little notice of it before
the pre-trial review to prepare their response and also because the court
had inadequate time to hear full argument. The claimants contend that
the court has jurisdiction (i) under article 24 of the Council Regulation No
44/2001 (the "Brussels Regulation"), (ii) because the Funding Agreement
contained a jurisdiction agreement which covers their claims in these
proceedings and (iii) in the case of Maple Leaf's claim in deceit, because it
has jurisdiction under article 5 of the Brussels Regulation.
The Issues
16.In broad terms, therefore, the many issues between the parties are
these:
With regard to jurisdiction:
i) Does the court have jurisdiction under article 24 of Brussels Regulation?
ii) Does the court have jurisdiction under article 23 of the Brussels
Regulation?
iii) Does the court have jurisdiction in respect of Maple Leaf's tort claim
under article 5 of the Brussels Regulation?
With regard to the contract claim:
iv) Did the parties conclude a contractually binding Funding Agreement
(either in the terms of Version 9 or in some other terms)?
v) If a contractually binding Funding Agreement was concluded, what is
the meaning and effect of the termination provision and is it penal?
vi) Are the terms of the Funding Agreement binding upon the defendants
and enforceable?
vii) If the court upholds the contract claim, to what relief are the
claimants entitled?
With regard to the deceit claim:
viii) Did the defendants make a fraudulent misrepresentation to Maple
Leaf upon which Maple Leaf relied?
ix) If so, to what (if any) damages is Maple Leaf entitled?
With regard to the counterclaim:
x) Does the rule in COB paragraph 5.4.3 apply to Astin's dealings with the
defendants?
xi) Was Astin in contravention of any COB rule?
xii) If so, did the defendants suffer loss as a result of the contravention?
The witnesses
17.Before setting out the facts, I should say something about the
witnesses. The claimants called three witnesses of fact, Messrs
Castrounis, Bray and Ummels, and an expert witness, Dr. Desmond
Fitzgerald. The defendants both gave evidence, and they called two
factual witnesses, Mr. Philippe Hottinguer and Mr. Luc Demarre, and relied
upon some expert evidence of a Mr. Michel Léger.
18.Mr. Castrounis has been employed by Maple Leaf since 2002, having
been involved in derivatives trading since 1995. He was alert and
intelligent and fully understood the transaction under negotiation. I
consider him to be an honest witness, and have generally, but not in
every respect, found his evidence reliable.
19.Mr. Bray and Mr. Ummels established Astin in about 2002. By 2007 Mr.
Bray had had something over ten years' experience in derivatives trading.
His evidence was credible and consistent with the documents, and I
have largely accepted it. Although there is no allegation of impropriety
pleaded against him or Astin, in view of what is said in witness statements
I should state that I consider that he acted in good faith and properly
throughout his dealings with the defendants.
20.Mr. Ummels had worked for various banks before 2002. I consider
him to be an honest witness and in general a reliable one. However, I
conclude that on one point his evidence is understandably but significantly
inaccurate.
21.The claimants' expert witness was Dr Desmond Fitzgerald. He is
and has been for some 15 years the chairman and chief executive
of a company that specialises in arbitrage, volatility trading and risk
management strategies and chairman of a company that provides
specialised financial training and risk management consultancy. His
evidence was relevant to the quantification of the claimants' damages
claim. I do not doubt that Dr Fitzgerald was properly qualified to give
evidence about those matters upon which he expressed an opinion,
or that he was straightforward and seeking to assist the court with his
evidence. However, I am unable to accept his opinion on one matter that
is important to the assessment of damages.
22.Mr. Rouvroy made five witness statements in these proceedings.
I need say nothing about his third statement, which was made on 4
July 2008 in support of an application to adjourn the trial of these
proceedings, nor about his fifth statement dated 10 November 2008,
which was directed to answering the claim for specific performance that
the claimants do not pursue. As for his first and second statements, which
were made in French and dealt with the substance of the claim, and his
fourth statement, which was made in English on 17 October 2008 in
support of the application for a stay inter alia on the grounds that the
court does not have jurisdiction, Mr. Peter Castle, who represented the
defendants, acknowledged that these three statements are "not wholly
reliable accounts of events". This is clearly so. Mr. Rouvroy explained that
they were prepared by lawyers and that before signing them he read
them only on his Blackberry. It was apparent that he had not read them
carefully, and, as I conclude, they do not accurately reflect his account of
the facts. The statements are not consistent either with the documents or
with Mr. Rouvroy's oral evidence.
23.Two examples of the criticisms to be made Mr. Rouvroy's written
evidence will suffice.
i) In his fourth statement Mr. Rouvroy said on 26 July 2007 he told Astin
and Maple Leaf "not to advance the money, because we had rescinded
our signatures and the Term Sheet did not reflect any agreement on
our part. They refused to listen to me…". When asked about this in
cross-examination, Mr. Rouvroy said, "I don't think I put it this way" and
explained the statement on the basis that "this has been drafted by my
lawyer".
ii) In his second witness statement, dated 2 July 2008, Mr. Rouvroy said
that Astin acted without transparency and good faith in dealing with the
defendants and allowed them to believe that Lion Capital was party to the
transaction when it knew that Lion Capital did not wish to participate. He
said, "It was only after signing the Term Sheet that Astin informed us that
Lion Capital was not investing in the transaction set out in the Term Sheet
that it had just had us sign." When asked about this, Mr. Rouvroy said:
"What I meant was we signed the agreement, Mr. Ferran [of Lion Capital]
was … supposed to sign the agreement upon arrival in London. For some
reason he didn't sign." This is very different from what Mr. Rouvroy had
said in his statement but he insisted that he did not "see what was wrong"
with what was written.
24.Although Mr. Rouvroy explained that he is a very busy businessman,
it is not to his credit that he signed inaccurate statements, not least
because in his evidence in chief he confirmed the accuracy of his first four
witness statements without any qualification. However, it does not follow
that, because his written statements were unreliable and because he
confirmed the truth of them, I should reject the rest of his oral evidence.
Indeed, Mr. Castle argued that his candour in accepting the inaccuracies
in his statements supported his credibility. Further, in assessing his oral
evidence I must bear in mind that Mr Rouvroy gave his evidence in
English, but it did not seem to me that this disadvantaged him: he had a
good command of English.
25.I am, however, unable to regard Mr. Rouvroy's oral evidence as
reliable. I am prepared to accept that this was because he was blinded
by his undoubted conviction that the claim against him is unjust and was
unwilling to question this, rather than because he was deliberately lying,
but parts of his oral evidence were, in my judgment, incredible and at
times his evidence was unrealistic when faced with what did not fit his
account of events. For example,
i) As I shall explain, I am unable to accept that he did not understand an
email from Mr. Bray referring to the investors requiring a right to borrow
securities from the SPV but had no time to ask for an explanation.
ii) I am also unable to accept that, as Mr. Rouvroy told me, he understood
that Maple Leaf could have decided to cancel its subscription to the
private placement and "it would have been no problem". The very
purpose of the negotiations in the evening of 25 July 2007 was, from the
defendants' point of view, to secure the subscription.
iii) His evidence about whether he read the draft versions of the
termsheet was inconsistent: at one point he said that he did not read
them at all, but he also said that he read them very quickly.
26.Mr Trylinski's witness statement was written in Polish, his first
language. He gave his oral evidence when cross-examined mostly in
English. An interpreter assisted him from time to time to express himself
when replying to questions, but he did not need assistance to understand
what he was being asked, and he never used the interpreter or his limited
English to protect himself from cross-examination.
27.Like Mr. Rouvroy, Mr. Trylinski did not seek to support his witness
statement when he was cross-examined, and it was obviously wrong in
places. For example he had written that on 26 July 2007 the defendants
"explained to [Astin] that we did not want such a scheme", but I am
unable to reconcile this with his account of events given in cross-
examination. He said in his witness statement that Astin included "a
clause concerning the applied law and penalty clause" in the draft
termsheet "in fine print at the bottom of pages of individual drafts", which
he asserted "indicates they were acting in bad faith". The governing
law clause and the termination clause (to which "the penalty clause" is
apparently a reference) were not in smaller print than the rest of the
draft, and the governing law clause was not at the bottom of a page.
28.When Mr. Trylinski was cross-examined, it became apparent that
on many matters he had only a vague recollection of events, and he
acknowledged that there was much that he could not remember. His
evidence was not always reliable but that was not, in my judgment,
because he was seeking to mislead me.
29.Before referring to other witnesses called by the defendants, I
should refer to the complaint of a criminal offence made to the French
authorities. It is dated 8 October 2008 and was signed by both the
defendants. It included this statement in the context of a description of
"the scheming" that constituted "attempted fraud": "Between midnight
and one o'clock in the morning [of 26 July 2007], David Ummels
contacted Jacques Rouvroy by telephone and insisted that there was
now a full and final agreement which Jacques Rouvroy and Christophe
Trylinski could not evade in any circumstances". I shall have to examine
the evidence about this telephone conversation later in my judgment.
However, when asked about this in cross-examination, the defendants
said that the criminal complaint was drafted by lawyers in light of
information that they had from the documentation. When it was pointed
out to Mr. Rouvroy that he had signed the complaint, he said that he
trusted his lawyers and had not read the document before doing so,
explaining that he was too busy carrying out business transactions to read
everything that he signs. Mr. Trylinski said that he had read the complaint
once before signing it but that he knew nothing of the telephone call from
Mr. Ummels to which it refers.
30.Mr. Demarre had previously worked as a banker with Credit Suisse
before becoming a broker with Bucéphale Finance ("Bucéphale"), a
company that provides specialist mergers and acquisitions advice. He
is, or was in 2007, a director of Bucéphale, and had had dealings with
Lion Capital in relation to a proposed acquisition by Lion Capital or
its subsidiary, the Orangina Group, of Pulco, the non-alcoholic drink
division of Marie Brizard & Roger International ("Marie Brizard"), a French
subsidiary of Belvédère.
31.I have to treat the evidence in Mr. Demarre's witness statement
with some caution: he admitted in cross-examination that he himself
had no knowledge of some matters that he stated in it. For example,
he said in his statement that "Astin never explained to the Defendants
that the position could be taken that this simple term sheet could be
a final agreement". He accepted in cross-examination that he had no
real basis for knowing whether that was the case since he was not with
the defendants at the relevant time: at best it was an inference that he
drew. He also said in his statement that "There [was] … no doubt for
me as a professional that Maple Leaf executed a subscription on 26 July
2007 in the evening … knowing that the term sheet signed the previous
day had not been agreed either by the Defendants, or by Lion Capital,
and that in complete good faith the Defendants and Lion Capital had
proposed other approaches better adapted to their legal constraints and
financial capabilities". When cross-examined it became apparent that Mr.
Demarre was able to say no more about this than that in view of what
Mr. Rouvroy had told him he was very surprised that Maple Leaf had
sent in its subscription for the warrants. Similarly, he had no basis for a
statement that Mr. Ferran "had clearly said to [Astin] that the plan in the
term sheet was not feasible…". I cannot rely upon his written evidence. I
accept that Mr Demarre was trying to assist the court in his oral evidence,
but, as he properly made clear, he had little knowledge or recollection of
matters in dispute and his evidence was generally of relatively peripheral
importance. I do not overlook that during the evening of 25 July 2007
he spoke, as he said in cross-examination and as I accept, to Mr. Ferran
of Lion Capital, but his recollection of when this conversation or these
conversations took place and what was said was too vague for me to rely
upon it.
32.Mr. Hottinguer is a co-founder and the managing director of H et
Associés, an investment company in Paris licensed by the authorities to
engage in placements of and investment in (inter alia) securities and
financial instruments.
33.I found Mr. Hottinguer in some ways an unconvincing witness,
although I bear in mind that, although he gave his witness statement
in French, he was cross-examined in English. His evidence was often
vague to the extent that he appeared to me to be deliberately evasive.
For example, despite his experience and although he was managing the
private placement, he said when shown one version of the termsheet
that he could not understand it and did not understand about "warrants
and things like that". Mr. Hottinguer appeared from his answers in cross-
examination to remember remarkably little of what happened on 25
and 26 July 2007, and seemed concerned to distance himself from the
exchanges between Astin and the defendants, emphasising that, although
the defendants were in the offices of H et Associés, they were not in the
same room as he was. I conclude, however, that he participated in at
least two important conversations between Astin and the defendants: one
in which the defendants agreed to increase the return on funding to 25%
and did so, as I find, at Mr. Hottinguer's suggestion; and another, which I
shall have to examine in some detail, when in the early hours of 26 July
2007 Mr. Ummels spoke to the defendants.
34.The defendants served reports by Mr Léger, the chairman of BDO
France, who has expertise and experience in the valuation of shares and
other securities. Mr. Léger also had a meeting with Dr Fitzgerald, after
which they produced a joint memorandum dated 3 July 2008 of matters
upon which they were agreed and matters upon which they were not
agreed. In the event, however, the defendants did not call Mr Léger to
give oral evidence. They applied for permission to rely upon parts of the
written evidence of Mr. Léger. (At the case management conference the
parties had been given permission to call oral evidence but not otherwise
to introduce expert evidence.) I permitted the defendants' application to
adduce in evidence the parts of the reports upon which they wished to
rely: namely, (i) in relation to valuing the option to buy the warrants in
Belvédère that the claimants say they had under the contract, evidence
of Mr. Léger's opinion that bid prices for warrants should be used and as
to the appropriate discount to allow for the illiquid nature of warrants in
Belvédère; and (ii) some evidence (strictly factual evidence) about the
volumes and prices for trading in Belevdere shares in December 2007 and
January 2008.
The dispute with CLF and its settlement
35.Belvédère was founded in the early 1990s by the defendants. It is
incorporated under the laws of France and is listed on the French stock
exchange. Its head office is in Beaune. It is the head of a group of
companies that produce and distribute alcoholic and non-alcoholic drinks
internationally.
36.The company pursued a policy of expansion in the size and the scope
of its business. In April 2006 it had acquired Marie Brizard, and had
issued floating rate notes to raise capital to complete the acquisition. The
rights under the notes included options to take equity in the company,
and, having bought notes, CLF took a controlling interest of some 68%
in Belvédère through exercising them. The defendants, themselves or
through their family interests, retained a holding of something over 20%.
(Reference was made during the hearing to them having an interest of
26%: it seems from the documents in evidence that by 25 July 2007 they
had an interest of some 22%, Mr. Rouvroy and his family interests having
some 9.5% and Mr Trylinski and his wife and family interests having an
interest of some 12.5%.) This left a "free float" of some 10%.
37.In July 2006, CLF made a public offer, expiring on 31 August 2006, to
take over Belvédère for some €200 million. Astin was instructed to find
finance to complete the purchase, and, through Astin, Maple Leaf lent
about €38 million, secured against CLF's shares in Belvédère worth about
€80 million. CLF defaulted under the loan and Maple Leaf threatened to
enforce the security, but eventually the loan was repaid and CLF took
back ownership of the shares in Belvédère.
38.By early 2007 a dispute about the strategy and management of
Belvédère had arisen between the CLF group and the defendants.
According to the defendants, in late January 2007 they discovered that
officers of Marie Brizard had made unauthorised transfers of some €10
million from Marie Brizard to CLF's accounts, and that this money had
been used to repay Maple Leaf in January 2007. (Mr. Rouvroy said that on
10 January 2007 Maple Leaf told him that CLF had repaid €20 million.) In
February 2007 Belvédère and Marie Brizard brought proceedings in the
Chancery Division against CLF and others including the claimants, alleging
that financial assistance had been given by Belvédère's subsidiary to CLF
in order to repay the loan made by Maple Leaf to CLF.
39.On 8 June 2007 the defendants and CLF entered into an agreement
settling the proceedings in the Chancery Division ("the CLF Agreement").
Under its terms, the defendants were granted a call option to purchase all
of CLF's shares, warrants and bonds (the "CLF Securities") in Belvédère
by 30 September 2007 for €345 million. If the purchase was completed
by midnight on 30 September 2007, the directors appointed by CLF
were to resign from Belvédère's board with immediate effect, effectively
relinquishing control of Belvédère to the defendants. Conversely, if by
31 July 2007 the defendants had not made "a detailed written proposal
to CLF for simultaneous purchase of the CLF Securities including a firm
guarantee from financially sound persons or institutions for full payment
not later than 30 September 2007 of at least 90% of the Price, together
with a precise timetable for the transaction" ("the Proposal")", the
defendants were to resign as directors of Belvédère with immediate
effect. In order to gain control of Belvédère under the terms of the
CLF Agreement, acquiring CLF's investments and avoiding their own
resignation, the defendants therefore needed to raise some €345 million.
The CLF Agreement, which was governed by French law, provided that
the parties agreed to act in good faith toward the implementation of the
transactions referred to in it, including in the Proposal once it had been
accepted by CLF.
40.The defendants sought to raise funds by means of a private placement
of CLF's securities. They undertook a tour of European cities in July 2007
in order to generate interest through "road shows". It was advertised
that "The book will be opened from July 16th until July 25th, 2007". As
Mr. Hottinguer explained, in order to avoid problems of the sort that had
arisen with CLF, the strategy was to seek a larger number of relatively
small investors: Mr. Rouvroy considered that a single subscription of €100
million was too large. He took the lead in negotiations with potential
investors, but the two defendants conferred regularly and made major
decisions together.
41.Although initially the defendants had agreed to place CLF Securities
with a value of €345 million, by 24 July 2007 an amendment to the CLF
Agreement had been agreed and the securities to be placed had been
reduced to some €304 million, comprising 1,559,762 shares at an offer
price of €167 per share, 610,416 BSAR1 warrants at an offer price of €82
per warrant and 20 BSAR2 warrants at an offer price of €60 per warrant. I
understand that shortly before 24 July 2007 CLF had told the defendants
that some 150,000 shares were pledged to Maple Leaf and they were
excluded from the placement.
42.On 24 July 2007, the defendants sent their Proposal to CLF pursuant
to the CLF Agreement. It was that the CLF securities should be "sold and
purchased in the framework of a private placement" and included these
provisions:
i) That Belvédère and the defendants would procure that H et Associés
should act as "prestaire de services d'investissements", or investment
services provider, empowered to arrange the transfer of the CLF Securities
under the private placement.
ii) That at 9.00pm on 25 July 2007 the booking of the private placement
would be closed.
iii) That by 9.00am on 26 July 2007 the defendants and Belvédère would
provide CLF with a list of the purchasers of the CLF Securities, showing
the number of shares and warrants to be purchased, together with copies
of the purchase orders; and that the list would show that there were
purchase orders for all the CLF Securities.
iv) That by 4.30pm on 30 July 2007, the defendants would procure a
certificate confirming the matching of the relevant sales and purchase
transactions (although, if 95% of the securities were actually matched,
the Proposal allowed leeway as to the matching of 5% of the securities
"due exclusively to technical problems", on the basis that the balance
would be paid within the next few days).
v) That if these (and other) steps were not fully completed by 4.00pm
on 31 July 2007, then the Proposal was to be treated as not acceptable
under the agreement of 8 June 2007. The consequence of this would have
been that the defendants would lose control of the company (unless CLF
otherwise agreed).
H et Associés
43.By 13 June 2007 the defendants had engaged to assist with the
private placement two French companies specializing in the provision of
corporate finance services, H et Associés, who acted as lead manager,
and Bucéphale. H et Associés provided the defendants with a room
in its offices in Paris to use during the placement. It was to be paid a
commission of 2% of the sale price, some €6 million, if all the securities
were placed but not otherwise.
44.There appeared at one stage to be dispute about H et Associés' role,
but in the end there was little real or relevant difference between the
parties about this. The claimants contend that it included providing
advice and assistance to the defendants. Mr. Hottinguer insisted that
H et Associés acted neither as agent nor as adviser to the defendants
in connection with the private placement, and in cross-examination
he said that his company could not advise them and could only act as
placing agent. In their defence the defendants deny that H et Associés
were their advisers or their agents, averring that it was simply the
bank instructed by CLF for the private placement. However, when Mr.
Rouvroy was asked about this pleading in cross-examination he said
that it was "absolutely untrue" and that he "could not sign a thing
like that". He said that H et Associés provided him with advice and
assistance in negotiations with investors, including Maple Leaf, and that
Mr. Hottinguer supervised the negotiations on the evening of 25 July
2007. (He had said in his written evidence that Astin knew that it alone
was providing professional assistance to the defendants, but in view
of his oral evidence it is clear that this is another part of his written
statements that did not state Mr. Rouvroy's own account.) On 13 June
2007, in an email copied to Mr. Hottinguer and also, among others,
to Mr. Ummels, Mr. Rouvroy had written, "We are instructing Philippe
Hottinguer at H et Associés to coordinate the pooling of the CL Securities
with Bucéphale Finances … , which will be responsible for the info memo".
The contemporaneous statement of H et Associés about the private
placement, sent by Mr. Hottinguer to Mr. Ummels amongst others, was
that it was "committed by the Principals [that is to say, the defendants
and Mr. Rouvroy's family company, Société Financiere du Vignobles] to
manage the private placement consecutive to this agreement", that is to
say the CLF Agreement.
45.As I conclude from his evidence, Mr. Hottinguer was concerned that
H et Associés should not be taken to be the defendants' advisers in any
technical sense, and in particular to make it clear that they were not the
defendants' advisers for regulatory purposes; and he pointed out that the
placement was of the CLF securities. He recognised that the defendants
brought it about that H et Associés was acting in the private placement.
I accept that Mr. Hottinguer correctly stated the formal position of his
company. However, it is clear that his expertise was available to the
defendants and in particular that it was available to them on the evening
of 25 July 2007, and I consider that Mr. Rouvroy's oral evidence gives the
more realistic picture. I also accept that Astin and by the evening of 25
July Maple Leaf were given to understand that the defendants had the
benefit of advice from H et Associés and also from Bucéphale.
Defendants' dealings with Astin before 24 July 2005
46.The defendants also consulted Astin. It had worked on previous
transactions for Belvédère with the defendants, Astin being paid according
to the value of funding introduced by it.
47.In June 2004 Astin had been mandated by Belvédère to participate in
raising funding of €35 million by an issue of bonds with warrants attached
(to which Mr. Rouvroy referred as OBSAR bonds, or obligation a bons de
souscription d'actions avec faculté de rachat des bons). These warrants,
which entitle the holder to subscribe to 1.1 new shares, are due to expire
in 2011, and it was warrants of this issue to which Maple Leaf subscribed
in the private placement.
48.In March 2005 Belvédère had mandated Astin to arrange a €34.4
million private placement of newly created shares.
49.In January 2006 Astin had been mandated to act as global arranger
to raise senior debt securities and in the issue of €375 million of Floating
Rate Notes (or FRNs) to raise funds for the acquisition of Marie Brizard.
It was also mandated to arrange an issue of subordinated debt with
warrants attached, the BSAR 2 warrants. These warrants mature on 7
April 2014.
50.On three of these occasions Astin sent letters (dated 30 June
2004, 1 March 2005 and 25 January 2006) to Belvédère before the
transaction setting out the terms on which it would act, and Mr. Rouvroy
countersigned them on behalf of Belvédère. The letters required
Belvédère to agree that it was solely responsible for "deciding to
participate in the Structure" and was relying on its own advisers, and
not Astin, "for the appropriate financial, legal, regulatory, tax and
accounting treatment" of it. They said that Belvédère was to determine
"based on its own independent review and such professional advice as
it has deemed appropriate under the circumstances, the Structure (a)
is fully consistent with its financial needs, objectives and condition, (b)
complies and is consistent with all policies, guidelines and restrictions
applicable to it, and (c) is fit, proper and suitable for it". The letters also
stated that in providing its services Astin proposed to treat Belvédère as
"an Intermediate Customer as defined in the FSA Rules" and as such,
"[Belvédère] would not obtain the benefit of the FSA Rules designed
exclusively for the protection of private customers".
51.In May 2007 (before the CLF Agreement was concluded) Mr.
Rouvroy was in communication with Astin about finding funding for the
CLF securities. Mr. Rouvroy sent him an email that contemplated an
arrangement by which a new company would be set up to receive €345
million lent by "your hedge fund friends" and to hold as collateral for the
funding the defendants' shares in Belvédère and shares to be acquired
from CLF. The proposal was that the new company should pay CLF for
its securities in two instalments, €200 million by the end of June or July
2007 and the balance by the end of November 2007. The email exchange
between Mr. Rouvroy and Astin about this proposal was copied to Ms Aline
Poncelet of the defendants' lawyers, Messrs Paul Hastings, Janofsky &
Walker (Europe) LLP ("Paul Hastings").
52.After the CLF Agreement had been concluded, on 15 June 2007 Astin
told Mr. Rouvroy that it was pessimistic about the prospects of completing
the placement at a price of €167 per share. By then H et Associés had
been appointed to lead the private placement, and engaged Bucéphale
to assist in preparing the prospectus, but after a meeting at Astin's
office with the defendants and Mr. Demarre, it was agreed that Astin
develop an alternative strategy, a "plan B" as it was called, in case the
private placement was failing. As had been contemplated in May 2007,
money to fund the acquisition would be lent to SPVs (at this stage it
was contemplated that there would be two separate vehicles, one for Mr.
Rouvroy's family interests and one for Mr. Trylinski's). Mr. Rouvroy told
Astin that he would discuss this plan with Ms Poncelet, and he wrote on
19 June 2007 to Mr. Ummels "If the worst comes to the worst, we shall
use the SPV scenario", but urged Astin in the meanwhile to work with Mr.
Hottinguer "and his people".
53.Astin kept in contact with Mr. Rouvroy and on 10 July 2007 Mr. Bray
wrote to the defendants in an email that, having had "detailed discussions
in the market", he believed that Astin could secure funding: he said that,
if the defendants provided €100 million of shares for the SPVs, Astin
should be able to raise €120 million. He said that the SPVs would "have
the obligation to lend shares to any of the lenders on a pro rata basis",
and that Astin anticipated that the loan would be convertible into shares
at a slight premium to the placing price and that the interest rate would
be 150 points above EURIBOR. He also said that Astin would need at
least 7 business days to implement this strategy and recommended that
the defendants consider mandating Astin immediately. He also said that,
if funding was to be raised in this way, the SPVs should be established
immediately. A copy of Mr. Bray's email was sent to Ms Poncelet. However,
Mr. Rouvroy responded that the defendants were confident that they
would raise the funding that they needed, and that he could not make
himself available to meet Mr. Bray before 25 July 2007.
54.It was submitted by Mr. Peter Castle who represented the defendants,
that the defendants did not understand the implication of the proposal
that investors might borrow shares in Belvédère, a proposal that was
mirrored in the terms of Version 9: that they failed to appreciate that
the investors might sell short shares that they had borrowed. (I use
the expression "borrowed": it was obviously contemplated that there
should be returned not the self-same shares but identical securities.)
However that might be, Astin introduced the proposal that the shares
held by an SPV might be borrowed by investors some two weeks before
the negotiations on 25 July 2007 and did so in an email copied to the
defendants' legal adviser. Astin was never given any indication that the
proposal or its implications were not properly understood or caused the
defendants any disquiet.
55.On 13 July 2007 Mr. Bray sent Mr. Hottinguer an email proposing
that Astin should invest €1 million in the private placement as a token of
Astin's "utmost commitment to your cause and [acting] like good friends
and loyal business partners". He suggested that, if it was thought that the
private placement was undersubscribed, it might be time to execute "plan
B". Mr. Rouvroy responded "that [t]hings look good so far. However let us
discuss your plan B. One never knows".
56.On 19 July 2007 Mr. Ummels met Mr. Rouvroy. Mr. Ummels suggested
that Astin should seek to raise funding under "plan B", but Mr. Rouvroy,
still confident that the private placement would succeed, rejected the
suggestion. Mr. Ummels understood that the defendants had no need of
Astin's assistance.
24 July 2007
57.On 24 July 2007, however, Mr Rouvroy spoke to Mr. Ummels about
whether Astin could assist them to find funding of €150 million. (The
defendants insist that they thought that this funding might be needed,
not that it would be needed, it still being uncertain whether the private
placement would otherwise attract enough support.) Mr. Ummels spoke to
Mr. Bray, who had a number of telephone conversations with Mr. Rouvroy.
It was arranged that Astin should receive a fee of 4% of funds that it
raised. Although the amount of funding said to be needed changed from
time to time during 24 and 25 July 2007, Astin was given to understand
that the defendants were looking for funding of more than €100 million.
Mr. Bray gave evidence that he warned Mr. Rouvroy that the funding
would be very expensive: this was in part because the tight timetable
was such that investors could not carry out due diligence into Belvédère,
and also because by the third week of July 2007 the market was, as Mr.
Ummels told me and I accept, deteriorating significantly. Mr. Rouvroy told
Mr. Bray that the defendants were willing to pay a high price for capital
to keep control of Belvédère. (Mr. Rouvroy had no recollection of this
conversation but acknowledged that it had possibly taken place. I find
that it did.)
The prospects on 25 July 2007 for a successful private placement
58.There was some difference between the parties about what prospects
the defendants had by 25 July 2007 of successfully completing the
placement without funding provided by Astin. On any view they and
H et Associés were working under pressure. It is common ground on
the pleadings that "The private placement … had to be completed by
midnight, French time, on 25 July in order to give sufficient time for the
transfer of securities prior to 31st July deadline". The timetable in the
Proposal required the defendants to have identified the investors by 25
July 2007 and for them to provide CLF with a list of investors on 26 July
2007.
59.The defendants, however, dispute that the placement was in
difficulties. They say that it is not unusual for investors to commit
themselves only shortly before a deadline of this kind, and that they
were confident of finding the necessary funding. I accept that they were
still optimistic, but they simply did not know whether or not sufficient
subscriptions would be received without Astin's help.
60.I also accept the defendants' contention that the placement would
not necessarily have failed if they did not raise all the funding by the end
of 25 July 2007. Indeed, Maple Leaf in fact did not send in its effective
subscription until late on 26 July 2007, and, as I shall explain, Mr. Ummels
was still seeking funding for the defendants on 29 July 2007. The Proposal
did not stipulate any sanction if the defendants did not meet every stage
of the timetable, provided that the required steps had been taken by
31 July 2007; and in the judgment of the defendants, and also that of
Mr. Hottinguer and Mr. Demarre, CLF would not have insisted inflexibly
upon compliance by the defendants with their obligations under the CLF
Agreement, because CLF wanted the settlement agreement and the
private placement to succeed.
61.I accept that this was the defendants' contemporaneous assessment
of the likely response of CLF if funding was raised late or if there was a
modest shortfall in it, and there is no reason to reject their assessment
as unrealistic. However, the defendants simply could not be sure that
CLF would not insist upon compliance with the Proposal. Mr. Andrew
Lenon QC, who represented the claimants, pointed out that on 27 July
2007 Mr. Doly, the manager in charge of administration at H et Associés,
warned the defendants to take "the utmost care" to comply with the
timings in the Proposal: whatever the defendants hoped CLF's response
might be if they did not wholly comply with the Proposal, I cannot accept
that they were confident that they would be afforded latitude and were
unconcerned about the possible consequences of non-compliance.
62.In my judgment, despite their optimism, by 25 July 2007 and
especially by the evening of 25 July 2007, the defendants were worried
that they might not raise the necessary funds, and that they might lose
control of the company. Mr. Demarre said that the defendants were
under "extraordinary stress": in part this might well be attributable to
exhaustion and nervous energy, but it was also, I conclude, because of
anxiety that the private placement might fail. Indeed, as I shall explain,
early on 26 July 2007 Mr. Rouvroy wrote to Astin that, if the investment
by Maple Leaf did not go ahead, the "whole deal", that is to say the
private placement, would "[fall] apart".
25 July 2007
63.Maple Leaf had been defendants in the Chancery Division proceedings,
and Mr. Castrounis had known about the private placement since June
2007: Mr. Rouvroy had spoken to him about it because Maple Leaf had
had a shareholding in Belvédère since early 2005, having been introduced
to the company by Astin. When asked by Mr. Rouvroy to find funding on
24 July 2007, Mr. Bray decided, given the constraints of time, to approach
persons who had already had some dealings with Belvédère, including
Maple Leaf. Astin also approached Credit Suisse, UniCredit, Bloomberg
and Lehman Brothers.
64.On the morning of 25 July 2007, Mr Bray contacted Mr Castrounis,
and told him that the defendants were still looking for funding and asked
whether Maple Leaf would be interested. He emailed to Mr. Castrounis two
drafts of termsheets to give some indication of the proposed investment.
The first referred to a loan amount to SPVs of €120 million, and the
second a loan amount of €150 million. He sent similar documents to other
potential investors.
65.In broad terms the proposal was that Maple Leaf should purchase
securities in Belvédère and transfer them to a "special purchase
vehicle" (or vehicles), which should pay for them on a "loan maturity
date" about a year later with an uplift of 20%; that in the meanwhile
the special purpose vehicle(s) should hold the purchased securities in
Belvédère by way of collateral; and that the investors should have an
option to buy the securities so held.
66.According to Mr. Castrounis, he was not interested in investing as
much as the amounts stated in the termsheets, and thought that if the
funding was raised from a number of investors, the collateral would be
shared correspondingly. He therefore did not initially respond favourably
to the approach. It was suggested by the defendants that this was not
Mr. Castrounis' real reason for showing no immediate interest in investing
and that in fact this was a tactical move designed to strengthen his
negotiating position. I reject this suggestion. He answered it in cross-
examination by pointing out that the investment that he later made
was better secured than an investment of a part of the €150 million or
€120 million would have been, and I accept this explanation for his initial
response.
67.At around 4.00pm on 25 July 2007, Mr Rouvroy told Mr. Bray that the
defendants needed to raise only a further €50 million. He also informed
Mr Bray at around this time that he understood from Mr Demarre that
Lion Capital might be interested in investing €20 million. Lion Capital's
interest in the placement succeeding was apparently driven by a wish to
have the defendants in control of Belvédère because the Orangina Group
was hoping to acquire Pulco, and it was thought that the defendants
looked favourably on its proposal.
68.According to Mr Rouvroy's fourth witness statement, he also told Mr.
Bray during the afternoon that the defendants would entertain an offer
from Maple Leaf only if they acted in conjunction with Lion Capital. In
his oral evidence he did not go that far, but he made it clear to Mr. Bray
that the defendants wanted to have Lion Capital and any other investor
providing the balance of the necessary funds "tie[d] up in the same
deal". I accept that he did so: in any case the implication was that the
defendants were willing to commit their own shares to stand as collateral
in order to ensure that the placement was completed and not otherwise.
That was, as Mr. Rouvroy said, "the purpose of the exercise".
69.Mr. Bray spoke to Mr Javier Ferran, a partner at Lion Capital, and
explained the structure of the funding arrangement that Astin had in
mind. Mr. Ferran agreed to it in principle. At 5.36pm Mr. Bray sent him a
draft termsheet. (It was also sent to a Mr. Tooth, who was at Blackstone,
a co-investor with Lion Capital in Orangina.) Mr Ferran immediately
confirmed Lion Capital's interest in investing provided that Maple Leaf
invested on the same or very similar terms.
70.At around this time Mr. Bray also contacted three hedge funds who
had previously invested in Belvédère, including Maple Leaf. Mr Bray told
Mr Castrounis that the defendants had received more subscriptions for
the private placement, and that another party was willing to provide
funding of approximately €20 million. He asked whether Maple Leaf would
be interested in providing funding for the shortfall, the proposal being,
as Mr. Castrounis understood it, broadly on the basis of the scheme
contemplated earlier in the day for a larger investment. Mr. Castrounis
understood that Maple Leaf would be able to borrow the securities held as
collateral by the SPV (or SPVs). Mr Castrounis was sufficiently interested
to enter into negotiations because the proposed investment was of an
amount that Maple Leaf could contemplate and because the collateral
available for the smaller investment made it more attractive.
71.I shall describe the negotiations over the next 5 hours or so in some
detail. Mr. Castrounis was in Maple Leaf's offices in London. Mr. Bray
was in Astin's London offices, and Mr. Ummels was travelling between
Luxembourg and Bucharest, with a stop at Munich, and not involved in the
exchanges until early on 26 July 2007. The defendants were at the offices
of H et Associés in Paris. Mr. Hottinguer was also there, generally in a
different room from the defendants but nearby and from time to time, as
I conclude, with the defendants. Mr. Doly was also at H et Associés. Mr.
Demarre was at the offices of Bucéphale in Paris. Mr. Ferran was in New
York, leaving from JFK airport for London at around midnight.
72.The parties were in constant email and telephone contact with each
other, but none of the participants took any notes of what was said by
telephone. Although initially Mr. Bray kept contact with a couple of other
investors whom, as he put it, he was "keeping them warm", from about
8.00pm or 9.00pm Mr. Bray was dealing only with negotiations for the
proposed investment by Maple Leaf or by Maple Leaf and Lion Capital. The
defendants were speaking to other potential investors as well as to Astin.
73.Mr. Bray produced successive versions of the termsheet that reflected
the developing discussions, including changes that the defendants
required: for example, it was the defendants who determined whether
there should be one or two SPVs and what collateral they could transfer
to the SPV. I conclude that Mr. Bray discussed with the defendants the
proposed commercial terms for the funding and there was no substantial
disagreement or protracted negotiations about what they should be:
the defendants were essentially willing to accept the terms available.
They did not specifically discuss the individual "legal" terms, as Mr. Bray
characterised them, but he made it clear to the defendants that Maple
Leaf required provisions that would give legal effect to the agreement:
he did not specifically discuss, therefore, the governing law clause,
the jurisdiction clause, the precise wording of the defendants' personal
obligations and the evolving wording of the footer. He spoke mostly with
Mr. Rouvroy, but Mr Trylinski was kept fully abreast with the negotiations.
(In his cross-examination Mr. Bray referred to going through the proposed
agreement "line by line" or "term by term" and was criticised by Mr. Castle
for exaggeration. In my judgment it was clear from the context that Mr.
Bray was not intending a literal meaning when he used these expressions
and to my mind his evidence was not misleading.)
74.The defendants said nothing that indicated that they did not
understand the terms under discussion or that they were unhappy with
them. I am unable to accept that, as Mr. Rouvroy said, they did not have
time to read through the various versions of the termsheets that Mr.
Bray sent: certainly they said nothing to Mr. Bray that indicated that they
were not reading them. They did not seek or receive advice from Mr. Bray
about whether they should accept the funding on the proposed terms:
the discussions proceeded on the basis that Astin was not an adviser
but an intermediary arranging finance. It appeared to Mr. Bray that the
defendants had Mr. Hottinguer and Mr. Demarre available to give advice if
they required it and it was reasonable for him to conduct the discussions
on the basis of that understanding.
75.Astin never took on the role of an adviser to the defendants and, in
my judgment, the defendants never looked to them for advice. (As I
shall explain, in an email on 26 July 2007 Mr. Rouvroy referred to Astin
"stay[ing] in our first circle of trusted advisers for the next 30 years" but
I am unable to attach any significance to that expression.) It is said by
the defendants that by proposing "plan B" Astin represented that it would
advise them. I do not accept this: "plan B" was simply a proposal about
how funds might be raised through Astin, not a proposal to give advice,
and in any case the defendants rejected it.
76.At 5.56pm Mr Bray sent an email to Mr. Rouvroy attaching a termsheet
setting out the terms upon which Maple Leaf might contribute funding.
This was the first of the series of drafts sent by Mr. Bray during the
evening, and was designated Version 2a. (I refer in this judgment to
the numbers that Astin gave to the versions of the termsheet. There is
not a complete sequence in evidence: for example there is no Version
7, Version 8 or Version 8a, although one copy of Version 8b has an
apparently aberrant marking "8a". Mr. Bray has not been able to trace
a continuous sequence of the termsheets.) In the email under cover of
which he sent Version 2a Mr. Bray said that the investors would subscribe
for securities and then contribute them to a holding company in exchange
for loan notes: they required all documentation to be completed and
the holding company established by the "funding date". They would be
repaid upon a maturity date (which, as the termsheet made clear, would
be a year later) with a 20% uplift. Mr. Bray also pointed out that the
investors were to have an option to buy the warrants at a strike price of
€82, and this was also referred to in the termsheet under a heading in
bold, "Warrant Option". He observed, "This is a very different price to that
we showed two weeks ago so please make sure that you're happy with it".
77.Version 2a the termsheet contemplated that there should be a one
year loan of €74 million at 20% interest to two special purchase vehicles
for Mr Rouvroy and Mr Trylinski respectively, with collateral for the loan
comprising shares and warrants in Belvédère provided by the defendants.
In fact by this time it was known that this level of funding would not be
required, and the square brackets around the "purchase price" reflects, as
I infer, uncertainty about how much was to be invested.
78.The provisions on the termsheet were headed, "Outline Heads of
Terms". At the foot of each page it was stated, under the heading
"Confidential & Proprietary", that nothing in the termsheet created any
obligation on the part of Astin and that the terms were "preliminary and
subject to change in the course of negotiations and the production of
documentation".
79.Mr. Rouvroy said that he probably would have discussed this email
and the attached terms with Mr. Trylinski in broad terms, and I accept
that evidence. Mr. Rouvroy also said that he did not discuss the proposed
terms with Mr. Hottinguer and I accept that. Mr. Hottinguer was not
significantly involved at this stage of the exchanges with Astin.
80.At 6.10pm Mr. Bray sent Mr. Rouvroy another version of the termsheet,
which was referred to as Version 3. It had the same footer on each page
as Version 2a. Mr. Bray's covering email explained that the amended
termsheet dealt with the defendants' requirement that the securities to be
acquired, and then be held by way of collateral, should include some PIK
(payment in kind) bonds with a maturity date of 2014.
81.The email also said that three potential investors were expressing
interest to Astin, and that Mr. Bray had "informed them that the
documentation with the holdco would be completed prior to funding".
Mr. Bray wrote, "... please note that the investors will require the right
to borrow the securities from the holdco", although Version 3 itself did
not include a term reflecting this. Mr. Rouvroy's evidence was that he
read this in the email but did not understand it. He did not, however, ask
Mr. Bray what it meant because "we had no time". Mr. Bray's evidence
was that in his telephone conversations he told Mr. Rouvroy that all the
securities held by the SPVs were to be available for borrowing, and I
accept his evidence. After the right to borrow had been mentioned in the
email, it is inherently likely that some reference would have been made to
it in at least one of the conversations between Mr. Bray and Mr. Rouvroy.
I cannot accept that the defendants did not have time to discuss with Mr.
Bray anything that they did not understand in the email of 6.10pm. After
all it was sent nearly five hours before the defendants returned the signed
Version 9 and during that time Mr. Bray and Mr. Rouvroy had numerous
conversations.
82.I conclude that, once Mr. Rouvroy had received this email at 6.10pm,
he was aware that the proposed deal was to include a right for investors
to borrow securities held by way of collateral. I also conclude that Mr.
Trylinski, who was with Mr. Rouvroy and discussing the proposals that
were being received, was aware that the investors were to have this
right. I am prepared to accept that Mr. Rouvroy and Mr. Trylinski did not
appreciate that the investors might use the right to borrow securities
in order that they might short sell Belvédère shares, and this was not
explained by Mr. Bray. However in view of Mr. Bray's email of 10 July
2007, the proposal that investors should have the right cannot be said to
be a novel one or one that would be expected to take the defendants by
surprise.
83.Between 7.00pm and 8.00pm Mr Bray was informed by the defendants
that they no longer needed Lion Capital to participate in the transaction
as they now required only €30 million. This is reflected in a message
from Mr. Ferran to Mr. Bray sent at 7.05pm in which he said that he would
prefer the defendants to raise this sum from other investors.
84.Mr. Doly emailed Astin at 7.19pm saying that Mr. Hottinguer had
"asked [him] to ask you the terms sheet". Mr. Hottinguer explained that
it was convenient for the defendants that the draft termsheets should
be sent to H et Associés so that they could be printed out and read in
hard copy, rather than only to Mr. Rouvroy's blackberry. I am prepared
to accept that this was the reason for the request, but it would have
appeared to Mr. Bray that Mr. Hottinguer would read the proposed terms
and be available to the defendants to advise about them.
85.At 7.46pm Mr Bray sent an email to Messrs Doly, Hottinguer and
Rouvroy, together with Version 5 of the termsheet. (No Version 4 of the
termsheet was sent to the defendants. Mr. Bray had it on his computer
and does not recall why it was not sent out.) The email referred to
proposed terms for a €50 million loan and still contemplated that Lion
Capital might provide €20 million, with Maple Leaf investing another €20
million and another €10 million coming from another source. The email
said that the "potential investors are very concerned about the execution
of this transaction and will require the management to sign up to the
document prior to their submission of the subscription agreements or
their return signature. Please review carefully".
86.Apart from this email in which Mr. Bray expressly stated that the
defendants would be required to sign a document to confirm their
agreement to the terms reached with the investors, Mr. Bray made this
clear to Mr. Rouvroy in telephone conversations, and the defendants
raised no objection. It is not clear whether any of these conversations
took place before Mr. Bray sent Version 5, but I accept Mr. Bray's evidence
that he mentioned this to Mr. Rouvroy on more than one occasion. Mr.
Castrounis, as I find, had made it clear to Astin that Maple Leaf required
such a binding agreement, and I cannot accept that Astin did not convey
this to the defendants. Indeed, Mr. Rouvroy, when cross-examined, said
that although he did not recall Mr. Bray telling him this, it was possible
that he had done so. I also accept Mr. Bray's evidence that he spoke to
Mr. Rouvroy about the termination provision, a version of which was first
introduced in Version 5.
87.Version 5 of the termsheet still had the heading "Outline Heads of
Terms", but the footer at the bottom of each page was amended. It read,
"Confidential & Proprietary. This termsheet is for a proposed financing
transaction and contains proprietary and confidential information. The
terms included are intended to create a binding obligation on the part
of the Borrower the management and their affiliates. This transaction
is subject to successful completion of due diligence and receipt of Astin
internal credit and transaction approvals. These terms are preliminary and
subject to change in the course of negotiations". The note was therefore
confused and inconsistent about whether the terms were to be binding,
but there had been introduced a change to them apparently designed to
bring that about.
88.Version 5 itself included changes that were apparently directed to
giving it legal effect and that were in due course reflected in Version 9:
i) In the summary at the start of document it was stated that the SPVs
would be established by the defendants who should "personally guarantee
the execution of the document and the agreement as per the terms
agreed and detailed below".
ii) The "Borrower" was said to be two SPVs, one representing the interests
of each of the defendants, and "Until such time as the Borrower is
established the management or founding shareholders of [Belvédère]
shall act on its behalf and undertake all of its obligations personally".
iii) There was a governing law clause, the governing law being specified as
that of England and Wales.
iv) There was a provision broadly in the terms of the first sentence of
the termination provision of Version 9, providing for a payment of 25%
of the purchase price and payment of any loss resulting from the sale of
purchased securities in the event that the contemplated transactions were
not completed by 1 August 2007.
v) At the end of the document, there were spaces for the parties'
signatures under the words, "Please sign to acknowledge agreement and
acceptance of the terms of this transaction".
89.In Version 5 Astin was named as a lender in the amount of €2.011
million. Mr. Rouvroy had discussed with Mr. Bray payment of Astin's fee
for arranging the transaction, and informed Mr Bray that the Defendants
did not have the readily available funds to meet it. Astin therefore agreed
to defer payment of the fee and include a provision in the agreement
whereby the fee was treated as a loan to the SPV to be repaid with an
uplift of 25% on the "Loan Maturity Date".
90.Version 5 also introduced a term against the side note "Security
Lending" that the lenders should have the right to borrow the securities
held by the SPVs. It was in the terms of the provision that was later
included in Version 9. The email of 7.46pm did not mention this, but, as I
have said, Mr. Bray had advised Mr. Rouvroy about this requirement in his
email at 6.10pm and, as I have found, had discussed it with Mr. Rouvroy.
91.Before Mr. Bray sent Version 5, Mr. Rouvroy had told him of a difficulty
in the proposed arrangements: he and Mr. Trylinski had pledged some
of their own or their families' securities and so they could not use them
as collateral for the proposed funding. I accept Mr. Bray's account of
this conversation and his evidence that Mr. Hottinguer participated in
it: Mr. Hottinguer suggested that, in view of the reduced collateral, the
investors' return might be increased from 20% to 25%, and Mr. Rouvroy
agreed to this. I so find although Mr. Hottinguer professed no recollection
of such a conversation and although it was pointed out on behalf of the
defendants that the loan-to-value ratio of the investment had earlier been
less favourable to the investors when they appeared willing to accept a
return of 20%, and that other changes in the loan-to-value ratio had not
prompted the parties to adjust the level of the investors' return.
92.At about 8.30pm Mr. Bray discussed this change with Mr. Castrounis,
who assented to it. It was reflected in a further version of the termsheet,
Version 6a, that Mr. Bray sent at 8.36pm to Mr. Rouvroy, Mr. Hottinguer
and Mr. Doly. This version was generally similar to Version 5, but:
i) Since at this stage of the exchanges it was thought that the funding
from Lion Capital would not be required, the "Loan Amount" was some
€31.3million, reflecting the investment by Maple Leaf and the contribution
by Astin of its 2% fee for arranging the transaction. (In fact, this version
named only Maple Leaf as a lender and not Astin.)
ii) The provisions about collateral were changed to reflect that Lion Capital
was not to participate.
iii) The confused footer had been amended. In Version 6 it read as in
Version 9, except that it did not include the parenthesis defining the
"Management": as "(specifically JR and KT)".
93.The email under cover of which Version 6a was sent to Mr. Rouvroy
and H et Associés said that Maple Leaf had confirmed that it would
"subscribe to 30.0 million euros of the transaction to have the warrants
and bonds … placed into the holding company" and that in Version 6a
the "amounts have been revised and the collateral requirement reduced
to reflect the 300,000 shares and the 380,000 warrants available". It
concluded, "Please review carefully and call me with any questions". The
defendants did not seek further explanation of the terms or object to any
of them.
94.Mr. Rouvroy said at one point of his cross-examination that he did
not read Versions 5 and 6a of the termsheet. This was inconsistent with
other evidence that he gave that he read the draft termsheets, albeit
quickly, and Mr. Trylinski too said that Mr. Rouvroy read the termsheets
quickly on his blackberry. I conclude that Mr. Rouvroy did read all the
termsheets. He was keen to secure Maple Leaf's investment and would
not have ignored its proposals. I also understood from Mr. Trylinski's
evidence that he recalled that at least one draft of the termsheet was
printed out and read in hard copy by both Mr. Rouvroy and Mr. Trylinski.
This is confirmed by the email being sent from Mr. Doly at 7.19pm and Mr.
Hottinguer's explanation for it being sent. I conclude that Mr. Rouvroy had
asked that the termssheets be sent to H et Associés so that they could
be printed out for him to read and I conclude that he did read Version 5
in hard copy. Version 6 was also sent to Mr. Doly and, as I conclude, that
too was printed out for Mr. Rouvroy to read. Having gone to this trouble
to have printed copies of the termsheet; I cannot accept that Mr. Rouvroy
did not read these versions, and subsequent versions of the termsheet,
with some care.
95.At about 8:38pm M Rouvroy informed Mr Bray that Lion Capital was
again to participate in the deal.
96.At 8.52pm. Mr. Bray sent to Mr. Castrounis a document that was called
"SAV valuation". The defendants observe that it includes an assessment
of the risk premium at 3% and that they were not given any information
of this kind by Astin. This is a curious document: for example, it assumed
that there would be 400,000 shares by way of collateral provided by the
defendants and their family interests, but this was never proposed in
any version of the termsheet that is in evidence. (It had initially been
contemplated that they would provide some 500,000 shares together
with warrants, but the number of shares was then reduced to 300,000
and eventually was 325,000.) It is not at all clear why it was sent to Mr.
Castrounis. He told me that he would never have relied upon a broker's
calculation of this kind, and in view of my impression of his energy and
independence, I accept that. Mr. Bray said that it was sent by way of a
"template" rather than for the figures that it contained. It seems strange
that Mr. Castrounis should want a template of this kind from Mr. Bray, but
this explanation seems to me more probable than that the calculation
itself was thought to be of interest to Mr. Castrounis. Whatever the reason
for which it was sent, I do not regard either the document itself or the
fact that it was not sent to the defendants as significant to what that
I have to decide. It does not indicate, as the defendants appeared to
suggest, that Astin in some way unfairly or significantly assisted Maple
Leaf to secure a favourable deal with the defendants.
97.At about 9.20pm M Rouvroy sent an email direct to Mr. Castrounis,
although he sent copies of it to Mr. Bray and Mr. Doly. It is the only direct
communication between them that evening. Mr. Rouvroy thanked Mr.
Castrounis for "helping us for 30M€" but then suggested a very different
transaction from that under negotiation, saying that the defendants were
"willing to sign the term sheet with a substitution clause within the next
few weeks latest 31 August": that is to say, he was proposing that the
funding should be for about a month rather than a year. Mr. Rouvroy also
floated the suggestion of a deal along these lines with Mr. Bray, and Mr.
Bray said that he did not think that there was any possibility that Maple
Leaf would agree to it. In fact Mr. Castrounis did not reply to the email,
but telephoned Mr. Bray to say that he was not interested in investing on
such terms.
98.Although this email from Mr. Rouvroy had no apparent affect on the
course of the negotiations, it is to my mind of some interest. First, its
terminology is an indication that Mr. Rouvroy recognised that it would
signal a commitment on the defendants' part if they signed a termsheet.
This is why he was concerned that, if they did so, there should be a
"substitution clause". Secondly, it suggests that Mr. Rouvroy appreciated
that the funding from Maple Leaf was offered upon onerous terms and
was trying to avoid a long term commitment to it.
99.The claimants go further. They submit that the inference is that the
defendants had by now decided to sign an agreement with Maple Leaf
despite their reservations in order to secure its subscription to the private
placement, but intended not to implement it but to renege on it and to
negotiate a different deal. I am unable to accept that the email provides
any real evidence of this.
100.At 9.45pm Mr. Bray sent Mr Ferran an email saying that he had been
informed by "the company" that Lion Capital was subscribing for 120,000
shares at €167 each and was to have a "second lien to the security". He
said that Maple Leaf now agreed to a greater investment on the basis
that it would have "first lien". He wrote "Please contact H & Associés to
fill in the subscription agreement in the NEXT HOUR. Please see attached
final termsheet which the company will sign shortly. I will confirm when
they have signed". The email referred to a Version 8a of the termsheet:
no version so numbered is in evidence, but I infer that it was a reference
to Version 8b or at least to a version in the same or materially the same
terms as Version 8b.
101.At 9:49pm Mr Bray circulated Version 8b of the termsheet to Mr.
Ferran, Mr. Tooth, Mr. Castrounis, Mr. Doly and Mr. Ummels. He described
it in the covering email as a "finalised termsheet for signature by the
company", and said "This must be submitted immediately".
102.This version contemplated investment of some €50 million, and,
in line with Mr. Bray's email, that Maple Leaf's right to the security for
its €30 million investment would have priority over Lion Capital's right
in respect of its €20 million investment. Version 8b of the termsheet
provided for a single SPV. As I have indicated, I infer that this was a
change made at the defendants' request: Mr. Rouvroy had been uncertain
as to whether there would be one or two SPVs and whether a company
already in existence would be used for this purpose.
103.Mr. Castrounis had been taking advice from a solicitor about how
Maple Leaf might ensure that the termsheet would be legally binding if
the parties signed it. At 10.23pm he sent Mr. Bray a copy of Version 6a
marked up with proposed amendments, which had been suggested by
the solicitors. They did not change the commercial terms of the deal,
but they provided that the defendants should undertake to establish
the SPV (or, more precisely, the SPVs because Version 6a contemplated
that there would be two SPVs), and undertaking personal liability for
all the obligations of the SPVs if they were unable to perform them,
including liability for payment of the Loan Redemption Amount and any
sum payable under the termination provision. The changes required by
Mr. Castrounis also included a change to the footer so that it referred to a
"financing transaction" rather than a proposed financing transaction; the
introduction of a jurisdiction clause; a provision that proceedings might be
validly served on the defendants if they were delivered to the registered
address of Belvédère; and a provision that the parties would use their
best endeavours to complete further documentation. Mr. Castrounis also
proposed that the heading "Outline Heads of Terms" be deleted.
104.At 9.50pm Mr. Bray had emailed Mr. Ferran asking him to make
contact. At 10.06pm he had emailed Mr. Rouvroy, asking him to call Mr.
Ferran immediately. Lion Capital was not content to have a subordinate
right to the security. Mr. Bray discussed this with Mr. Ferran and with Mr.
Castrounis, and it was agreed that, as Mr. Ferran requested, the rights of
Lion Capital and Maple Leaf to the security should rank equally. Mr. Bray
told Mr. Ferran that there was to be "language to make [the agreement]
legally binding": he did not specify the changed wording and, as I infer, he
was not asked.
105.At 10.22 pm Mr. Bray confirmed to Mr. Ferran in an email that Lion
Capital and Maple Leaf would have "equal status with respect to security
of the holding company with any proceeds distributed amongst the
Lenders on a pro-rata basis and determined by the outstanding loan
amount". At 10.27pm, Mr Ferran replied in these terms to Mr. Bray,
sending a copy of his reply to Mr. Castrounis: "Good news. I cannot
physically execute any documents from a cab to JFK. Moonsieur (sic)
Rouvroy should subscribe the shares and Maple Leaf and us can put
together the financing documents in the meantime". Mr. Bray sent a copy
of this email on to Mr. Rouvroy at 10.42pm.
106.The defendants suggest that Mr. Ferran contemplated that Mr
Rouvroy would be subscribing for the shares, and therefore he had in
mind a different financing structure from that under negotiation, in which
the investors were to subscribe in the private placement. I reject this
suggestion: I find it impossible to accept that Mr. Ferran could have so
misunderstood the proposed deal when he was discussing with Mr. Bray
Lion Capital's requirements about the collateral. Mr. Castrounis' evidence
was that he understood the email to be a "trade confirmation", but that
is, of course, no more than evidence of his own subjective understanding
of it. As I understand Mr. Ferran's email, he was agreeing to the terms
of Version 8b and explaining why nevertheless he could not immediately
execute any documents to confirm this, Astin having emphasised the
urgency of the matter in the email at 9.49pm. Because he was himself
unable to complete the subscription form, he authorised Mr. Rouvroy to do
so on behalf of Lion Capital's behalf.
107.After the email at 10.22pm, there was no further communication
that evening from Mr. Ferran (or anyone else representing Lion Capital),
apparently because he arrived at JFK airport and flew to London.
108.At 10.47pm Mr Bray circulated Version 9 to the defendants, Mr
Doly and Mr. Hottinguer, and sent copies of it also to Messrs. Demarre,
Ummels, Castrounis and Ferran. The covering email read as follows:
"Final agreed terms. Pls sign and fax to Maple Leaf Capital LLC. Lion
Capital and Astin Capital Management Ltd". Version 9 was an amended
Version 8b into which Mr. Bray had introduced the changes proposed by
Mr. Castrounis in his email of 10.23pm, except that through oversight the
heading "Outline Heads of Terms" was not deleted.
109.At 10.58pm, Mr Doly circulated a copy of the agreed terms that had
now been signed, and individual pages initialled by both the defendants.
His covering email read: "On behalf of Jacques Rouvroy, please find the
signed scanned version of the contract. We are now waiting for your
subscription order … Please send the original by express mail tomorrow to
my attention. …". It was sent to Mr. Bray, Mr. Ummels, Mr. Castrounis and
Mr. Ferran, and also to the defendants, Mr. Hottinguer and Mr. Demarre.
110.Mr. Rouvroy said in cross-examination that wording of this email
did not reflect his instructions to Mr. Doly: that Mr. Doly was simply
told to send the termsheet back to Astin. I am prepared to accept that
Mr. Rouvroy might not told Mr. Doly that the signed termsheet was a
legally binding contract and that the defendants did not read the email,
but I find it impossible to accept that the words used by Mr. Doly do
not reflect an understanding in the offices of H et Associés, shared by
the defendants, that by signing the termsheet they were committing
themselves to the deal with Astin, Maple Leaf and Lion Capital and that
this commitment would be what the investors required in order to send
their subscription orders. It is another question, however, whether the
defendants understood that the commitment was to be legally binding.
111.Mr Castrounis responded at 11.05pm by sending by email a
copy of the subscription form for 330,000 warrants, saying that the
original document would be sent the next day. The form stipulated
that the subscription was "definitive and irrevocable" (although the
Administrator, CACEIS Corporate Trust, had a discretionary right to refuse
a subscription). Mr. Bray, on behalf of Astin, and Mr. Castrounis, on behalf
of Maple Leaf, added their signatures to the copy of Version 9 signed
by the defendants, and at 11.53pm Mr. Castrounis emailed it to the
defendants and to Mr. Hottinguer and Mr. Doly. He also copied this email
to Mr. Demarre, Mr. Ummels, Mr. Ferran and Mr. Tooth.
112.At 11:56pm Mr. Castrounis sent an email to Mr Rouvroy
congratulating him on the buyout. Mr. Bray telephoned Mr. Ummels upon
his arrival in Romania at about midnight or some time thereafter and told
him that the Funding Agreement had been successfully completed.
The Funding Agreement
113.I should say something about the Funding Agreement that the
claimants say was concluded and the claimants' rights under it. I am
not in a position to assess the credit risk to Maple Leaf, and indeed
Lion Capital, in providing finance on the terms of Version 9: on the face
of it, the funding was well-secured, although ultimately the collateral
depended upon the value of Belvédère, and it is unclear how valuable
the personal undertakings of the defendants would be if Belvédère failed.
However, the funding with a fixed return of 25%pa was on any view
expensive and certainly far more expensive than that which on 10 July
2007 Astin indicated might be raised under "plan B" at an interest rate of
EURIBOR plus 150 basis points, about 6%. As Mr. Ummels explained, by
the third week of July 2007 market conditions had reduced the availability
of credit, and Astin was asked to raise the finance very quickly. The
defendants knew that the funding was expensive: they were experienced
businessmen and Mr. Bray expressly told them. Whatever their chances of
successfully completing the placement if they did not arrange the finance
on 25 July 2007, the defendants were, as I conclude, unable to find
funding on better terms in so short a timescale, and decided to accept
the terms on offer. They probably hoped and believed that they could
improve the terms through negotiation: I shall have to consider later in
this judgment whether they intended to comply with the terms of Version
9 if they could not do so.
114.Mr. Castle pointed out, as I shall explain, that shortly after 25 July
2007 the defendants obtained less expensive funding from Lion Capital
under the portage agreement and by 30 July 2007 Mr. Ummels had found
funding to the value of US20 million at a rate of 12.5% pa and with a
right to repay it for a premium of 7.5%. However, Lion Capital had its own
reasons for seeking to retain the goodwill of the defendants in order to
acquire Pulco, and Mr. Ummels was not asked to explain how he found
the funding of which he told the defendants on 30 July 2007 or who the
potential investor was. The fact is that on 25 July 2007 the defendants
were not able to find funding that was less expensive than that offered
by Maple Leaf despite the assistance available from H et Associés and
Bucéphale: had it been available, they would no doubt have accepted it.
115.The terms of Version 9 were the more onerous for the defendants
because the investors had the right (effectively) to convert the debt into
equity through the call option, and to "borrow" the securities held by the
SPV. Mr. Castle points out that this meant, first, that, if during the year
to 1 August 2008 the value of warrants increased, Maple Leaf could make
additional profit, whereas the SPV bore the risk of the value of warrants
falling; and secondly that the claimants would be in a position to sell
Belvédère securities short, and so make additional profits if the value of
securities fell. Again, I shall have to consider the value of these rights
later in my judgment, but I am satisfied that when they signed Version 9,
the defendants were aware of the terms providing for the option and the
right to borrow securities. So too was Mr. Castrounis: he gave evidence
that the option was a "core part" of the deal for Maple Leaf.
Mr. Ummels' telephone conversation
116.At 00.57am on 26 July 2007 Mr Rouvroy sent an email to Messrs
Bray and Ummels stating that "we have a problem as we realise that
we have given bsar2 [warrants] in collateral to another investor". Mr
Rouvroy requested that Maple Leaf subscribed 366,000 warrants at €82
each instead of 330,000 warrants at €91 each, and that the number of
BSAR warrants that the defendants were to provide to the SPV by way
of security be reduced to 330,000. (Mr. Rouvroy copied the email to his
lawyer, Ms Poncelet. It might be tempting to think that this reflects his
appreciation that the defendants were unable to fulfil a legally binding
commitment into which they had just entered, but Mr. Rouvroy was not
asked about this when he gave evidence and in these circumstances I
decline to draw this interference.)
117.In response Mr. Bray told Mr. Rouvroy that he would inquire whether
Mr. Castrounis would agree to these changes, but urged Mr. Rouvroy to
concentrate on completing the further documentation, establishing the
SPV and having the security transferred to it.
118.Mr Bray gave evidence that, when he received this email from
Mr. Rouvroy, Mr. Bray spoke to Mr. Ummels, who had now arrived in
Bucharest, and expressed concern that the defendants were not taking
the agreement seriously. Mr. Ummels had not seen the email. After 15
or 20 minutes Mr. Ummels telephoned him and reported, having spoken
to Mr. Rouvroy, that Mr. Rouvroy knew that he had concluded a binding
agreement.
119.Mr. Ummels gave evidence that in response to Mr. Bray's first
telephone call he spoke to the defendants, who were still at the offices
of H et Associés with Mr. Hottinguer and Mr. Doly. They conducted the
conversation, according to Mr. Ummels, on a speaker telephone. His
account of the conversation was this: that he said that he understood
from Mr. Bray that the defendants were trying to amend a concluded
deal after signing it, and that, while he did not know all the details, he
knew that a full and final agreement had been made. He said that Astin's
approach to business of this kind was that there were three phases in
any deal: negotiation, signing an agreement and implementation, and it
was now important to implement the agreement. Mr Trylinski expressed
disappointment about the terms of the agreement and the cost of the
funding, complaining that Astin had not done a good job. Mr. Ummels
reiterated that the defendants had reached a binding agreement, and,
as Mr. Ummels put it in his witness statement, Mr. Rouvroy confirmed
that the defendants "had concluded a legally binding agreement which
they would live up to": that, Mr. Ummels said, was the last sentence of
the conversation. Mr Ummels then telephoned Mr. Bray and assured him
that the defendants understood that the next stage was that they should
implement that signed agreement.
120.The defendants did not refer to the telephone call from Mr. Ummels
in their witness statements and neither did Mr. Hottinguer. However, as
I have said, in the complaint dated 8 October 2008, the defendants said
that Mr Ummels contacted Mr Rouvroy by telephone and "insisted that
there was now a full and final agreement which Jacques Rouvroy and
Christophe Trylinski could not evade in any circumstances".
121.When cross-examined, Mr. Rouvroy said at first that he did not recall
the conversation at all but, when reminded of the criminal complaint, he
said that the conversation took place but he could not remember what
was said. Mr. Trylinski said that he had no recollection of the conversation.
Mr. Hottinguer said that he did not know whether it took place, but could
not deny that he took part in it.
122.I accept Mr. Ummels' evidence that he spoke to the defendants on
the telephone in the early hours of 26 July 2007 and had a conversation
broadly as he described. Mr. Castle submitted that there had been no
conversation between the defendants and Mr Ummels, but I am unable to
accept that submission. That would mean that Mr. Bray and Mr. Ummels
had concocted an untruthful account, and I do not consider that either
was a dishonest witness. Further, on 2 August 2007 Mr. Ummels wrote
this in an email to Mr. Rouvroy: "The last time we spoke, last week
over the conference call with you, Philippe [Hottinguer] and Krysztof
[Trylinski], we agreed the following: 1. proceed with the execution of the
documentation, per the signed and legally binding agreement, in order
to keep the good spirit amongst parties and live up by the agreed and
signed deal. 2. try to renegotiate at a later stage with the investor, once
he sees that we are not trying to renege the signed agreement, amongst
intelligent people and on mutually acceptable basis". I cannot accept
that Mr. Ummels would have so written if he had not had a conversation
broadly in those terms, and it was not suggested that such a conversation
might have taken place at any other time than in the early hours of 26
July 2007.
123.I do not doubt that by the end of the conversation Mr. Ummels
believed that he had explained and Mr. Rouvroy had agreed that the
defendants were committed to a legally binding agreement. I also accept
that that is what he told Mr. Bray immediately afterwards. However, I
have had more difficulty in deciding whether the defendants and Mr.
Hottinguer understood that Mr. Ummells was asserting that a legally
binding agreement was concluded and whether Mr. Rouvroy intended to
express agreement with that: in other words, I must consider whether
there might have been a degree of misunderstanding between the parties.
I have found this question the more difficult to resolve because, I would
suppose, the conversation was conducted in French and I heard evidence
about it in English.
124.As with other conversations between the parties, there are no
contemporaneous notes of it in evidence and, as far as the evidence goes,
none were taken. The circumstances in which it took place were these:
for the defendants and Mr. Hottinguer, it was the end of a very long day
when they were inevitably exhausted. They had believed that they had
successfully completed the placement and then come across a difficulty
that might jeopardise the deal. Mr. Ummels had just arrived off his flight
to Romania All the parties to the conversation might well have been
imprecise in what they said and not fully attentive to what others said.
I have little difficulty in supposing a conversation in which Mr. Ummels,
in response to Mr. Trylinski complaining about the costs of the funding
from Maple Leaf (and maybe from Lion Capital), told the defendants that
they had signed a deal, that Astin regarded them as committed and that
he expected them to honour it. I also have little difficulty in supposing
that Mr. Rouvroy agreed with that, considering himself committed as
a businessman to go on to conclude a contract based upon Version 9
but without intending to acknowledge a legally binding agreement was
already concluded or realising that Mr. Ummels was asserting that the
defendants were already contractually committed. I conclude that Mr.
Rouvroy went that far in agreeing with what Mr. Ummels said because I
accept that Mr. Ummels' account of the conversation was reliable to that
extent. I am not persuaded, and I do not find, that the words used by Mr.
Ummels were such as conveyed to the defendants and to Mr. Hottinguer
that he was referring to them being legally bound to a contract in the
terms of Version 9.
26 July 2007
125.The defendants contend that, after they had had some sleep on 26
July 2007, they realised that the terms of Version 9 were not acceptable
to them. After a couple of hours sleep, Mr. Rouvroy woke and looked at
Version 9 and decided that he could not "continue along this direction"
unless the investors agreed to an asset backed loan or a "convention de
portage", an agreement, as it was explained to me, whereby A transfers
securities to B, and B undertakes to sell them at an agreed time and
on agreed terms. Mr. Rouvroy realised that there was a "trap", and he
realised that there was a risk of the shares being sold short: "I felt all of
a sudden, my mind flicks up and I say, "Something wrong there. I don't
understand. Why do they need to borrow our shares? I hope it is not to
do with short selling". But I'm not sure you know, and in fact I now realise
that it is to do with short selling"..
126.Mr. Trylinski said that after they had had some sleep the defendants
realised that the previous evening they had been exhausted and "had not
been capable of understanding what [was] being proposed". Mr. Rouvroy
told him that many aspects of it were unacceptable, including the level of
Astin's fees and that the terms would allow the claimants to sell short the
shares. Mr. Rouvroy said that he went to the offices of H et Associés early
on 26 July 2007 but he did not remember what discussions he had with
Mr. Hottinguer. Mr. Trylinski did not remember whether the defendants
discussed their change of heart with Mr. Hottinguer. It is clear however
that Mr. Rouvroy and Mr. Trylinski discussed it between themselves, and
Mr. Trylinski agreed with Mr. Rouvroy that they should not continue with
Version 9.
127.At 6.49am on 26 July 2007 Mr. Rouvroy sent Mr. Ummels and Mr.
Bray another email about the defendants being unable to provide the
agreed collateral: he described this problem as "most important" and said
that if it could not be resolved "the whole deal falls apart". By the "whole
deal" Mr. Rouvroy meant, as he confirmed in his evidence, the whole
private placement and not only the funding that Astin had arranged.
Mr. Rouvroy asked that Maple Leaf should send another subscription,
for 365,853 warrants to replace the subscription for 330,000 warrants
that had been sent the previous night. Mr Bray understood that the
defendants wanted to purchase a number of warrants themselves at
a lower price, and this is why they were offering Maple Leaf the lower
purchase price on the warrants. He told Mr Rouvroy in a telephone
conversation that he would speak with Mr Castrounis and urged Mr
Rouvroy to concentrate upon completing the documentation, establishing
the SPV and transferring the collateral to it free from any pledges or liens.
(I observe that Mr. Rouvroy's email referred to the need for Maple Leaf
to agree to a reduction in the collateral without reference to Lion Capital:
it was not explored in the evidence why this was so. It might be that Mr.
Rouvroy regarded the problem as less acute as far as Lion Capital was
concerned because it had not yet sent in a subscription or it might be that
Mr. Rouvroy was dealing with Lion Capital through Mr. Demarre; but that
is speculation.)
128.Mr. Ummels replied to Mr. Rouvroy's email at 8.31am, stating that
Mr. Bray was seeking to resolve the issues. He wrote, "We just signed a
binding agreement and it is incredibly embarrassing for Astin to even try
to renegotiate such a signed agreement". Neither Mr. Rouvroy nor Mr.
Hottinguer, to whom the emails were copied, disputed that the defendants
had signed a binding agreement.
129.Mr. Bray forwarded to Mr. Castrounis both the emails received from
Mr Rouvroy (at 00.57am and 6.49am), together with Mr. Ummels' reply
to the later email. Mr. Castrounis accepted the changes proposed by Mr.
Rouvroy. Mr. Bray had observed when forwarding the email of 00.57am
that there was no issue about the amount of the investment and that it
was only a matter of the number of warrants and commented that it was
"good news", meaning that Maple Leaf would receive more warrants; and
Mr. Castrounis replied "Nice".
130.Mr Bray emailed Mr Rouvroy at 8:38am on 26 July 2007 to confirm
that Maple Leaf would revise its subscription as requested and that
he would revise the "agreement" accordingly. In essence, the number
of warrants to be purchased by Maple Leaf and lent to the SPV was
increased from 330,000 at €91 to 365,853 at €82; and the collateral to
be placed with the SPV was changed from 325,000 shares and 380,000
BSAR2 warrants to 325,000 shares and 330,000 warrants.
131.At 10:29am Mr. Bray sent to the defendants a revised version of the
termsheet, Version 10, that incorporated changes to deal with the matters
that had been raised by Mr. Rouvroy. Mr. Bray wrote in his covering email
(which was sent in copy to, amongst others, Mr. Hottinguer, Mr. Demarre,
Mr. Ferran and Ms Poncelet):
"I am pleased that you and your partner have finalised the funding
requirements for your Share Acquisition vehicle. I have confirmed that
Maple Leaf accept the terms of the collateral but I have not confirmed this
as of yet with Mr. Javier Ferran. … We have reflected the changes in this
later version of the agreement, version 10.
Please sign and return the amended termsheet. Please have your
signature witnesses and returned by email and/or fax to [Maple Leaf and
Astin]. We plan to immediately engage legal advisors to draft the required
documentation."
132.At 10.39am he sent the same recipients another version of the
termsheet, Version 10a, but the only difference between Version 10
and Version 10a was that the latter spelt out more clearly and made
consistent the exercise price for the option. In the covering email Mr.
Bray explained that it had "an amended Share & Warrant option clause
adjusted for the changed warrant purchase price and clarifying the option
available to the Lenders".
133.Apart from the changes designed to deal with the difficulties that
Mr. Rouvroy had raised, Versions 10 and 10a were similar to Version 9
except that whereas Version 9 provided only for Maple Leaf and Astin
to have an option to buy the warrants held by the SPV, Versions 10 and
10a introduced a provision that Lion Capital should have a comparable
call option. Mr. Bray said that this change had not been requested by
Lion Capital, and there is no specific evidence about why Mr. Bray made
this change (although he did say that it might have been by way of
compensation to Lion Capital for the reduced security).
134.Mr. Rouvroy responded at 11.06am to the request that the
defendants sign and return Version 10, saying "I do that right away".
However, the defendants never did sign or return either Version 10
or Version 10a. Mr. Rouvroy said that this was because he was trying
to contact his lawyer, Ms Poncelet, who was not available. Before he
was cross-examined, he had not said that this was the reason for the
defendants not signing Version 10a and it was submitted on behalf of
the claimants that I should reject this explanation. I see no reason to
do so: Mr. Rouvroy was insistent in his evidence that he did not regard
termsheets as contractually binding, but I conclude that by this stage he
realised that the defendants were in a difficult position and needed to
take legal advice, and I am prepared to accept that he tried to contact
Ms Poncelet before signing Version 10a. However, this was not explained
at the time to Astin, who was led to believe that the defendants would
agree to Version 10a. In fact, as Mr. Rouvroy acknowledged, by now
he was "very close to deciding not to proceed". He also said that he
discussed the position with Mr. Trylinski: they were still together at the
offices of H et Associés. Mr. Trylinsi did not disagree with Mr. Rouvroy: Mr.
Rouvroy explained that Mr. Trylinski "leaves it to me to decide all those
matters". The defendants were (to use the expression of Mr. Castle in
his final submissions) "fobbing off" Astin, and were playing for time in
the hope that they could find a way of resolving the position and obtain
finance on better terms without doing anything that would lead Maple
Leaf to withhold its subscription for warrants on the revised terms. The
claimants contend that the defendants were not simply close to deciding
not to proceed but had already made a decision not to do so. I accept
that the picture suggested by Mr. Castle is realistic: my conclusion is
that by this time the defendants appreciated the difficulties that they
were in and were playing for time and hoping that they could improve
the terms of their agreement with Maple Leaf and Lion Capital. Although
I reject the claimants' submission that by this point the defendants had
finally accepted not to comply with the agreed terms, they were not being
candid about their intentions. Far from intending to sign relevant terms
"right away", they were undecided whether or not to do so.
135.Mr. Rouvroy continued to seek to renegotiate the terms of the
funding. He wished to reduce the cost of capital from 25% to 20%. He
also wished to restructure the deal in order to move away from a fixed
one-year maturity for the funding and instead to negotiate an option to
bring forward the redemption date. In an email at 12.49pm to Mr. Bray
(which read "I hope that you can come up with the ok from [Maple Leaf]
as to 20%. Also exit clause") he alluded to these requests, and also asked
Astin to reduce its fee to 2% because Lion Capital had been introduced by
Mr. Demarre.
136.The claimants submit that it is implicit in this email that the
defendants accepted that a deal had been done with Maple Leaf and
were hoping to renegotiate it: and it is observed that the defendants do
not state that they refuse to implement the Funding Agreement. I am
unable to accept that submission: the email is certainly consistent with
this suggestion, but does not necessarily indicate that the defendants
recognised that they had entered into a contract with Maple Leaf.
137.At 2.30pm Mr. Rouvroy sent an email to Mr. Bray enquiring "Where
do we stand with [Maple Leaf]? Hopefully you are making progress". Mr.
Bray replied, asking Mr. Rouvroy to telephone him and saying, "I think
that I've been successful". There was a difference between the parties
about what Mr. Bray meant by this. Mr. Bray said that he was referring to
success in finding replacement funding for Lion Capital. The defendants
submit that Mr. Bray was referring to success in persuading Maple Leaf
to accept terms more favourable to the defendants. I agree with the
defendants that this seems a more natural interpretation of the email
trail. However, Mr. Bray's evidence about what he had in mind was not
challenged, and there is no evidence that he and Mr. Castrounis had had
any exchanges that might explain why Mr. Bray should think that Maple
Leaf would agree to changes of this kind. Mr. Bray's message is something
of a mystery, whether or not he believed that a contractual agreement
had been concluded, and it does not assist in deciding this question. It
is possible that he was saying that he had resolved the problem over the
collateral although he had already told Mr. Rouvroy that. Whatever Mr.
Bray did mean, I cannot accept that he was intending to indicate that
Maple Leaf had agreed to renegotiate the terms of the financing so that
they should be more favourable to the defendants in any significant way
or that Maple Leaf had given any such indication to Astin.
138.H et Associés continued to press for Maple Leaf's revised
subscription. Mr. Doly asked for it by email at 4.47pm, sending a copy
of the email to Mr Rouvroy. Astin sought to send Maple Leaf's revised
subscription at 5.15pm but erroneously sent a further copy of the
subscription for 330,000 warrants. The error was pointed out by Mr.
Doly at 5.23pm, his email again being copied to Mr. Rouvroy, and the
revised subscription for 365,000 warrants was sent by Mr. Castrounis at
5.36pm. Again, the form stipulated the subscription was "definitive and
irrevocable". It appears from Mr. Doly's email of 4.47pm that the original
subscription form was sent from London to Paris. I infer that it was, and
this inference is supported by Mr. Castrounis' promise in his email at
10.58pm on 25 July 2007 when sending the first subscription form that
the original form would be sent the next day. Maple Leaf sent funds for
the subscription at about the same time.
139.Before these subscription forms were sent, Mr. Bray and Mr.
Castrounis had, as I find, discussed the defendants' conduct of the
negotiations. In an email to Mr Rouvroy at 5.40pm on 26 July, Mr Bray
told him that Maple Leaf considered that the number of proposed changes
to the agreement was inappropriate and that actions taken by the
defendants were not in good faith. This, as I find, reflects a conversation
that Mr. Castrounis had had with Mr. Bray, and he must have made clear
his view that the attempts by the defendants to renegotiate the signed
agreement demonstrated that they could not be trusted. Mr. Castounis did
not accept this when he gave his evidence: he agreed that Mr. Rouvroy
had made proposals designed to improve the deal for the defendants, but
said that he did not see this as jeopardising the Funding Agreement that
had been reached and said that nothing had happened between the time
that Version 9 was signed and when he sent in the revised subscription
form that made him feel concerned about the deal. However, he did not
have a clear recollection of his conversations on 26 July 2007, and he
offered no cogent explanation for what Mr. Bray wrote to Mr. Rouvroy.
Mr. Castrounis accepted that by the end of 27 July 2007 he "felt [that
the defendants] were not acting in good faith and fraudulent": in my
judgment, this was what he thought by 5.00pm on 26 July 2007.
140.In a further email sent to Mr. Ummels and Mr. Bray at 5:51pm on 26
July 2007, Mr. Rouvroy wrote this:
"Following our various conversations and your call with Luc [Demarre],
you will find below what Christophe and I need to obtain from Astin/Maple
Leaf in order to be able to meet with the financing requirements of the
overall deal structure without loosing [sic] our shirts:
As regards arranging fees, we are happy to pay Astin 4% over 50m euros.
Knowing that you brought in 30m euros and Luc brought in 20 euros,
I am sure that you will find the appropriate fee arrangement with luc
afterwards once the dust has settled;
Maple Leaf overall terms: maturity until 01/08/08 – interest rate 25%
per annum pro rata – exit clause: whenever we want (or can!) with a two
month interest franchise.
I appreciate that re-discussing these terms with Maple Leaf is not
something easy for you but I trust you will appreciate the critical situation
in which Christophe and I are currently and more importantly the fact that
unless we can get approval on those terms we will not be able to meet
without financing obligations. We also want to thank you once again for
your full support in this very critical time and no doubt you will stay in our
first circle of trusted advisers for the next 30 years."
Mr. Bray sent the email on to Mr. Castrounis at 6.15pm.
141.Mr Bray's evidence was that his response to the requests from Mr.
Rouvroy about Astin's fees was that he would discuss with Mr. Demarre
sharing the fee. In the event he did not do so because the defendants
have refused to pay Astin any fee.
27 July 2007
142.On 27 July 2007 Mr Ferran had emailed Mr Bray and the defendants
at 9.01am in reply to Mr. Bray's communication at 10.29 am on 26 July
2007. He wrote that Lion Capital urgently needed to be put in contact with
Maple Leaf's lawyers to avoid duplication in work on the documentation.
(According to Mr. Rouvroy's written evidence, Mr. Ferran had already told
him that he would not respond to Version 9 because he wished to have a
"portage" agreement. Mr. Rouvroy did not give oral evidence to this effect.
His written evidence is unreliable and this account is inconsistent with the
sequence of events indicated by the documents. I reject it, and also reject
that written evidence of Mr. Demarre in so far as it supports Mr. Rouvroy's
statement.) Mr. Bray replied that he planned to call Herbert Smith that
morning to start coordinating the drafting of documents. He told the
defendants that Astin was beginning to draft the documentation but at the
same time seeking to improve the terms of the transaction. During the
afternoon, Paul Hastings told Mr. Bray that they had been instructed by
Mr. Rouvroy.
143.However, on 26 July 2007 Mr. Demarre had, on the defendants'
instructions, gone about trying to find alternative finance to replace Maple
Leaf, Lion Capital and Astin. He sent an email to a colleague at Bucéphale,
Mr. Jean Marc Forneri, briefing him about how Mr. Forneri might conduct
discussions with BNP Paribas (which was the bank to Marie Brizard and
had an established relationship with Belvédère), and writing (according to
the agreed translation):
"Ask him to help with the most urgent: refinancing of 50m euros which
were raised during the night of Wednesday to Thursday under very
onerous conditions (interest rate 25%) in the form of a 12 month loan
made to a SPV held by [the defendants], and in order to fill the gap of
50m euros in the Belvédère book. This refinancing must be done ASAP…"
144.At some point on around 26 or 27 July 2007, Mr Rouvroy asked Astin
to reopen discussions with a view to securing a new investor. Mr Bray
emailed the defendants at 6.13pm on 27 July and said that they were
working very hard and "expect[ed] to be able to offer an improvement in
the terms of the lending for the SPV". According to Mr. Bray's evidence,
he was referring to substituting Lion Capital's participation, not to
Maple Leaf's participation, but his email was not specific and gave the
impression that he was hopeful that the terms of both investors would be
improved. I accept that this was not his intention.
145.It appears that by the end of 27 July 2007 Mr. Demarre had secured
new terms for the funding of Lion Capital or at least that he was confident
that he would do so. Lion Capital agreed to a portage arrangement
whereby it bought 119,760 shares in the placement at €167 per share
(and therefore for a total price of some €20 million) and Belvédère agreed
to buy the shares at the same price by no later than 30 September 2007.
It is not entirely clear when the substitute funding was finally secured: it
seems probable that some agreement was reached on 27 July 2007 but
it was amended on 30 July 2007 and again on 1 August 2007. Whenever
the agreement was reached between the defendants and Lion Capital,
Astin and Maple Leaf were not aware of it until 30 July 2007.
146.Meanwhile on 27 July 2007 H et Associés were pressing Maple Leaf to
complete the purchase of the warrants that it had agreed to buy. Mr Doly
emailed Mr Castrounis at 7.29pm to ensure his subscription was correct
and stated "As you know, the order has to match on Monday morning,
or the whole deal will be off". (He was referring to the need to "match"
securities subscribed with funds received.) Mr. Castrounis forwarded the
email to Mr. Bray with this comment: "…they know the pressure is on
them … best to have them sign something on Sunday (ie give them a
deadline) … at very least we'll have them sign new heads of terms but
best we push for the whole thing". Mr. Castrounis was concerned that the
defendants had not signed Version 10a, confirming the changes about the
number and price of the warrants to which Maple Leaf had agreed. Mr.
Bray responded that from a conversation with Mr. Rouvroy that morning
it appeared that he was more concerned about Lion Capital's funding: he
added, "The situation seems ok for now".
Subsequent events
147.On the morning of 30 July 2007 at 9.49am, Mr Ummels sent
Mr. Rouvroy an email to advise him that Astin had been able to find
an investor willing to replace Lion Capital's participation. Astin had
understood from a lawyer at Lion Capital that it was concerned about
participating in the placement in light of Orangina's contemplated
acquisition of Pulco and French law relating to the use of corporate funds.
(The precise nature of this concern was not explored in evidence.)
148.Mr. Castle pointed out that the email at 9.49am did not specifically
refer to Lion Capital: it refers to finding "a 20 million Euro investor that
could substitute one of the 2 investors of last week". However, Mr. Bray
made it explicit that this was the purpose of the proposed substitute
funding when at 11.26am he sent Mr. Rouvroy a termsheet setting out
terms for the substituted funding: they contemplated loan interest of
12.5% pa and that the funding might be redeemed on five days' notice for
107.5% of the Loan Amount and any accrued but unpaid interest.
149.However, at 11.49am Mr. Rouvroy emailed Astin to say that the
defendants did not need to find substitute financing for Lion Capital's
participation, since they were about to reach a separate deal by way
of a portage arrangement by which Lion Capital would acquire shares
"directly like an investor with an exit clause 30 September" guaranteed
by Belvédère. Mr Bray informed Mr Castrounis about Lion Capital's
withdrawal from the Funding Agreement, and Maple Leaf had no objection
to this.
150.Shortly afterwards, at 11.56am, Mr. Rouvroy sent Mr. Ummels and
Mr. Bray an email again proposing a portage arrangement with Maple Leaf
and asking that they should "simplify the scheme so that [Maple Leaf]
will act as an investor benefiting by an exit clause guaranteed by [the
defendants and Belvédère]. We have yet to agree on … the financing rate:
we propose 25% with minimum guaranteed 3 months ie 31 Oct". Mr. Bray
replied that they needed to "act speedily on the Maple Leaf deal", warning
that there was "a serious risk of deal failure if we do not agree the final
structure and documentation for the agreement signed last week with
Maple Leaf". Mr. Ummels responded to Mr. Rouvroy that he had "agreed to
proceed with the documentation as it is signed and then try to renegotiate
the terms with ML, in good faith and at a later stage".
151.On 30 July 2007 at 6.19pm Paul Hastings sent a letter proposing
a transaction whereby the defendants might buy back the warrants
subscribed by Maple Leaf by 31 October 2007 paying a minimum of 25%
interest at 25% pa. Mr. Bray sent it to Mr. Castrounis with the remark,
"They're trying it on".
152.Over the weekend of 28 and 29 July 2007, Astin had asked Messrs
Withers to begin preparing documentation for the transaction, but Withers
were unable to produce drafts until late on 30 July 2007. Mr. Bray sent
Withers' draft documentation to Paul Hastings during the evening. No
comments were received in response. By 31 July 2007 Maple Leaf had
paid the purchase price of €29,999,946 and the purchase of the warrants
had been settled. Astin requested the defendants to comply with their
obligations to use their best endeavours to complete by 1 August 2007
the documentation necessary to carry the Funding Agreement into effect,
but they did not do so or make any attempt to do so.
153.On 1 August 2007 Belvédère held an Annual General Meeting and
a public announcement was made that the private placement had been
successful and the CLF representatives had resigned from Belvédère's
board.
154.On 1 August 2007 at 2.33pm. Mr. Bray sent an email to the
defendants and Paul Hastings, referring to the "Management's"
undertaking to execute the loan documentation by 1 August 2007 and the
power of the "Lenders" to "extend the deadline". It stated "accordingly
we hereby do so until noon tomorrow London time". As I read the email,
Astin was purporting to extend the deadline on behalf of Maple Leaf as
well as itself, and I infer that it was sent on behalf of both claimants. (A
copy of the email was sent to Mr. Castrounis, who did not suggest either
contemporaneously or in his evidence that it was not authorised by Maple
Leaf.)
155.The defendants did not respond to this email. Mr. Bray sent a further
email giving notice of a further extension until noon London time on 3
August 2007. This email was sent shortly after noon on 2 August 2007,
that is to say, just after the extension given on 1 August 2007 had
expired. However a similar notice was also sent on 2 August 2009 by fax.
It is not apparent from the evidence whether it was sent before or after
the expiry of the previous notice.
156.On 2 August 2007 at 1.47pm Mr Rouvroy sent an email to Mr. Bray
saying that there "seems to be a misunderstanding between us"; and
that the defendants wished to sign a revised termsheet providing that the
defendants might end the funding at the end of September 2007, paying
a minimum of three months' interest. He also said that it was unnecessary
to "lock …. our shares in a SPV" in view of the short funding period that
he proposed. Mr Ummels responded at 3.22pm with the email referring to
the telephone conversation in the early hours of 26 July 2007 that I have
set out above. The defendants did not respond by denying his account of
the conversation, and in none of the exchanges since 25 July 2007 had
they disputed that they had entered into an agreement with Maple Leaf
and Astin.
157.On 6 August 2007 at 4.50pm Mr. Bray said in an email to Paul
Hastings that he believed that "documentation needs to be finalised with
all due haste to avoid action being taken for Jacques and Christophe not
abiding by their undertakings". Shortly afterwards Mr. Bray sent an email
to Mr. Rouvroy acknowledging the "proposal regarding a new term sheet"
but confirming that Astin and Maple Leaf "expect[ed that they would]
live up to you (sic) obligations to document the existing transaction as
per the agreement signed". He said that Astin had "exhausted all friendly
methods of communication by which to have you and Christophe live up
to your end of the agreement".
158.By an email at 6.42pm on 6 August 2007 to Mr Bray and copied to Mr
Trylinksi Mr Rouvroy said: "Our position is as follows: We will exit Mapple
[sic] Leaf in Sept. I see no reason for setting up the SPV. … Either you
accept to organize the exit in a way that is acceptable to us all. There
will be no looser (sic). Or you want to force us into a deal where we
will clearly be not able to meet with our obligations. I feel that the first
solution is by far the best!!". Mr. Bray replied, "Please don't shoot the
messenger. The documentation must come first". Mr. Rouvroy replied at
6.59pm, "I shoot nobody. Situation is very simple: By mid Sept we take
back the 30M from ML. We are willing to commit to that as Jacques and
Christophe and as Belvédère. Nothing else."
159.On 8 August 2007 Messrs Herbert Smith wrote on behalf of Maple
Leaf to Paul Hastings asserting that Maple Leaf had concluded a legally
binding agreement with the defendants and requiring the defendants to
comply with it. They extended (or purported to extend) the period "for
the agreement and finalisation of the further documentation referred to
in the Agreement" to 5.00pm on 13 August 2007. It appears that on 13
August 2007 that Herbert Smith further extended the period to 5.00pm
on 15 August 2007 although that letter is not in evidence. Paul Hastings
replied on 15 August 2007 denying that there was a binding agreement.
In their letter they referred to the notice extending this, and said that "It
is not open to [Maple Leaf] to attempt to unilaterally extend the deadline"
even if the Funding Agreement was enforceable.
160.On 16 August 2007 (after the deadline at 5.00pm on 15 August
2007) Herbert Smith wrote that Maple Leaf still required the defendants
to "abide by the agreement" and purported to extend that time for
completion to 5.00pm on 3 September 2007. They sent similar letters on
3 September 2007 and thereafter.
161.These proceedings were brought by Maple Leaf on 17 August 2007.
162.At the end of September 2007 Belvédère brought the shares to which
Lion Capital had subscribed.
163.On 10 October 2007 Mr. Rouvroy sent Mr. Ummels an email in which
the defendants offered to buy Maple Leaf's warrants by no later than
31 October 2007, offering a return of 25% pa on the funding for three
months. He said that an offer was planned to convert BSAR 1 warrants
into shares and BSAR 2 warrants, and the alternative for Maple Leaf was
to exchange its BSAR 1 warrants for 183,000 shares and 183,000 BSAR 2
warrants.
164.On 18 December 2007 Paul Hastings wrote to Herbert Smith a
letter in which they referred to a planned offer to convert warrants and
emphasised Maple Leaf's obligation to mitigate its loss. It proposed
that Maple Leaf should tender its warrants for exchange into shares and
BSAR2 warrants and give the defendants a call option until 31 March 2008
on the shares received to enable the defendants to purchase them at
€164 per share. It pointed out that Maple Leaf would keep the BSAR 2
warrants received at the time of the tender offer. The letter stated, "this
call option must be accompanied by a settlement agreement with [Maple
Leaf] (and Astin) which would be subject to the completion of the tender
offer and the exercise of the call".
165.The claimants did not accept the offers of 10 October 2007 and 8
December 2007.
166.Since 25 July 2007, Belvédère's share price has fallen sharply, as
has the value of the warrants in Belvédère held by Maple Leaf. The listed
share price peaked at €197 per share in May 2007 and they were trading
at around €167 per share on 25 July 2007. The share price dropped
from August 2007, and by the end of May 2008 the price was around
€90. In June 2008 the trading price of Belvédère fell by 30% following
the disclosure that it had breached its covenants to noteholders and the
shares were suspended from trading. (This apparently resulted at least
in part from the agreement reached with Lion Capital.) On 18 July 2008
the Tribunal de Commerce of Beaune placed Belvédère in "sauvegarde
procedure", an insolvency process protecting companies from creditors.
167.The Loan Maturity Date has now passed, nothing has been paid to
the claimants.
Extension of the Funding Agreement
168.The termination provision of the Funding Agreement provided that it
should terminate automatically if the "Borrower(s) and/or Management"
did not "close the transaction" in accordance with the Funding Agreement
on or before 1 August 2007 unless it was extended in writing by the
"Lenders". It is the claimants' contention that they did so extend the
Funding Agreement and it has not terminated under the termination
provision.
169.In their pleading the claimants allege that they exercised the power
to extend the agreement by the notices sent by Astin on 1 and 2 August
2007. They go on to plead this at paragraph 16 of the Particulars of
Claim: "Thereafter [sc after 2 August 2007], Astin and/or Maple Leaf
repeatedly requested the Defendants to complete the transactions and
thereby expressly and/or by implication further extended the time by
which all steps necessary to complete the transaction in accordance with
the Agreement were to be completed, …"
170.I am unable to accept that the claimants sent notices that effectively
extended the Funding Agreement as they allege. In my judgment in order
effectively to extend the agreement (i) notice must be given before the
Funding Agreement has been terminated and (ii) both the "Lenders"
must exercise the power. Otherwise the provision would not to my mind
make any business sense, particularly from the point of view of the
"Management" and, if established, the SPV. If the power to extend the
agreement could be exercised after it had terminated and therefore the
Lenders were in a position to revive the Funding Agreement after, perhaps
long after, it had terminated, the defendants and any SPV would have to
organise their affairs to accommodate this possibility. I cannot accept that
the parties intended that one Lender could extend the Funding Agreement
as far as it was concerned and the other allow it to terminate as far as it
was concerned.
171.I therefore do not consider that the letters sent by Herbert Smith
on 8 August 2007 and thereafter were effective to extend the Funding
Agreement and I conclude that it automatically terminated. By then the
Funding Agreement had already terminated and in any case, as Herbert
Smith's letter stated, they were acting for Maple Leaf and did not purport
to give notice on behalf of Astin. I accept that Astin's email of 1 August
2007 prevented termination before noon London time on 2 August 2007.
It is possible, depending upon when notice was sent by fax on 2 August
2007, it was further extended to noon London time on 3 August 2007, but
it was not effectively extended thereafter.
172.I have had to consider whether this conclusion is open to me is
view of the positions taken by the parties in the litigation. In his written
opening Mr. Lenon stated that it is accepted in the defence that the
Funding Agreement had been extended (subject to the challenge to its
binding nature and to the validity of the right to extend). The defendants'
pleading is not clear: paragraph 17 of the defence admits paragraph
16 of the particulars of claim subject to denials of the binding nature of
the Funding Agreement and the claimants' entitlement "to unilaterally
extend any deadline to complete the agreement alleged even had any
such deadline been agreed…". It also admitted that the letters of Herbert
Smith "purported to further extend the 'deadline'". I can well understand
why the claimants took it that it was not in issue that they had effectively
extended the Funding Agreement, assuming that it was a concluded
contract and assuming that the termination provision was effective and
enforceable. It seems to me likely, however, that the defendants intended
simply to admit that the notices (or purported notices) were sent, and I
find this a natural reading of the pleading. In their written opening the
defendants' counsel stated that their case was that "at no point have
the "Lenders" ever given a notice of purported unilateral extension of
time to complete". In their closing submissions however the defendants
argued their case on the basis that the Funding Agreement was effectively
extended by the claimants.
173.I cannot accept that the pleadings and the equivocation or even
concessions in the defendant's submissions compel me to decide the
case on a false basis. In the end, the effect of the purported notices of
extension is a matter of law, and I consider that the proper approach
is to determine the claims in accordance with my view that they were
not effective. As I see it, while this affects the legal nature of the relief
to which the claimants are entitled, it does not significantly alter the
amount of their recovery. However, in view how the case was argued by
the defendants in their closing submissions, I shall allow the parties to
address me further about this when I hand down my judgment.
Does the court have jurisdiction pursuant to article 24 of the Brussels
Regulation?
174.As I have said, at a pre-trial review on 24 October 2004 the
defendants applied that the proceedings be stayed on two grounds.
Having rejected the application for a stay on the basis of the criminal
complaint, I must decide whether the court has jurisdiction under the
Brussels Regulation to determine the claims.
175.The claimants say that by October 2008 the defendants had entered
an appearance before the court and the court has jurisdiction over the
claims under article 24 of the Brussels Regulation.
176.I must set out something of the history of the proceedings. The claim
was issued by Maple Leaf on 17 August 2007. The relief claimed was an
order for specific performance of the Funding Agreement; damages in lieu
of specific performance; damages for breach of the Funding Agreement;
payment of €7,499,986.50 under the Funding Agreement; an indemnity
in respect of any loss from the sale of securities in the market and other
fees and expenses; damages for fraud; and statutory interest.
177.On 12 September 2007 Paul Hastings filed and served an
acknowledgment of service on the defendants' behalf. It was indicated
on the acknowledgement of service form that the defendants intended to
contest the jurisdiction of the court. On 10 October 2007 the defendants
applied for an extension of time to serve a defence and to make an
application "in the event that they propose[d] to dispute the Court's
jurisdiction". On 17 October 2007 Herbert Smith wrote to Paul Hastings
that the court has no power to extend time for a jurisdictional challenge.
In this they were wrong: see Sawyer v Atari Interactive, [2005] EWHC
2351 (Ch) at para 45 and Global Multimedia International Ltd v Ara Media
Services, [2006] EWHC 3107 (Ch).
178.On 19 October 2007 Herbert Smith consented to the request for an
extension of time to serve a defence but not to an extension of time to
apply to challenge the jurisdiction. On 25 October 2007 the defendants
served their defence. They pleaded this at paragraph 35:
"In any event, it is denied that the English Court has jurisdiction
in respect of the claims made by the Claimants in that the place of
performance of the contract (if any) alleged is in France and the English
Court does not have jurisdiction with respect to allegations in tort, delict
or quasi delict within the Brussels Convention (sic). This defence is served
entirely without prejudice to the rights of the First Defendant and the
Second Defendant (which are fully reserved) to challenge the jurisdiction
of the English Courts."
179.At a hearing on 17 March 2008 Mr. Justice Flaux heard an application
by Astin to be joined as a claimant in the proceedings. He ordered that
it be added as second claimant and file and serve an amended claim
form and an amended pleading. The amended pleading included the
claims in contract that Astin pursues and a claim in deceit that Astin
abandoned in the course of the trial. Among the claims in contract was
one for an indemnity in respect of its fees of €2,002,800 to which it
claimed to be entitled under the Funding Agreement. The defendants,
who were represented by counsel at the hearing on 17 March 2008, did
not resist the joinder of Astin or its claims being brought in this court
on the grounds that they disputed the court's jurisdiction to determine
them. An order was made that Astin should pay the defendants' costs
of and caused by its joinder to the proceedings. The defendants made
observations about other case management matters that were dealt with
at the hearing.
180.In an amended defence in answer to Astin's claims dated 8 April 2008
the defendants did not amend paragraph 35 of the original defence. The
defendants also served a counterclaim against Astin with the amended
defence. Thereafter they took part in the proceedings by, for example,
making requests for further information in May 2008, by giving disclosure
in March and April 2008, and by serving witness statements and an
expert's report in April and July 2008.
181.On 11 July 2008 the defendants applied to adjourn the trial from its
original date, 21 July 2008. In his witness statement in support of the
application, Mr. Rouvroy did not refer to any potential challenge to the
court's jurisdiction to determine the claims, and this was not mentioned
by counsel when making the application. The implication was that the
defendants were asking for the trial before this court to be deferred. The
application was granted, and the new hearing date of 5 November 2008
was arranged.
182.A pre-trial review was held on 24 October 2008. On 20 October 2008
the defendants made the claimants aware that they would apply for a
stay of the proceedings on the two grounds to which I have referred: the
criminal complaint and the challenge to the jurisdiction.
183.During the trial the claimants applied for permission to plead claims
in debt: that there had fallen due under the Funding Agreement and
remained unpaid €29,999,946 to Maple Leaf and €2,002,800 to Astin.
The application was resisted by the defendants upon the grounds that
the court had no jurisdiction over a debt claim and on other grounds. I
ruled that the other grounds provided no proper basis for refusing the
amendment and that permission for it should be granted provided that
the court has jurisdiction over the proposed new claims. Since I was to
adjudicate what jurisdiction the court has in this judgment, I deferred
determining that issue and so deferred ruling upon the application for
permission to amend.
184.Article 24 of the Brussels Regulation provides that, "Apart from
jurisdiction derived from other provisions of this Regulation, a court of a
Member State before which a defendant enters an appearance shall have
jurisdiction…".
185.The claimants submit that the defendants have entered an
appearance before this court in respect of the claims which are the
subject matter of the proceedings: I use the terminology of Robert Goff LJ
in The "Messiniaki Tolmi", [1984] 1 Lloyds LR 266, 270.
186.In my judgment, the defendants entered an appearance within the
meaning of the Brussels Regulation in respect of the claims originally
brought by Maple Leaf when they acknowledged service of these
proceedings. They did not thereby lose the right to challenge the
jurisdiction: they had the right to do so under the CPR. To that extent the
defendant did not unconditionally enter an appearance by the filing of the
acknowledgment of service. They made this explicit by expressing their
intention to challenge jurisdiction on the form, but it would have been
the case in any event: see the judgment of Mr. Michael Briggs QC in IBS
Technologies (PVT) Ltd v APM Technologies SA, unreported, 7 April 2003.
187.However, the defendants did not apply to challenge the jurisdiction
in accordance with the procedures of the English court set out in the
CPR and in particular CPR part 11. The procedures require that the
defendants make any application to challenge jurisdiction within 14 days
after filing an acknowledgment of service, that is to say in this case, by
10 October 2007, and the defendants did not do so. The CPR provide
that otherwise the appearance before the English court then became
unqualified: in the words of the CPR part 11(5): "If the defendant (a) files
an acknowledgment of service and (b) does not make … an application
[to dispute the jurisdiction to try the claim] within [14 days after filing an
acknowledgment of service] he is to be treated as having accepted that
the court has jurisdiction to try the claim". Paragraph 35 of the defence
does not avail the defendants: by the time that they served the defence,
the defendants were treated under the rules as having already accepted
the court's jurisdiction. I do not consider that this analysis is affected
because the court has discretion to extend the time for an application.
(In fact the defendants have still not strictly applied for an extension of
time to make an application under CPR part 11. They have simply sought
a stay of the proceedings. But nothing turns upon that technical point.)
188.The defendants contend that they have not entered an appearance
before the court for the purpose of article 24 because they took no step
in relation to the substance of the claim before giving notice of their
intention to contest the jurisdiction of the court. Accordingly they say
that, notwithstanding CPR part 11, what they did does not amount to
them entering an appearance within the meaning of, and for the purposes
of, article 24. They cite the decision of the European Court in Elefanten
Schuh GmbH v Pierre Jacmain (Case 150/80) [1981] ECR 1671 in support
of their argument that a defendant is not to be taken to have accepted
the jurisdiction of the court by making submissions upon the substance
of the action if "the plaintiff and the court seised of the matter are able to
ascertain from the time of the defendant's first defence that it is intended
to contest the jurisdiction of the court" (at para 15).
189.I cannot accept this argument. In the Elefanten Schuh case the
European Court was concerned that a defendant should not be faced
with a choice between either disputing the jurisdiction of the court or
defending the claim on the merits having accepted the court's jurisdiction.
The procedure under the CPR does not present a defendant with such
a choice and provides a means whereby he can contest the jurisdiction
of the English court without prejudicing his case on the substance of
the claim against him. It is therefore for the national procedural law to
determine when and how a challenge may by made: see paragraphs
16 and 17 of the European Court's judgment, and the Jenard Report
which (referring to article 18 of the Brussels Convention, the predecessor
of article 24 of the Regulation) states that "It will be necessary to
refer to the rules of procedure of the State of the court seised of the
proceedings in order to determine the point up to which the defendant
will be allowed to raise this plea, and to determine the legal meaning of
the term "appearance"." The procedural law of this court requires that
the challenge be made within prescribed time limits and that if there
is no challenge within that period the claimant and the court treat the
defendant as having accepted the court's jurisdiction. I therefore conclude
that the court has jurisdiction under article 24 to determine the claims
originally brought by Maple Leaf.
190.What then of the claims brought by Astin? The machinery under
CPR for challenging the court's jurisdiction within 14 days of filing an
acknowledgment of service does not apply when a second claimant is
joined to an existing action against an existing defendant after the expiry
of that time limit, and the CPR do not expressly specify either a procedure
whereby a defendant can challenge the court's jurisdiction to determine
a claim introduced by amendment or when and in what circumstances a
defendant is treated as having accepted that the court has jurisdiction to
try the claim. However, if the amendment would introduce a new claim
(whether by an existing claimant or a new party and whether in addition
to or in substitution for an existing claim), the defendant may argue that
the amendment should not be permitted on the grounds that the court
has no jurisdiction. He will not necessarily be precluded from advancing
such an argument by the provisions of CPR part 11: he is "treated as
having accepted that the court has jurisdiction" to try the claim or claims
that are the subject matter of the proceedings.
191.In this case the defendants did not contend when Astin applied
to be joined and bring its claims that the court had no jurisdiction to
determine them. Astin submits that the defendants are not now entitled
to do so because they gave no indication before or when they serve the
amended defence and counterclaim responding to Astin's claim that they
intended to dispute the jurisdiction, apart from retaining the reservation
that had been expressed in paragraph 35 of the defence. I agree with
that submission. The court ordered that Astin be joined as party to the
proceedings and that it be permitted to bring its claims. The effect of that
order is that Astin's claims are the subject matter of these proceedings
and the court has jurisdiction to determine these proceedings because the
defendants are to be treated as having entered an appearance so as to
accept the court's jurisdiction to determine the claims brought in them.
If the defendants wished to dispute the order made by Mr. Justice Flaux,
they should have appealed against it (assuming that it was open to them
to do so despite their acquiescence in him making it). It is not open to
them to escape its consequences by arguing that I should preclude myself
from determining the claims that it introduced into the proceedings.
192.In any case, it is confirmed that the court has jurisdiction to
determine Astin's claims under article 24 of the Brussels Regulation
because the defendants continued to participate in the case without
indicating any further challenge to the court's jurisdiction. I am unable
to accept that by serving an amended defence that included the original
paragraph 35 they made it clear to Astin and the court that they intended
to dispute the court's jurisdiction to hear the claims by Astin if it rejected
any objection to the court hearing the proceedings brought by Maple
Leaf. Between March and October 2008 the defendants participated in the
proceedings and appeared before the court without at any point indicating
that they took any distinct point about the jurisdiction to determine
Astin's claims. In these circumstances, I conclude that they entered an
appearance in respect of the claims by Astin and the court has jurisdiction
to determine them under article 24.
193.There remains the application made by the claimants during the trial
for permission to bring claims in debt by amendment: the claim for sums
of €37,499,932.50 and €2,503,500 that are said to have fallen due to
Maple Leaf and Astin respectively on the Loan Maturity Date. The court
should not give permission for an amendment unless it has jurisdiction
to determine the claim either because the defendant is to be taken to
have accepted the court's jurisdiction to determine the claim by entering
an appearance in the proceedings or because the court has jurisdiction
on some other basis. A defendant does not, by entering an appearance,
accept that the court has jurisdiction to hear any claim against him
related in any way to the subject matter of the original action: see
Murray v Times Newspapers Ltd, [1997] 3 IR 97. That, however, does not
mean that a defendant is to be taken to have accepted only the court's
jurisdiction to try the claims precisely as originally formulated.
194.As I shall explain, I consider that the court has jurisdiction to
determine the claim in debt because of the jurisdiction clause in the
Funding Agreement, and accordingly it is not necessary for the claimants
to rely upon jurisdiction under article 24 of the Brussels Regulation to
support their application for permission to amend to plead debt. However,
had it been necessary to do so, I would have concluded that the court
would be justified in permitting the amendment in view of the jurisdiction
that the defendants accepted by making an appearance in respect of the
original claims of Maple Leaf and the claims made by Astin when it was
joined as party to the action.
195.The debt claims which the proposed amendments would introduce
are not in English law the same causes of action as the claims that have
already been pleaded. Although Maple Leaf had already pleaded a claim
in debt, this was not for monies falling due on the Loan Maturity Date.
Astin's claim for an indemnity in respect of its fees similarly is not, in my
judgment, the same cause of action as the claim in debt that it wishes
to introduce. However, I do not consider that the question whether the
defendants entered an appearance in respect of a claim for the purpose
of article 24 is to be determined by reference to whether the new claim
would, as a matter of English domestic law, be regarded as the same
cause of action as one already pleaded when the defendant entered an
appearance: I consider that to be neither a necessary nor a sufficient
condition for the defendant's appearance to be taken to be acceptance
of the court's jurisdiction to determine the claim in a proposed amended
pleading. The article must be given an autonomous interpretation.
196.In my judgment a defendant who enters an appearance does not
only accept the court's jurisdiction to determine the claim exactly as it
is pleaded against him at the time that he enters the appearance. That
would prevent minor amendments to correct inconsequential pleading
errors. A defendant who enters an appearance is to be taken to be
aware that the court has a discretionary power to permit claims to be
amended. As is implicit in the judgment of Barrington J in Murray v
Times Newspaper Limited (cit sup), with which Hamilton CJ and Murphy
J agreed, the question is what jurisdiction the defendant can be taken to
have intended to accept in entering his appearance. In this case, not least
because they accepted the court's jurisdiction to determine the claims for
specific performance, which would include performance of the obligation
to pay the money due on the Loan Maturity Date, I consider that the
defendants are to be taken to have accepted the court's jurisdiction to
determine the causes of action to which the proposed amendment is
directed. In substance the subject matter of the original action covered
the debts that the claimants say have now accrued due.
Does the Court have jurisdiction pursuant to article 23 of the Brussels
Regulation?
197.I come to the claimants' alternative argument that the court has
jurisdiction under article 23 of the Brussels Regulation because of the
jurisdiction provision in the Funding Agreement. Article 23 provides as
follows: "If the parties, one or more of whom is domiciled in a Member
State, have agreed that a court or the courts of a Member State are to
have jurisdiction to settle any disputes which have arisen or may arise
in connection with a particular legal relationship, that court or those
courts shall have jurisdiction. … Such an agreement conferring jurisdiction
shall be … in writing or evidenced in writing…". In order for the court to
assume jurisdiction on this basis, the court must examine whether "the
clause conferring jurisdiction upon it was in fact the subject of consensus
between the parties, which must be clearly and precisely demonstrated":
see (for example) MSG v Les Gravières Rhénanes Sarl, [1997] ECR I-911,
[1997] QB 731 at para 15
198.For reasons that I shall explain, I have concluded that the parties
entered into a Funding Agreement of contractual effect, which contained
the jurisdiction provision that was in Version 9. It provided, "Jurisdiction:
The parties agree to the exclusive jurisdiction of England and Wales". This
agreement was "in writing or evidenced in writing".
199.I interpret the jurisdiction provision as covering not only the
contractual claims in these proceedings but also the claims in deceit:
claims that in agreeing to Version 9 the defendants were guilty of an
actionable misrepresentation about their intentions with regard to fulfilling
their contractual obligations and thereby induced Maple Leaf to enter into
the agreement and to submit its subscription. I cannot accept that the
parties to the jurisdiction agreement are to be taken to have intended
that it should apply only to claims that would be categorised by a lawyer
(or at least an English lawyer) as contractual. The observations of Lord
Hoffman in Premium Nafta Products Limited v Fili Shipping Corp, [2007]
UKHL 40 at para 7, although made about an arbitration agreement, are in
point:
"… [the] construction must be influenced by whether the parties, as
rational businessmen, were likely to have intended that only some of
the questions arising out of their relationship were to be submitted to
arbitration and others were to be decided by national courts. Could they
have intended that the question of whether the contract was repudiated
should be decided by arbitration but the question of whether it was
induced by misrepresentation should be decided by a court? If, as
appears to be generally accepted, there is no rational basis upon which
businessmen would be likely to wish to have questions of the validity or
enforceability of the contract decided by one tribunal and questions about
its performance decided by another, one would need to find very clear
language before deciding that they must have had such an intention."
Similarly here, I cannot accept that the parties are to be taken to have
intended to agree that these different claims in contract and deceit arising
from the agreement should be determined in different jurisdictions.
200.In reaching the conclusion that the parties entered into a contractual
agreement which contained the jurisdiction provision that was in Version
9, I have rejected arguments that the Funding Agreement was too
uncertain to be of contractual effect and that there was no contract
because no agreement was concluded with Lion Capital. However, even if
I had not rejected those arguments, nevertheless, as it seems to me, the
parties have entered into an effective jurisdiction agreement conferring
jurisdiction under article 23.
201.It is important to distinguish the question whether the parties
entered into an agreement that a court should have jurisdiction from the
question whether the parties entered into a concluded and enforceable
Funding Agreement such as the claimants allege in these proceedings.
There is no attack on the jurisdiction clause on the grounds that it lacks
certainty, nor is there any reason that the jurisdiction clause should not
have effect as between the claimants and the defendants to determine
whether the Funding Agreement itself is contractual in view of the position
of Lion Capital. I refer to the judgment of Longmore LJ in Deutsche Bank
AG and ors v Asia Pacific Broadband Wireless Communications Inc, [2008]
EWCA Civ 1091. At paras 24 and 25 he said:
"…a jurisdiction clause, like an arbitration clause, is a separable
agreement from the agreement as a whole. This is uncontroversial both
as a matter of domestic law (see Mackender v Feldia [1967] 2 QB 590
and Fiona Trust v Privalov [2008] 1 Lloyds Rep 254; [2007] Bus. L.R.
1719) and as a matter of European law (see Benincasa v Dentalkit SRL
[1997] ECR I-3767 and Briggs, Civil Jurisdiction and Judgments (4th
ed. 2005) para. 2 105 esp. at page 131)… It follows that disputes about
the validity of the contract must, on the face of it, be resolved pursuant
to the terms of the clause and, indeed, the last sentence of the clause
expressly so provides. It is only if the jurisdiction clause is itself under
some specific attack that a question can arise whether it is right to
invoke the jurisdiction clause. Examples of this might be fraud or duress
alleged in relation specifically to the jurisdiction clause. Another example
might be if the signatures to the agreement were alleged to be forgeries,
although no authority has so far so stated. Even in such a case someone
has to decide whether the signatures were in fact forged. It might well be
thought that a mere allegation to that effect could not have the effect of
rendering a jurisdiction clause inapplicable.
The importance of this concept of separability is that it shows that it
cannot be the case that every claim made on the basis that a contract
is void or has never come into existence must fall outside the terms of a
jurisdiction clause expressed as widely as that in the present case. …".
202.The defendants have another argument that the court does not have
jurisdiction under article 23. They say that the Funding Agreement would
be a consumer contract within the meaning of section 4 of the Brussels
Regulation and therefore article 15 applies to it. Article 15.1 (which is in
section 4) reads as follows:
"1. In matters relating to a contract concluded by a person, the consumer,
for a purpose which can be regarded as being outside his trade or
profession, jurisdiction shall be determined by this Section, without
prejudice to Article 4 and point 5 of Article 5, if:
(a) it is a contract for the sale of goods on instalment credit terms or
(b) it is a contract for a loan repayable by instalments, or for any other
form of credit, made to finance the sale of goods; or
(c) in all other cases, the contract has been concluded with a person who
pursues commercial or professional activities in the Member State of
the consumer's domicile or, by any means, directs such activities to that
Member State or to several States including that Member State, and the
contract falls within the scope of such activities."
203.Article 17 allows section 4 to be departed from by agreement but
only in circumstances that do not arise here, and accordingly, if article 15
applies, the jurisdiction clause in the Funding Agreement is of no effect.
204.The claimants raise two arguments in response to this contention.
First they say that there is no, or no sufficient, evidence of the
defendants' domicile: that it is not proved that they are domiciled in
France. Accordingly, it is said, the Funding Agreement is not covered by
article 15.1(c).
205.Article 59(2) of the Brussels Regulation provides that the court
should apply French law in order to determine whether the defendants
are domiciled in France. There was no evidence of the relevant French
law about this and so it is to be assumed that the relevant French law
does not differ from English law. The Civil Jurisdiction and Judgments Act
1982 provides (at section 41(2)) that, "An individual is domiciled in the
United Kingdom if and only if (a) he is resident in the United Kingdom;
and (b) the nature and circumstances of his residence indicate that he
has a substantial connection with the United Kingdom". The assumption
that French law is similar to English law means that the question here
whether the defendants were domiciled in France depends upon whether
they were resident in France and whether the nature and circumstances of
their residence indicate a substantial connection with France.
206.The evidence about this is rather exiguous, and this, no doubt, is
because the claimants never raised any question about the defendants'
domiciles until Mr. Lenon was making his final submissions (perhaps
understandably because the article 15 argument was not advanced by the
defendants in their original submissions about jurisdiction). Had anything
turned upon this question, I would not have reached a conclusion adverse
to the defendants without giving them the chance to adduce further
evidence: indeed, Mr. Lenon's submission was that there would have to be
an inquiry about the defendants' domicile if the point matters. In fact, it
does not. Moreover, on the basis of such evidence as there is, I conclude
that both defendants were domiciled in France at all relevant times, and
I would not have allowed the matter to be reopened for the claimants
to adduce further evidence about this. Both defendants are resident in
France: they state their place of residence in their witness statements.
Mr. Rouvroy is a French national. Mr Trylinski, while being Polish by birth
and still a Polish national, has lived in France for some 17 years and works
for a French business based in France. I consider this is enough, in the
absence of other evidence, to prove their French domiciles.
207.The claimants' second answer is that article 15 of the Brussels
Regulation does not apply in this case because the defendants did not
conclude the contract (assuming they concluded it at all) "for a purpose
that can be regarded as outside [their] trade or profession". I agree
with that submission. The European Court provided assistance about the
application of this article in Benincasa v Dentalkit Srl, [1997] ECR I-3767.
Having observed that the concept of "consumer" in this context must be
interpreted autonomously, in order to ensure consistency of application
throughout contracting states, it said this (at paras 16-18):
"16. … in order to determine whether a person has the capacity of a
consumer, a concept which must be strictly construed, reference must
be made to the position of the person concerned in a particular contract,
having regard to the nature and aim of that contract, and not to the
subjective situation of the person concerned. … the self-same person may
be regarded as a consumer in relation to certain transactions and as an
economic operator in relation to others.
17. Consequently, only contracts concluded for the purpose of satisfying
an individual's own needs in terms of private consumption come under
the provisions designed to protect the consumer as the party deemed to
be the weaker party economically. The specific protection sought to be
afforded by those provisions is unwarranted in the case of contracts for
the purpose of trade or professional activity, even if that activity is only
planned for the future, since the fact that an activity is in the nature of
a future activity does not divest it in any way of its trade or professional
character.
18. Accordingly, it is consistent with the wording, the spirit and the
aim of the provisions concerned to consider that the specific protective
rules enshrined in them apply only to contracts concluded outside and
independently of any trade or professional activity or purpose, whether
present or future."
208.The defendants relied upon the decision of Longmore J in Standard
Bank London Ltd v Apostolakis, [2001] 1 Lloyd's Rep Bank 240. In that
case the defendants, who were married and resident in Greece, entered
into an agreement with the claimant bank that provided for English
jurisdiction and under which it was agreed that the bank would make
forward purchases of ECUs on their behalf in exchange for drachmas. The
defendants were a civil engineer and a lawyer: it was no part of those
trades or professions to enter into forward currency contracts of this kind,
and Mr. Justice Longmore decided that they were not "trading in foreign
exchange contract in the sense that a banker or dealer can be said to
trade", and were entering into the contract as consumers. He observed
that it was not a question of the scale of the trading.
209.As Briggs and Rees point out in Civil Jurisdiction and Judgments,
(2005) 4th Ed para 2.78, the Greek courts disagreed with the conclusion
of Mr. Justice Longmore and considered the activity to be entrepreneurial,
a view which Briggs and Rees tentatively endorse. For what it is
worth, I would myself question the conclusion reached by Mr. Justice
Longmore, but in any event I do not consider that his decision assists
the defendants. In that case the question was whether the defendants'
dealing was of a nature such that they were to be regarded as carrying
on a trade. Here the question is whether the agreement made by the
defendants was so connected with their business activities as not to be
regarded as outside their trade. The defendants point out that they gave
personal commitments under the Funding Agreement and say that the
shareholdings that were to be staked as collateral were held by their
families. There was little evidence about how precisely the shares were
held, although Mr. Trylinski certainly gave evidence (which I accept)
that his wife shared his interest in Belvédère shares and I also accept
that some shares were held by a company for Mr. Rouvroy's family.
But however that may be, I am unable to accept that the defendants
made the agreement outside their business activities or outside their
trade. Their business was managing Belvédère, and they entered into the
agreement in order to pursue that business and to continue to manage
Belvédère. I cannot accept that they made it as consumers or that article
15 of the Brussels Regulation applies to this case.
Does the Court have jurisdiction under article 5 of the Brussels Regulation
over Maple Leaf's tort claim?
210.Maple Leaf has another argument: that the court has jurisdiction
under article 5(3) of the Brussels Regulation to determine its claim in
deceit. Article 5 provides that "A person domiciled in a Member State may,
in another Member State, be sued:…(3) in matters relating to tort, … in
the courts for the place where the harmful event occurred or may occur;
…". The expression "the place where the harmful event occurred" is to
be given an autonomous interpretation and the European Court has said
that article 5(3) "must be understood as being intended to cover both
the place where the damage occurred and the place of the event giving
rise to it". In the case of tortious misstatement, the harmful event takes
place where the statement is made rather than where it is received and so
that provides no basis for English jurisdiction in this case: see Domicrest v
Swiss Bank Corp, [1999] QB 548. Maple Leaf's argument is that damage
resulting from the defendants' fraudulent misrepresentation occurred in
England.
211.This leads to the question what Maple Leaf's damage was. Maple
Leaf's complaint is that because of the deceit it entered into the Funding
Agreement and subscribed for warrants by way of both its original and
its revised subscription. It does not assert the English court's jurisdiction
on the basis that it made payments pursuant to those obligations, and
indeed there is no evidence about where the payment for the securities by
Maple Leaf, a Cayman Island company, was made.
212.Maple Leaf signed Version 9 in London but the general rule is that
there is no acceptance of an offer so as to conclude a contract without
communication of the acceptance. Maple Leaf communicated that it had
signed when it sent its email at 11.53 pm on 25 July 2007. The email was
addressed to each of the defendants, Mr. Hottinguer and Mr. Doly, all of
whom were in Paris, and to Mr. Bray, who was in London. It was copied to
Mr. Demarre (in Paris), Mr. Ummels (who was on his way to Romania or
had arrived there), Mr. Ferran (who was either still in New York but might
by the time of the email in transit by air) and Mr Tooth (and there is no
evidence about where he might have received the communication).
213.As for the subscription to the security in Belvédère, both the original
and the revised subscriptions were made by Maple Leaf when it sent the
form by email from London to Paris and then sending a hard copy by post
– again from London to Paris.
214.Does this mean that the "harmful event" occurred in England in the
sense that the damage occurred here? In my judgment, it does. Maple
Leaf suffered its damage when it committed itself to accepting the deal
and sending its subscription form. In a case like this, to my mind, once
Maple Leaf had put it outside its control to prevent the loss, the harmful
effect occurred. It is beside the point whether the contract was concluded
when Maple Leaf sent its communication or when it was received.
Conclusion on Jurisdiction
215.I conclude that the court has jurisdiction to determine all the claims
under article 24 and also under article 23 of the Brussels Regulation. It
has jurisdiction under article 5 to determine Maple Leaf's claim in deceit.
I also consider that it has jurisdiction to decide the claims in debt which
the claimants seek permission to bring by amendment, and I permit the
amendment.
Did the parties conclude a contract?
216.The claimants say that the parties concluded the Funding
Agreement on 25 July 2007. Their primary case is that it was then varied
consensually on 26 July 2007 and the parties' contract is on the terms
set out in Version 10a, but they argue in the alternative that there is
a contract in the terms of Version 9. The first question, therefore, is
whether Version 9 was contractual.
Version 9
217.There is no dispute that the defendants received Version 9 from Astin
at 10.47pm on 25 July 2007, that they signed it, that H and Associés
returned it to Astin at 10.58pm and that the claimants then signed it
and told the defendants by email that they had done so. Nor is there
any dispute that Maple Leaf subscribed for warrants in Belvédère. The
defendants, however, say that they concluded no contract with the
claimants. The following questions arise:
i) Whether the parties are to be taken to have intended to make a
contractually binding agreement.
ii) Whether there was no binding agreement because the defendants'
signatures were not witnessed.
iii) Whether the agreement was too uncertain to be a contract.
iv) Whether there was no contract because Lion Capital did not agree to
it.
Contractual intention
218.Both defendants gave evidence that they did not intend to enter
into a contractual commitment when they signed Version 9. They were
signing a termsheet and in their experience of business, they said, such
documents are not regarded as legally binding. They would have expected
that after the termsheet was signed, there would be further discussions
and lawyers would be instructed to analyse whether the transaction
was legally and fiscally feasible and, if so, to draw up a legally binding
document. Their contention is that when they signed Version 9 they
were simply signalling a (non-contractual) commitment to continue
negotiations. Mr. Rouvroy's evidence was that he did not believe that he
had entered into a contract by signing Version 9 "as there were many
points which still needed to be negotiated and analysed" and because Lion
Capital was not party to it. He considered that signing Version 9 was "a
commitment to negotiate terms with Maple Leaf, Astin and Lion Capital
and nothing more". Similarly, Mr. Trylinski said that he did not think that
"the obligation to keep and meet so many "terms" which had still to be
negotiated and defined would be binding".
219.Mr. Demarre was not involved in the negotiations with Astin,
but when he learned that the termsheet had been signed, he did not
understand that it could be binding "because in France termsheets
never are". Mr. Hottinguer said that in France termsheets are documents
that "change and evolve" and, generally being concerned only with the
financial aspects of a proposed transaction, "their sole purpose [is] to
assist the understanding of all those involved in the structuring of the
proposed transaction and the negotiations".
220.The claimants dispute the defendants' contention that they had no
intention to enter into a contractual commitment. They rely upon the
evidence that Mr. Bray had made it clear during the negotiations in the
evening of 25 July 2007, both orally and in his email at 7.46pm, that
Maple Leaf required a written commitment from the defendants before
it subscribed to the private placement; they rely upon the wording of
Version 9; they rely upon Mr. Doly's description of Version 9 as a contract
in his email of 10.58pm on 25 July 2007; they rely upon the conversation
between Mr. Ummels and the defendants in the early hours of 26 July
2007; and they rely upon the subsequent conduct of the defendants in
not directly denying their commitment to the Funding Agreement while
seeking to renegotiate it.
221.I certainly see great force in these points. I do not doubt that Mr.
Bray made it clear to the defendants, and the defendants understood,
that Maple Leaf required that the defendants to commit themselves to
the terms that it was offering before it subscribed to the placement. I
have found it more difficult to decide whether the defendants considered
that by signing Version 9 they were entering into a legally binding
commitment. My conclusion about Mr. Ummels' conversation is that it
does not unambiguously show that they did, and similarly in my judgment
Mr. Bray's communications with the defendants before they signed the
termsheet did not do so. The footer of Version 9 refers to it being legally
binding, but, especially given the misleading heading ("Confidential &
Proprietary"), I accept that the defendants did not appreciate this. It does
seem more remarkable if the defendants were unaware of, or did not
raise objection to, Mr. Doly's description of Version 9 as a contract despite
not so regarding it, and his email was sent to both defendants, to Mr.
Hottinguer and to Mr. Demarre as well as to Astin and others. However,
as I have said, I accept that the defendants were not responsible for
the wording of the email and that it is possible that the defendants did
not read the covering email: there was no particular reason for them
to consider its wording would be important. As for the conduct of the
defendants on 26 July 2007 and thereafter, I am driven to conclude that
by the time that they received Version 10a of the termsheet, they did
realise that they might well have committed themselves legally, and they
nevertheless sought a way of improving the terms upon which they could
obtain the finance needed to complete the placement. However, that
does not mean that they realised this on 25 July 2007 when they signed
Version 9.
222.Despite the force of the claimants' points, I decline to find that, when
they signed Version 9, the defendants considered that they were entering
into a legal and contractual commitment. This conclusion would be to
attribute to them a level of dishonesty in their evidence that I am not
willing to find. Their evidence was unreliable, but in my judgment that
is because they showed a stubborn reluctance to recognise and face the
reality of what happened in July 2007, and I am unable to regard their
oral evidence as deliberately and fundamentally dishonest. In the end, I
accept the evidence of both defendants that when they signed Version 9
they did not consider their commitment to be legally binding.
223.However, this conclusion does not assist the defendants. In deciding
whether parties have entered into a contract, the courts normally apply
an objective test: the relevant principles of law about whether the parties
intended to enter into a contract are explained in the judgments of
Bingham J and Lloyd LJ in Pagnan Spa v Feed Producers Ltd., [1987]
2 Lloyd's Rep 601. The first question in a case such as this is how a
reasonable man versed in business would have understood the exchanges
between the parties. The fact that the parties recognised that their
agreement would later be incorporated into a formal document and the
fact that they expected that the terms of their commitment should be
defined in more detail in such a document are not inconsistent with the
parties having and evincing an intention to be legally bound. As Lloyd LJ
said in the Pagnan case (cit sup) at p.619, "there is no legal obstacle to
the parties agreeing to be bound while deferring important matters to be
agreed later".
224.I therefore have to consider whether, objectively assessed, the
parties evinced in their exchanges an intention to conclude a contract.
Their conduct is, of course, to be assessed against the background of the
parties' dealings and their experience in so far as it is to be taken to be
known to the other parties.
225.I have referred to the evidence of the defendants about their
experience of signing termsheets and about their understanding of the
usual legal status of termsheets. I do not doubt that during their business
life the defendants have signed termsheets that were not of contractual
effect: there is no general rule that such documents are or are not of
contractual effect, and their status can be determined only by the nature
of the particular document and the facts of the particular case. But I
cannot accept that there is a generally understood French business
practice that documents such as Version 9 are not contractual regardless
of their terms and regardless of what was said in negotiations leading up
to them being signed. Still less is there evidence of a general practice of
this kind that is so well established and well known outside France that
the claimants were aware of it or are to be taken to have been aware of
it. After all, Mr. Doly regarded Version 9 as a contract, and this description
drew no criticism from Mr. Hottingguer or Mr. Demarre.
226.I consider that the wording and presentation of Version 9 are such
that it evinced an intention on the part of the parties signing it to enter
into a contractual commitment. In taking this view, I do not overlook
that the footer on each page does not refer to the claimants being bound
by their signature to the document, only that it is intended to create a
binding obligation on the part of the "Borrowers, the management … and
their affiliates". This is perhaps the less remarkable since the defendants'
main concern was that the investors should subscribe in the private
placement and it was contemplated that they would do so promptly once
the terms of their investment were agreed. In any case, the argument
that the parties evinced an intention to be bound by Version 9 does
not depend upon the footers. It is demonstrated by the words under
which the parties signed ("Please sign to acknowledge agreement and
acceptance of the terms of the transaction"), and by the document as a
whole.
227.I conclude that on an objective assessment the parties to Version
9 evinced an intention to be bound contractually by its terms. This
conclusion is reinforced by what Mr. Bray had told the defendants orally
and in his email of 7.46pm before they signed it, and by the wording of
Mr. Doly's email under cover of which he sent Version 9 signed by the
defendants for the claimants to sign.
228.However, there are circumstances in which the parties to what would
objectively be held to be contractual are not legally bound by it under
English law. If the other parties actually and reasonably believed that
the defendants intended to make a contract, there would be a concluded
contract, but not if the other parties knew or would reasonably have
believed that that was not the defendants' intention and not, in my
judgment, if the other parties had simply formed no view one way or
the other as to whether the defendants so intended. That is the opinion
expressed by Professor Sir Gunter Treitel in Chitty on Contracts, (2008)
30th Ed at para 2-004, and I agree with it. The defendants submit that
they are not contractually bound even if on an objective assessment they
and the claimants evinced an intention to be bound.
229.Thus the defendants' argument depends upon them showing
that the claimants did not believe that the defendants intended to be
bound by Version 9 or at least that they would not reasonably have so
believed. They have not shown this: I conclude that both of the claimants
reasonably considered that the defendants intended to be bound by
Version 9 when they signed it. After all, shortly after Version 9 was signed
by the claimants and the defendants Maple Leaf sent its form subscribing
for warrants. It had, through Astin, made it clear to the defendants that
it would do so only after it had reached a binding agreement with the
defendants. I cannot accept that Maple Leaf nevertheless subscribed
without believing that the defendants considered themselves to be
contractually committed to the terms that they had signed. Nor can I
accept that Astin thought that the terms of Version 9 that it signed were
not binding upon defendants. And I cannot accept that the claimants had
no reasonable basis for what they believed about this.
230.The defendants relied in support of their contrary contention largely
upon those same arguments that they adduced in support of their
submission that judged objectively the agreement in Version 9 was not
intended to be contractual, and that I have rejected. The defendants also
relied upon the fact that, having signed Version 9, the parties continued
their exchanges about the terms of the funding: Astin sent further
versions of the termsheet, Versions 10 and 10a, on 26 July 2007 and
presented draft documentation prepared by solicitors; and Astin indicated
that it would seek to obtain better commercial terms for the defendants.
It is said that this shows that the parties were acting on the basis that
they were not contractually bound. I disagree. It shows only that the
parties needed to discuss the implementation of the agreement and that
the defendants wished to improve the terms that had been agreed and
sought to do so with Astin's assistance.
231.The defendants' further argument was that earlier versions of the
termsheet than Version 9 were subject to contract and that Astin had not
alerted them that Version 9 was to have a different status. I conclude that
Astin did in fact draw this to their attention, but that in any case Astin
would reasonably have taken it that the defendants appreciated this. It
would reasonably have supposed that the defendants would have read
its email of 10.47pm on 25 July 2007 describing Version 9 as the "final
agreed terms" and that the description of the terms as "final" would have
alerted the defendants to their contractual nature.
232.Furthermore, in order to succeed with this argument the defendants
would have to show not only that Astin did not reasonably believe that
the defendants intended to be bound by Version 9, but that Maple Leaf
was in a comparable position. There is, to my mind, no real argument
that it was. The defendants pleaded that knowledge would be attributed
to Maple Leaf because Astin was its agent, but I cannot accept that Astin
was Maple Leaf's agent for this or any relevant purpose and this was
not an argument developed by Mr. Castle in his submissions. Even if
I had accepted that Astin had known or believed that the defendants
did not intend to make a contract, I would not have accepted that such
knowledge and belief was shared by, or is to be attributed to, Maple Leaf.
233.The defendants advance a further argument: they submit that what
they call the rule in L'Estrange v Graucob, [1934] 2 KB 394 should not
be applied. By this, I understand them to mean that, while ordinarily a
party signing a contractual document is bound by its terms whether or not
he has read them and whether or not he is ignorant of their legal effect,
this is not the effect of the defendants signing Version 9. If this argument
has any merit, it depends upon a contention that the claimants must have
known that the defendants had not read and understood the terms of
Version 9 or at the least that they had no positive and reasonable belief
that they had done so. For the reason that I have explained, I do not
accept that.
Signatures not witnessed
234.The defendants pleaded that they were led to understand by Astin
that their signatures needed to be witnessed before the terms of Version
9 could be binding in any event. In support of this assertion, the pleading
refers to the fact that Version 9, as sent to the defendants by Astin, was
"drafted so as to require that the Defendants' signatures were witnessed".
This argument was not supported by any evidence that either of the
defendants had the understanding pleaded, and it was not advanced in
Mr. Castle's submissions. I reject it.
Was the agreement too uncertain to be contractual?
235.The courts are reluctant to conclude that what the parties intended
to be a commercial agreement is too uncertain to be of contractual
effect, the more where a party has acted upon it, as Maple Leaf did by
subscribing in the placement: see Sykes v Fine Fare, [1967] 1 Lloyd's Rep
53 at p.57 per Lord Denning MR and Trentham v Archital Luxfer, [1993] 1
Lloyd's Rep 25 at p.27 per Steyn LJ. Steyn LJ said this:
"The fact that the transaction was performed on both sides will often
make it unrealistic to argue that there was no intention to enter into legal
relations. It will often make it difficult to submit that the contract is void
for vagueness or uncertainty. Specifically, the fact that the transaction is
executed makes it easier to imply a term resolving any uncertainty, or,
alternatively, it may make it possible to treat a matter not finalised in
negotiations as inessential. In this case fully executed transactions are
under consideration. Clearly, similar considerations may sometimes be
relevant in partly executed transactions."
236.The defendants, however, argue that, while Version 9 stated the basic
commercial terms, it did not specify key aspects of how the agreement
was to be implemented, in particular about the SPV: who its members
were to be; who its directors were to be; how it was to be prevented from
disposing of the securities that were to stand as collateral; and how it
was to meet its fiscal liabilities. The defendants argue that these were
matters of such importance that no contract could be concluded without
the parties' agreement upon them.
237.I am unable to accept this argument. Version 9 provided that the
defendants were to take "all steps to establish SAV"; and the implication
was that they were to establish a company that would fulfil the role
contemplated by the agreement. On the one hand, that means, as it
seems to me, that the defendants were afforded discretion as to the
nature of the SPV that they established, and on the other hand they
were obliged to establish a SPV that would give effect to the Funding
Agreement. If they did not do so, they bore personal liability.
Version 10a
238.Before turning to the defendants' contention that the Funding
Agreement was incomplete and non-contractual because Lion Capital
was not party to it, it is convenient next to consider whether the Funding
Agreement was varied so as to be in the terms of Version 10a. In his
emails of 10.29am and 10.39am on 26 July 2007 Mr. Bray made it clear
that Maple Leaf agreed to those terms, and the implication was that
Astin also agreed to them. In my judgment the defendants too indicated
their acceptance of the proposed terms, which were, after all, designed
primarily to accommodate problems raised by them about fulfilling the
terms of Version 9 in respect of providing collateral. I consider that the
defendants accepted the varied terms in Version 10a in Mr. Rouvroy's
response to Mr. Bray at 11.06am and by allowing H et Associés to press
for the revised subscription in accordance with Version 10a: as I have
said, Mr. Rouvroy received copies of Mr. Doly's emails asking for it, and
he did not indicate that he or Mr. Trylinski did not agree to the terms on
which Maple Leaf clearly understood that they were subscribing. (The
defendants did not suggest that any distinction was to be drawn between
the positions of the two defendants in this regard and I infer that, as
previously, Mr. Trylinski was kept fully aware on 26 July 2007 of the
exchanges to which Mr. Rouvroy was party.)
239.I conclude that the parties agreed to the terms of Version 10a by way
of variation of the terms of Version 9.
Agreement of Lion Capital
240.As far as the evidence before me goes and as I conclude, Lion Capital
did not sign Version 9 or indeed any other version of the termsheet. The
defendants submit that there was no effective contract concluded between
them and the claimants because the Funding Agreement was made on
the basis that Lion Capital would be party to it and Lion Capital did not
become party to it.
241.I agree with the first stage of this submission. Mr. Lenon submits
that there is nothing in Version 9 to indicate that the participation of
Lion Capital was a condition precedent to the formation of an agreement
between the claimants and the defendants. I am unable to accept
this submission. The "Purchase Price", the "Loan Amount" and the
"Redemption Price" were all single lump sums. The purchased securities
were to include the 120,000 shares to which Lion Capital was to
subscribe. The collateral held by the SPV was to secure the funding from
Lion Capital as well as from the claimants. Further, while it is true that,
as Mr Lenon submits, under the terms of Version 9 the obligations of
the investors were several rather than joint, each agreeing to its own
participation, from the defendants' point of view their obvious purpose
was to enter into an agreement for enough funding to complete the
private placement. When they signed the Funding Agreement, they signed
an agreement for funding of €50,070,000. The defendants never intended
to enter into an agreement whereby they provided the security without
raising all the funds that they needed and they never evinced such an
intention in Version 9 or at any time.
242.This leads to the question whether Lion Capital entered into the
Funding Agreement. In my judgment it did. Before examining the
exchanges that lead me to this conclusion, I should say something of
the proper approach to this question. Although the formation of contract
is conventionally analysed in terms of whether a contractual offer was
accepted, the law does not require rigorous compliance with an analysis
along these lines. Nor does it require that any particular communication
or act must in itself manifest that the party intends to contract: the court
will, if appropriate, assess a person's conduct over a period and decide
whether its cumulative effect is that he has evinced an intention to make
the contract.
243.In The Zephyr, [1984] I Lloyd's Rep 58 at p.72 Hobhouse J said this:
"Where as in the present case, there is a clear intent to create legal
relations and the transaction or transactions are clearly of a commercial
character, English law is perfectly ready to recognize the contractual
relations that the parties' actions so clearly intend and will not frustrate
them on account of some difficulty of analysis. Decisions illustrating this
include Carlill v Carbolic Smoke Ball Co., [1893] 1 Q.B. 256, The Satanita,
[1897] A.C. 59, and New Zealand Shipping Co. Ltd. v Sattherthwaite,
[1974] 1 Lloyd's Rep. 534; [1975] A.C. 154. The Carlill case demonstrates
that further communication between the two parties is not necessary
if the correct construction of the statement of contractual intent by
the first party is that it dispenses with further communication by the
second party. The Satanita recognizes the legal efficacy of multilateral
contracts of accession whereby one document, the yacht club sailing
rules, can be acceded to by a number of individuals in succession so as
to put them all in contractual relations with each other. The Satterthwaite
case demonstrates that contract between A and B can bind B to third
parties who at the time of the making of the contract were unknown
and unascertainable. The judgment of Lord Wilberforce in that case at
pp. 539 and 167 stresses the need to adopt a practical approach and to
give legal effect to inherently contractual situations. The analysis of the
transaction may be relevant for the purpose of ascertaining whether there
is a consensus between the relevant parties upon a mutual bargain and
for answering other consequential questions, but once the consensus
upon a mutual bargain has been demonstrated that suffices. ."
244.In Trentham v Archital Luxfer, (cit sup) Steyn LJ observed (at p.27)
that:
"…, it is true that the coincidence of offer and acceptance will in the vast
majority of cases represent the mechanism of contract formation. It is
so in the case of a contract alleged to have been made by an exchange
of correspondence. But is is (sic) not necessarily so in the case of a
contract alleged to have come into existence during and as a result of
performance. See Brogden v Metropolitan Railway, [1877] 2 A.C. 666;
New Zealand Chipping Co. Ltd. v A.M. Satterthwaite & Co. Ltd. [1974] 1
Lloyd's Rep. 534 at p. 539, col. 1; [1975] A.C. 154 at p. 167 D-E; Gibson
v Manchester Ciry Council, [1979] 1 W.L.R 294."
He concluded (at p.29):
"The Judge analysed the matter in terms of offer and acceptance. I agree
with his conclusion. But I am, in any event, satisfied that in this fully
executed transaction a contract came into existence during performance
even if it cannot be precisely analysed in terms of offer and acceptance. "
245.The claimants' primary case is that Lion Capital had become party
to the Funding Agreement with the claimants and the defendants by
the end of the exchanges on 25 July 2007. It had, the claimants argue,
expressly agreed to the commercial terms of the Funding Agreement
when it responded to Version 8b of the termsheet, and they impliedly
assented to the additional provisions in Version 9.
246.In my judgment, in his email of 10.27pm Mr. Ferran indicated that
Lion Capital agreed to the terms of Version 8b of the termsheet. As I have
explained, I do not consider that he meant that Lion Capital could not
agree to the terms and could not enter into a contractual commitment
because he could not execute documents. On the contrary, to my mind
the natural meaning of the communication is that he accepted the terms
on behalf of Lion Capital.
247.At the time that he sent this email, Mr. Ferran had not seen Version
9. As I have said, he was responding to Version 8b of the termsheet that
accommodated his concern that Lion Capital should have equal status
with Maple Leaf and Astin with regard to the collateral held by the SPV.
The terms of Version 9 differed from those of Version 8b in some respects,
but the law does not require complete correspondence between an offer
and an acceptance in order for a contract to be concluded. The question
is whether what was introduced into Version 9 would have been regarded
by a reasonable investor in Lion Capital's position as introducing a new
term into the bargain rather than acceptance of the terms to which Lion
Capital had said they agreed: see Global Tankers Inc v Amercoat Europa
NV, [1975] 1 Lloyd's Rep 666 at p.671.
248.The claimants say that Lion Capital are to be taken to have accepted
the terms of Version 9 because, apart from providing that Lion Capital
should have equal status with Maple Leaf as to the collateral, the changes
from Version 8b by way of additional or altered terms were either (i)
terms to which Lion Capital had implicitly assented when it asked Astin
that the terms of its investment should be very similar to those of
Maple Leaf; or (ii) terms that did no more that make legally binding
the provisions of Version 8b; or (iii) terms that were manifestly more
favourable to Lion Capital than those of Version 8b. With regard to this
last consideration, the claimants say that Lion Capital are to be taken to
have accepted the terms of Version 9 in so far as it included terms that,
through not in Version 8b, simply provided an indulgence or benefit to
Lion Capital: see Chitty on Contracts (2008) 30th Ed, Vol 1 para 2-032.
249.There was a revised provision in Version 9 to the effect that Lion
Capital should have the interest in the collateral upon which it had
insisted, and were slight adjustments in the value of collateral and the
loan to value calculation, but in view of the communications from Mr.
Ferran, the defendants do not argue that because of these revisions
Lion Capital did not assent to and accept the Funding Agreement. As
for the other differences between Version 8b and Version 9, there were
provisions that placed obligations on the "Management" (an expression
which Version 9 defined as referring to the defendants) with regard to
establishing the SPV and being jointly and severally liable if the SPV was
not able to fulfil its obligations. These were to the investors' advantage
and, to my mind, the sort of provision that Lion Capital would have
expected by way of changes to make the agreement contractual and
which it left to Astin to deal with. So too, in my judgment, was a change
in the provision against the sidenote "Documentation": the obligation
in Version 8b stated that the documentation was to be completed
by 1 August 2007 or a later agreed date, but had not said who was
to complete it or that the obligation on the parties was to use best
endeavours to complete it. There was another difference between Version
8b and Version 9 in that in Version 8b the "Lenders" were identified
as "Funds managed by Maple Leaf Macro Volatility Master Fund" and
Augustin Capital Management Limited (an Astin affiliate), whereas Version
9 referred to Maple Leaf and Astin, but it is rightly not argued that
this affects the question whether Lion Capital accepted the terms. The
provision for the service of proceedings, which was new in Version 9,
provided only for a method of serving the defendants in addition to others
allowed by law, and was accordingly a provision that could only be to Lion
Capital's benefit. I do not consider that any of these provisions, which
were new in Version 9, mean that Lion Capital is not to be taken to have
agreed to the Funding Agreement as set out the terms of Version 9
250.The other new provision in Version 9 was the jurisdiction agreement.
Mr. Lenon submitted that it improved the agreement for Lion Capital and
therefore it is not to the point that Lion Capital did not specifically agree
to it. I reject that argument: the agreement would prevent Lion Capital
from resisting the jurisdiction of the English court and, being an exclusive
choice of English jurisdiction, it would prevent Lion Capital from bringing
proceedings in any other jurisdiction. Although Lion Capital is English,
it cannot be said that the jurisdiction agreement was inherently to the
advantage of Lion Capital.
251.However, I am unable to accept that, as the defendants submit,
because Lion Capital did not specifically accept the jurisdiction agreement
and Version 9 in which it was introduced, it never became party to
the Funding Agreement between the claimants and the defendants,
and therefore that agreement was not of contractual effect. There are
several reasons, I think, for rejecting that argument, but whatever the
precise analysis that is preferred, in my judgment the consequence of the
submission is quite contrary to any financial or business sense.
252.To my mind the simplest answer to this argument is that Lion Capital
accepted the terms agreed between the claimants and the defendants by
its email at 9.01am on 27 July 2007 if not before. By then Lion Capital
had received the terms of Version 9 and raised no objection to the
jurisdiction provision or to any other term. It had also received Versions
10 and 10a. The clear implication of Lion Capital's message that there was
no point in duplicating the drafting work that was to be done by Maple
Leaf's lawyers and asking to have contact with them was that it had no
disagreement with those terms and that it accepted them.
253.Another answer, as it seems to me, to this argument of the
defendants is this. By 30 July 2007 the defendants and Lion Capital
had agreed that Lion Capital would not invest upon the terms of the
Funding Agreement. Lion Capital and the defendants wished to make
another deal and the claimants accepted this. By this time, the claimants
had made it clear to the defendants that they considered that they had
concluded the Funding Agreement. The defendants, although seeking
to negotiate improved terms, had not disputed this. The implication of
the arrangement that Lion Capital should withdraw from the Funding
Agreement and invest upon different terms was that it should not
affect the terms that had been agreed between the claimants and
the defendants for Maple Leaf's investment and indeed for Astin's
remuneration. If previously the agreement between the claimants and
the defendants was incomplete because of an outstanding issue about
Lion Capital's participation, the arrangement that Lion Capital should not
invest under the Funding Agreement resolved it. Therefore the implication
of the new agreement between Lion Capital and the defendants, and the
claimants' assent to it, was that the claimants and the defendants agreed
that the terms of Maple Leaf's investment and Astin's remuneration were
those agreed by them with the defendants in the Funding Agreement.
254.In view of these conclusions, the claimants need not rely upon
a further possible answer to the contention that the agreement was
incomplete because Lion Capital had not agreed to the jurisdiction
provision. Mr Lenon referred to the severability of jurisdiction agreements
from the substantive provisions of the contract incorporating them. He
submitted that, even if Lion Capital is not to be taken to have agreed to
the jurisdiction provision, the agreement upon the substantive provisions
was nevertheless concluded and contractual as between the claimants,
the defendants and Lion Capital, notwithstanding that the jurisdiction
provision was effective only between the claimants and the defendants.
I see the attraction of this submission and consider that it reflects the
commercial reality of the positions of the parties, but it is unnecessary to
express any concluded view about it and I prefer not to do so.
Astin's position under the termination provision
255.I next consider arguments of the defendants about the meaning of
the termination provision and whether it is penal at common law in so far
as it requires the payment upon automatic termination of the contract of
"25% of the Purchase Price plus payment of payment of any loss resulting
from the sale of the Purchased & Contributed Securities in the Market plus
any fees and reimbursement of any professional and legal fees incurred".
I shall assume for present purposes that the validity, effectiveness and
enforceability of the termination provision is not affected by either the
Consumer Contract Regulations 1999 (the "1999 Regulations") or the
provisions relating to "unfair relationships" in sections 140A to 140D of
the Consumer Credit Act 1974 (the "1974 Act"). I shall consider those
statutory provisions later.
256.The question of construction is whether the provision requires
payment of Astin's remuneration of 4% for arranging the funding to
be provided under the Funding Agreement. It is the submission of the
defendants that Astin's remuneration is not covered by the expression
"any fees and reimbursement of any professional …fees incurred" because
this expression is directed to fees incurred by the "Lenders" upon a re-
sale of the securities. In support of this contention, they point out that
the payment to Astin is not referred to in the Funding Agreement as
"fees" but rather as part of the Loan Amount. I accept the defendants'
submission.
257.This leads to the question whether the termination affects Astin's
right to remuneration that it was to receive under the Funding Agreement.
Astin's right to "4% of the Purchase Price for [Astin's] participation for the
arrangement of the funds" is, under the terms of the Funding Agreement,
an element of the "Purchased & Contributed Securities", but it was not an
element that the parties could have contemplated would be sold in the
market. In my judgment, the part of the termination provision that deals
with the entitlement of "Lenders" to payment is directed to the position
of Lenders who were to have "Purchased & Contributed Securities" by
way of shares, warrants and bonds, and were to have "contributed"
to the SPV. The provision does not apply on any literal construction to
loss of remuneration that Astin would suffer as a result of the Funding
Agreement being automatically terminated and it does not seem to be
that this part of the termination provision can properly be strained to
apply to Astin's position. I conclude that Astin has no entitlement under
this provision and that the termination provision does not apply to Astin's
rights under the Funding Agreement or affect them. If the termination
comes about without breach on the part of the SPV or the borrowers, then
Astin had no entitlement. If there was a breach of contract, then Astin has
a claim for damages.
Maple Leaf's entitlement under the termination provision
258.The defendants submit that the termination provision does not entitle
Maple Leaf to recover all loss that results from a sale of the warrants, and
that its entitlement is impliedly subject to a qualification that it would use
reasonable efforts to sell the warrants in the market place for the best
price reasonably available and do so within a reasonable period of time.
It argues that otherwise the effect of the provision is that Maple Leaf
could decide not to sell the warrants knowing that it would benefit from
any increase in the value of the warrants if their value increased but be
protected from any fall in their value.
259.I see force in an argument that Maple Leaf's entitlement is limited
to what can properly be said to result from the sale of the securities
and does not extend to what results from Maple Leaf's unreasonable
conduct, that would have been within the reasonable contemplation of
the parties that Maple Leaf's entitlement should be subject to such a
limitation. While there might be room to debate whether this provision
is strictly to be classified as an indemnity, the observation of Rix J in
The "Eurus", [1996] 2 Lloyd's LR 408, 424 is in point: "Just as in the
area of damages for breach of contract the law has engrafted limitations
on the basic principle of indemnity, so in the context of contractual
indemnities the law has been concerned to examine critically the basic
notion that the indemnifier is liable for all loss consequent upon the
stipulated condition, and this is so even if the indemnity clause expressly
refers to "all consequences". The basic tool is one of construction, and
this inevitably involves reference to the reasonable contemplation of
the parties. Thus, in the absence of express language, an indemnity
will not cover loss caused or contributed to by the negligence of the
party who invokes the indemnity: The Fiona, [1994] 2 Lloyd's Rep 506".
However, if and when Maple Leaf seek payment under the termination
provision following sale of the warrants, it will be necessary to quantify
its entitlement, and I shall not express any concluded view about the
meaning of the provision.
Is the termination provision penal?
260.Is the provision about Maple Leaf's entitlement under the termination
provision penal? In order for a provision for payment to be penal, it must
provide for payment upon a breach of contract of an amount that is not
a genuine pre-estimate of loss but extravagant and unconscionable in
amount in comparison with the prospective loss: Jeancharm Limited v
Barnet Football Club Limited, [2003] EWCA Civ 58 at para 27.
261.The defendants submit that the formula for a payment is extravagant
and unconscionable because:
i) It provides for payment of the entire uplift of 25% without taking
account of the fact that, because of the termination, the Lenders might
not have incurred expenditure in buying securities.
ii) In any event, if a Lender had bought securities before the Funding
Agreement terminated, he might have sold them and recouped his
investment long before he would have been entitled under the Funding
Agreement to payment of the purchase price with an uplift of 25%.
iii) Since the termination provision separately provides for any expenses
incurred by way of loss on the securities and any expenses incurred, there
is no risk of this kind to be brought into account in considering whether
the payment of the 25% is extravagant and unconscionable.
262.I accept these points as far as they go, but there are three possible
answers to be considered. First, the payments are to be made in the
event of automatic termination, which can, as I see it, come about
either as a result of breach (on the part of the SPV or the defendants)
or otherwise. Although the law about this has been a matter of some
debate (see Chitty of Contracts (2008) 30th Ed para 38-330), I consider
the better view to be that if a payment is to be made upon an event that
"where a sum is contractually payable on the happening of a number of
events, including a breach of contract by the payer, the sum is capable of
being a penalty when the circumstances giving rise to payment are the
breach of contract, but not when the circumstances giving rise to payment
are otherwise": Lewison, The Interpretation of Contracts, (2007) 3rd Ed
para 16.04 p.598, and see Cooden Engineering Co Ltd v Stanford, [1953]
1 QB 86. I therefore think that this provides no answer to the defendants'
argument that the payment under the termination provision is penal.
263.Secondly, it is said that the amount does not exceed the amount
of any loss that Maple Leaf might suffer in the event of breach because
Maple Leaf would also be entitled to compensation for losing upon
termination of the Funding Agreement the option to purchase and the
right to borrow securities. This argument depends upon construing the
termination provision as intended to satisfy any claim that the lenders
might have for damages for the loss of these rights, and I do not so
understand the termination provision. The formula for what is to be paid
is designed to cover the loss in respect of the Loan Redemption Amount.
It is not a formula directed to loss of the option and the right to borrow,
and I cannot accept that it is to be understood to displace a damages
claim if those rights are lost as a result of a breach of contract on the part
of the SPV or the defendants.
264.Thirdly, however, it is well established that the law does not treat as
penal a provision that requires immediate payment of a debt that would,
but for a contractual breach, be payable at some later date: The Angelic
Star, [1988] 1 Lloyd's Rep 122. The position might be different if the 25%
uplift were properly to be regarded simply as interest on the loan but
to my mind it is not. It does not depend upon how long the funding was
provided but was rather by way of a single fee that the defendants agreed
to pay on the earlier of a year from the funding date and 1 August 2008
as consideration for the Lenders' assistance in subscribing in the private
placement.
265.I therefore reject the defendants' contention that the Lenders'
entitlement to payment under the termination provision is penal.
Is the agreement binding and enforceable?
266.The defendants next argue that, even if they did conclude a contract
with the claimants, then some terms of it are not binding upon them
because of (i) the 1999 Regulations and (ii) the provisions relating
to "unfair relationships" in the 1974 Act apply to it. (The defendants
further pleaded that their contract with the claimants was "usurious and
consequently criminal and/or unlawful" as a matter of French law, but
they adduced no evidence of French law. The validity and enforceability of
the contract and its terms are to be determined under English law.)
The 1999 Regulations
267.The 1999 Regulations "apply in relation to unfair terms in contracts
concluded between a seller or supplier and a consumer": Regulation
4. They provide that "An unfair term in a contract concluded with a
consumer by a seller or a supplier shall not be binding on the Consumer",
but that "The contract shall continue to bind the parties if it is capable of
continuing in existence without the unfair term": Regulation 8.
268.The defendants' pleaded complaints about the unfairness of the terms
of the Funding Agreement are:
i) That "the purported "terms" represent an unfair relationship between
the debtor and creditor due to, inter alia, the excessive amount of interest
purportedly charged by the Claimants and the unreasonable risk which
the Defendants are expected to assume in their individual capacities
in terms of both the amount of collateral required and the personal
guarantees required".
ii) Complaints directed to the termination provision.
I therefore understand the terms to which the pleading is directed
are (i) the term about the "Redemption Price" (to which, presumably,
the complaint of the amount of "interest" is directed); (ii) the terms
about the collateral to be provided; (iii) the provision under the heading
"Borrower", and repeated in part in the termination provision, that the
defendants should be personally liable for the obligations of the SPV
in the event that it was unable to perform its obligations; and (iv) the
termination provision. However Mr. Castle's submission based upon the
1999 Regulations included a wider attack on Version 9 and it covered
the call option and the right to borrow the securities held by the SPV. No
point was taken by the claimants that the submissions departed from the
pleaded case and I shall consider these additional points.
269.The claimants do not dispute that they were "sellers or suppliers"
within the meaning of the 1999 Regulations, or that the Funding
Agreement was of a kind to which the 1999 Regulations might apply. The
arguments that they advance in answer to this part of the defence are
these:
i) That the defendants did not conclude the Funding Agreement as
"consumers".
ii) That terms about which the defendants complain are covered by
Regulation 6(2) and therefore their fairness is not to be assessed.
iii) That the terms are not unfair.
270.A "consumer" means "any natural person who, in contracts covered
by [the] Regulations, is acting outside his trade, business or profession":
Regulation 3(1). For the same reasons as I held that the defendants are
not consumers for the purposes of article 15 of the Brussels Regulations,
I agree with the claimants' first argument. Indeed, in Standard Bank
London Limited v Apostolakis, (loc cit). Longmore J considered that there
was no "substantial" difference between the meaning of "consumer" in the
1999 Regulations and in the Brussels Convention.
271.Regulation 6(2) provides that, "In so far as it is in plain intelligible
language, the assessment of fairness of a term shall not relate – (a) to
the definition of the main subject matter of the contract, or (b) to the
adequacy of the price or remuneration, as against the goods or service
supplied in exchange". The 25% return on the investment does relate to
the adequacy of the "price or remuneration", and it was not suggested,
and to my mind could not properly be suggested, that this provision was
not expressed in plain intelligible language. I do not consider that term
to be covered by the 1999 Regulations. The other terms about which
the defendants complain would have been covered if the defendants had
made the Funding Agreement as consumers.
272.Are the terms unfair? Regulation 5(1) provides that "A contract
term which has not been individually negotiated shall be regarded as
unfair if, contrary to the requirement of good faith, it causes a significant
imbalance in the parties' rights and obligations arising out of the contract,
to the detriment of the consumer". Regulation 6(1) provides that
"the unfairness of a term shall be assessed, taking into account the
nature of the goods or services for which the contract was concluded
and by referring, at the time of conclusion of the contract, to all the
circumstances attending the conclusion of the contract or of another
contract on which it is dependent".
273.It is not easy to discern from the 1999 Regulations the relationship
between the condition that a term that is to be regarded as unfair should
cause "a significant imbalance in the parties' right and obligations" and
the reference to it being "contrary to the requirement of good faith": see
Director General of Fair Trading v First National Bank Plc¸ [2001] UKHL
52 and in particular, perhaps, para 17 in the speech of Lord Bingham.
I shall not enter upon that debate, not least because I received no
submissions about this. It suffices for present purposes to refer to the
decision in Bryen & Langley Ltd v Boston, [2005] EWCA Civ 973, in which
the Court of Appeal, having held that the terms under challenge had not
been imposed on the consumer in contravention of the requirement of
good faith, considered that that in itself meant that they were not to be
regarded as unfair and that it need not create a significant imbalance in
the parties' rights and obligations to the consumer's detriment. Rimer J
(with whom Pill and Clarke LJJ agreed) said this (at paragraph 44):
"I do not propose to engage in any consideration of whether, on some
sort of attempted objective assessment, the particular provisions to
which [counsel for Mr. Boston] refers do or do not cause a "significant
imbalance" in the respective rights of B&L and Mr. Boston to the detriment
of Mr. Boston. That is because, in my judgment, the performance of such
an exercise will not, by itself, provide an answer to the question raised by
[counsel's] submission. As Regulation 5(1) makes clear, a term which has
not been individually negotiated will only be relevantly "unfair" if it causes
the relevant imbalance contrary to the requirements of good faith"."
Then, having quoted from paragraph 17 of Lord Bingham's speech in First
National Bank, Rimer J. went on (at paragraph 45):
"It follows, in my view, that in assessing whether a terms that has not
been individually negotiated is "unfair" for the purposes of Regulation
5(1) it is necessary to consider not merely the commercial effects of the
term on the relative rights of the parties but, in particular, whether the
term has been imposed on the consumer in circumstances which justify
a conclusion that the supplier has fallen short of the requirements of fair
dealing."
He concluded (at paragraph 46) as follows:
"In my judgment, there was no lack of openness, fair dealing or good
faith in the manner in which the June 2001 contract came to be made and
in those circumstances I, like the judge, regard Mr. Boston's case under
the 1999 Regulations as not made out"."
Although I find some difficulty in reconciling this reasoning with some of
the observations in the First National Bank case (in particular those of
Lord Steyn at paragraph 36), the Bryen & Langley case is binding upon
me.
274.I must therefore consider whether the defendants agreed to the
terms of Funding Agreement that are challenged under the 1999
Regulations in circumstances in which the "suppliers", Astin and Maple
Leaf, failed to observe standards of fair dealing. I do not accept that they
did so fail. The circumstances were that the defendants, though no fault
of Astin, had not invoked Astin's assistance in finding finance until a late
stage in the private placement: Astin had urged them to take steps to
secure investment earlier than they did. Accordingly, in so far as the
defendants complain that they entered into the Funding Agreement in a
somewhat frenetic atmosphere, that came about because they delayed
calling upon Astin's services and not through any fault of Astin or Maple
Leaf. Astin was led to understand that funding was required as a matter
of urgency, it explained to the defendants that the finance required at
short notice would be expensive and it was justified in supposing that
the defendants understood this. Astin also understood, and reasonably
understood, that the defendants themselves had experience of financing
arrangements and also had available to them the advice of H et Associés.
Mr. Rouvroy accepted that he could have taken legal advice from Paul
Hastings during the evening of 25 July 2007 but did not do so because
he did not feel that he needed it. Astin also urged the defendants to
review the proposed terms, and, as I find, the defendants never gave
any indication before signing the Funding Agreement that they had not
had time to review them, or that they had difficulty in understanding
them, or that they were unhappy with them. Given that the SPV had not
been established, it was inevitable that the defendants should undertake
personal liabilities and they could not have expected otherwise; nor could
they have contemplated that the funding would not be secured. The
uplift of 25% was suggested by Mr. Hottinguer in a conversation to which
the defendants were party. (I have difficulty in seeing how it was not
individually negotiated, but that point was not taken by the defendants.)
The defendants had been told as early as 10 July 2007 of the proposal
that the SPV should be obliged to lend the securities that it held (albeit
this was first mentioned when a different sort of deal was contemplated).
The call option was drawn to the defendants' attention when Mr. Bray
sent Version 2a and remained in all drafts sent during the evening of 25
July 2007. The right to borrow securities was drawn to the defendants'
attention in the email sent at 6.10pm. I do not consider that the terms
were imposed on the defendants unfairly.
275.In view of these conclusions, it is not necessary for me to consider
a further difficulty in the defendants' argument. Even if criticism could
properly be made of the way in which Astin dealt with the defendants, the
real "seller" or "supplier" under the Funding Agreement was Maple Leaf. I
see no argument that could properly be advanced that it acted "contrary
to the requirement of good faith" in its dealings with the defendants when
making the Funding Agreement, and, as I have already said, I do not
consider that Astin was not the agent of Maple Leaf in any relevant way.
However, this argument was not advanced by the claimants and, in view
of my other conclusions, I need not consider the point further.
The 1974 Act
276.Section 140A of the 1974 Act provides that:
"The court may make an order under section 140B in connection with
a credit agreement if it determines that the relationship between the
creditor and the debtor arising out of the agreement (or the agreement
taken with any related agreement) is unfair because of one or more of the
following –
any of the terms of the agreement;
the way in which the creditor has exercised or enforced any of his rights
under the agreement or any related agreement;
any other thing done (or not done) by, or on behalf of, the creditor (either
before or after the making of the agreement or any related agreement)."
277.Section 140B confers on the court wide powers to give directions to
the parties and to set aside or to alter contractual terms. The defendants
say that the court should use these powers: Mr. Castle did not specify a
particular order sought by the defendants, but said that this should be the
subject of a separate inquiry. The defendants' pleading, however, suggests
that they direct their criticism to the same terms as they challenge under
the 1999 Regulations in their pleading, that is to say (i) the term about
the "Redemption Price"; (ii) the terms about the collateral to be provided;
(iii) the provision under the heading "Borrower", and repeated in part in
the termination provision, that the defendants should be personally liable
for the obligations of the SPV if it was unable to perform its obligations;
and (iv) the termination provision.
278.The claimants' responses to the defence based upon the 1974 Act
are:
i) That the Funding Agreement that they made with the defendants is not
a "credit agreement", and
ii) That the Funding Agreement and the parties' relationship arising out if
it are not "unfair".
279.A "credit agreement" (as the expression is used in section 140A and
140B of the 1974 Act) means "any agreement between an individual (the
"debtor") and any other person (the "creditor") by which the creditor
provides the debtor with credit of any amount": section 140C. "Credit"
in the 1974 Act "includes a cash loan, and any other form of financial
accommodation": section 9(1). As Professor Sir Roy Goode observes
in Consumer Credit Law and Practice at para 24.8, credit involves the
supply of a benefit to a debtor and a duty to pay being contractually
deferred. If the recipient of the benefit has no duty to pay for it, credit
is not being extended to him. "In other words, credit for the purpose of
the [1974 Act] involves the contractual deferment of debt. If a person
takes credit without having been granted it – as where he is slow in
paying his dentist's bill or his solicitor's account – there is no extension
of credit within the [1974 Act]. Even if the supplier agrees to a delay in
payment, there is no credit agreement unless he receives consideration
for consenting to the delay, as by stipulating for interest": Goode, loc cit
at para 24.24. Subject to this, however, "If payment for goods or services
or land is deferred after the time when, if nothing about time of payment
had been agreed, the payment would be due, the payer is being given
credit": Dimond v Lovell, [2000] QB 216 para 54, a view from which there
was no dissent when the case went to the House of Lords, [2002] 1 AC
384.
280.Maple Leaf did not provide credit under the Funding Agreement.
Maple Leaf was to buy CLF's warrants and to pay CLF for them; and there
was no benefit conferred on the SPV as a result of Maple Leaf buying
the shares. A benefit was to be conferred on the SPV when the warrants
were transferred to them. However, even if it be supposed that, in the
absence of the Funding Agreement, the SPV would have been obliged to
pay for the warrants immediately upon transfer, it cannot be said that
by the Funding Agreement Maple Leaf provided credit to the SPV in that
it deferred the date for payment by SPV: the SPV was not party to the
Funding Agreement. Similarly, the Funding Agreement provided a date
for payment by the SPV of Astin's fee that was not immediate, and Astin
did not thereby provide credit for the purposes of the 1974 Act. In any
case it would not assist the defendants to show that under the Funding
Agreement the claimants were to provide credit to the SPV that was to
be established. The "debtor" under the "credit agreement" must be an
individual if these provisions of the 1974 Act are to apply. The defendants
were not debtors: their obligations to pay might or might not arise under
the Funding Agreement, and without a debt owed by the defendants,
there was no credit provided to them: see Nejad v City Index Limited,
[1999] EWCA Civ 1812, [2000] CCLR 7 and McMillan Williams v Range,
[2004] EWCA Civ 294, [2004] 1 WLR 1858 at paras 16-18.
281.The defendants say that the purpose of the agreement was to provide
funding to them and that accordingly its purpose was to provide credit
to them. This does not seem to me to answer the claimants' point. I do
not consider that, unless the arrangements that the parties made were a
sham (and it is not suggested that the Funding Agreement was a sham),
the court must consider the structure of the arrangements that were
agreed between the parties in order to determine whether the Funding
Agreement is a "credit agreement". As Lightman J observed in Wire
TV Ltd v Cable Tel Ltd, [1998] CLC 244 at p 258, when examining an
agreement that is not a sham, the court recognises that the parties have
a choice as to how a contract is structured and pays appropriate respect
to the structure adopted by the parties.
282.Although I conclude that for these reasons the provisions of the
1974 Act relied upon by the defendants do not apply to the relationship
between the claimants (or either of them) and the defendants, I should
also consider whether the relationship under the Funding Agreement (or
the Funding Agreement as varied consensually) is unfair. Section 140A(2)
of the 1974 Act provides that in deciding whether so to determine "the
court shall have regard to all matters it thinks relevant (including matters
relating to the creditor and matters relating to the debtor)". Section
140B(9) places on the creditor the burden of proving that a relationship is
fair once the debtor or a surety has alleged unfairness.
283.As I interpret the 1974 Act, it is not sufficient for the creditor to show
that it was fair in the way in which it went about reaching an agreement
with the debtor. The question of the fairness of the relationship between
creditor and debtor calls for a different enquiry from that required by the
1999 Regulations, and it does not necessarily follow from my conclusion
that the terms of the Funding Agreement are to be assessed as fair for
the purposes of the 1999 Regulations that the relationship between the
claimants and the defendants is fair for the purposes of the 1974 Act.
284.The defendants' submission is that, in considering whether the
relationship is fair under the 1974 Act, the court should assess not only
the commercial content of the bargain but also the circumstances in which
the parties came to make the contract, including their relative bargaining
power and any "exigent circumstances at the time that the contract was
made", the knowledge that the creditor has, or is to be taken to have had,
about the debtor's circumstances, and the "actual consequences of the
relationship, including its effect on third parties and the extent to which
the creditor should have foreseen these".
285.Under section 140A, the court is required to determine whether the
relationship between the debtor and the creditors is unfair because of one
or more of three specified matters: the terms of the agreement; the way
that rights under the agreement (or a related agreement) are exercised
or enforced by the creditor; and the conduct of the creditor (before
or after making the agreement). I do not understand the defendants
to complain in relation to the 1974 Act about how the claimants have
sought to exercise their rights under the agreement or to enforce their
rights; and I do not understand them to complain that the claimants
have done anything after the Funding Agreement was made that makes
the relationship with the defendants unfair. For the reasons that I
have explained when assessing fairness for the purposes of the 1999
Regulations, I do not consider that the relationship of the claimants and
the defendants is unfair because of anything done by or on behalf of the
claimants before it was concluded. In so far as the defendants complain
that their relationship with Maple Leaf and Astin is unfair because of the
circumstances in which the Funding Agreement was made or the conduct
of the claimants in relation to that, I reject the complaint for the reasons
that I have explained when considering the 1999 Regulations. It therefore
seems to me that the complaint that the relationship is unfair depends
upon whether the terms of the agreement themselves were unfair.
However, even if I were to adopt a broader approach to this question as
the defendants appear to advocate, I would reach the same conclusion.
286.The defendants say that the relationship in the agreement with the
claimants was unfair because:
i) The return on the funding was excessive in relation to the market, the
more so because the claimants had the call option and the right to borrow
securities.
ii) Given the level of the collateral, the personal undertakings were unfair
and it was unnecessary and inequitable to require them.
iii) The "Default Provision" was unfair because it allowed the "Lenders" to
retain the collateral provided by the defendants to the SPV, and there was
no similar or equivalent provision to secure any failing on the part of the
"Lenders", for example if they did not transfer the purchased securities to
the SPV.
iv) The termination provision was unfair because the claimants were
not prevented from unfairly exercising their rights under it to extend
the Funding Agreement and there was no reciprocal protection for the
defendants if the claimants or Lion Capital did not fulfil their obligations.
v) The securities lending provision might be exercised so as to undermine
the value of the Belvédère securities if the right to borrow securities was
used to sell the shares short.
287.As I have said, the defendants created the circumstances in which
they had to resort to expensive funding, were warned explicitly by Astin
that it would be expensive and accepted an increase in the cost of the
funding at the suggestion of Mr. Hottinguer. I am unable to accept that,
especially given the defendants were experienced businessmen, this in
itself means that the terms were unfair.
288.Nor am I able to accept that the level of collateral was such that it
was unfair to require the defendants' personal undertakings or that the
personal undertakings made the relationship between the claimants and
the defendants unfair. It was fair for the claimants to protect their position
before the SPV was effectively established and the collateral transferred
to it; and it was fair that the claimants should not rely exclusively upon
shares and warrants in Belvédère as security, especially given that the
request for funding was too late for them to allow any real due diligence.
I reject the defendants' submission that their personal undertakings were
unnecessary or unfair.
289.I also do not consider the relationship between the claimants and the
defendants unfair because of the default provision. The primary purpose
of putting assets into the SPV was to secure the payment to the claimants
on the Loan Maturity Date. The defendants faced no comparable exposure
to risk.
290.Finally, I am unable to accept that the relationship between the
claimants and the defendants was unfair because the Funding Agreement
included the Termination Provision and the Security Lending provision.
It was natural that, if the contemplated machinery for the funding broke
down, it should be within the claimants', but not the defendants', power
to allow the funding arrangements nevertheless to continue. There is
nothing inherently unfair in a securities lending provision of the kind in
the Funding Agreement. Moreover, the submission that the relationship
was unfair because of the termination provision and the securities lending
provision is, as I understand it, that the claimants might have exploited
these provisions unfairly. It is not said that they did exploit them unfairly:
the claimants did not, as I have found, effectively use their power to avoid
automatic termination of the Funding Agreement and did not borrow
securities held by the SPV. There would have been adequate power
under the regime in section 140A et seq of the 1974 Act for the court to
make an order in the event that the claimants unfairly exercised these
rights, and I do not accept that, even if these provisions might have
been exploited unfairly, the court should make any relevant order in the
circumstances that have occurred.
What remedies are the Claimants entitled to on their contract claims?
291.I therefore conclude that the Funding Agreement had contractual
effect between the claimants and the defendants, that it is enforceable
and that the claimants' rights under it are not affected by the 1999
Regulations or the 1974 Act. The defendants failed to fulfil their
obligations under it. I therefore come to consider the remedies to which
the claimants are entitled.
292.In their claim form and at the start of the trial, the claimants sought
specific performance of the Funding Agreement. The defendants adduced
evidence that they could not perform the contract because their securities
in Belvédère were pledged to a third party (or to third parties), and the
claimants no longer pursue that claim. Their contractual claims are in
debt, in damages and for an indemnity under the termination provision.
293.Maple Leaf seeks to claim in debt €37,499,932.50 on the basis that
the defendants became liable to pay this sum on 1 August 2008 because
the Loan Maturity Date was "1 August 2008 or one year from the funding
date whichever is the earlier"; the defendants are jointly and severally
liable to pay because the Funding Agreement provides that, "if SAV is
unable to repay the Loan Redemption Amount, JR and KT shall be jointly
and severally liable to repay the Loan Redemption Amount"; and no SPV
is able to repay it. Astin seeks to claim €2,503,500 in debt on the same
basis. (In fact, the evidence before me is that the funding was provided
by Maple Leaf on 26 July 2007 and on that basis it might be argued that
the Loan Redemption Amount was payable on 25 July 2008. The date
when the debt fell due to Astin is less clear: it did not provide funds itself
and some of the amount that its claim is attributable to funding that was
to be provided by Lion Capital. It might be said that therefore its claim, or
at least part of it, did not fall due until 1 August 2008. Since, however, the
claimants present their case on the basis that the Loan Maturity Date was
1 August 2008, I do not need to consider these questions further.)
294.The defendants disputed that Maple Leaf has a claim in debt. They
did not dispute that Astin has a claim in debt (assuming the validity of
the contract), but disputed its amount and say that the proper amount
is €1,201,200, being 4% of the funding provided by Maple Leaf. Thus it
is said that Astin is not entitled to (i) a percentage of the uplift of 25%,
or (ii) payment in respect of the part of the Loan Redemption Amount
attributable to funds to be provided by Lion Capital.
295.I reject both these arguments. The first depends upon the
defendants' arguments about the unenforceability of the provision for a
25% uplift, which I have rejected. Assuming, as I have concluded to be
the case, Lion Capital was a party to the Funding Agreement, the second
argument depends upon a submission advanced by the defendants that,
when Astin assented to Lion Capital withdrawing from the termination
provision, it agreed, impliedly if not expressly, that it would no longer
be entitled to the part of the Loan Maturity Amount attributable to the
funding from Lion Capital. I have rejected that proposition: there is no
evidence of Astin's express agreement to this, and there is no proper
basis for inferring its implied agreement, either as necessary to give
business efficacy to the arrangement or as reflecting the parties' obvious
intention. On the contrary, there is no reason that Astin should have
abandoned part of its entitlement.
296.However, these claims in debt cannot succeed if I am right in my
conclusion that the Funding Agreement was not effectively extended
by the claimants and that it automatically terminated before the Loan
Maturity Date and before the debts accrued. Astin has no claim in debt
under the termination provision, but, as I see it, it has a claim in damages
in respect of the debt which would have accrued due to it on the Loan
Maturity Date had the Funding Agreement not terminated as a result of
the defendants' breach of it. I shall, however, in view of the way that the
argument proceeded before me, invite further submission about the form
of Astin's remedy.
297.Maple Leaf is entitled to the payments contemplated by the
termination provision: that is to say, it is entitled to payment (i) of
€7,499,986.50 and (ii) of any loss resulting to it from the sale of the
warrants that it has bought and still holds, together with any fees incurred
and reimbursement of any expenses incurred. The claimants also seek
damages in respect of the "value of the options which should have been,
but were not, granted on or about 1 August 2007".
298.I add that, if I had concluded that the Funding Agreement was
extended under the termination provision (or that it is not open to me
to find otherwise in view of the position adopted by the defendants
about this), the claims in debt for €37,499,986.50 and €2,503,500
would have succeeded. However, as Mr. Lenon acknowledged, Maple
Leaf would have had to bring into account the value of the warrants
(net of any costs involved in realising them). The question whether the
agreement was extended affects the legal nature of the claimants' relief
but, depending upon the quantum of the claim for loss resulting from the
sale of securities, might not much affect the amount of their recovery.
The damages in respect of the call option
299.The claimants are entitled to damages in respect of the call option
that would put them in the position in which they would have been
had the Funding Agreement been fulfilled by the defendants. As I have
explained, I do not consider this claim to be absorbed by the payment
entitlement in the termination provision. I next consider the quantum of
this damages claim: the claimants say that it is €9.42 million.
300.I should first say something about the nature of call option and the
warrants. The agreement was that Maple Leaf and Astin should "have the
option at any time over the term of the loan" to purchase the warrants.
Originally in Version 9 the option was to buy 330,000 warrants at a strike
price of €91 per warrant, but this was varied on 26 July 2007 to an option
to buy 365,853 warrants at a strike price of €82 per warrant.
301.The warrants had been issued on 17 December 2004 and mature
on 17 December 2011. There were 621,000 such warrants in this issue,
each warrant giving the holder the right to acquire one share in Belvédère
at a strike price of €85 per share. The rights were "American", that is to
say they might be exercised at any time before the maturity date, rather
than "European", that is to say exercisable only on the maturity date. The
option itself too was American, being exercisable "over the term of the
loan".
302.The call option was to have been held and exercisable by the
claimants jointly, but I accept Mr. Lenon's submission that Astin would
have accepted Mr. Castrounis' decision about how the option should be
exercised and exploited. It is apparent that Astin and Maple Leaf had
a valuable business relationship and Astin would not have wished to
jeopardise it with a dispute over such a matter, and Mr. Castrounis had,
and Astin will, I infer, have known that he had, considerable expertise in
this area. Certainly it was not suggested to Mr. Castrounis that he would
not have been able to deal with the options as he decided because of
opposition from Astin.
303.There is an issue between the parties about whether the claimants
were entitled to exercise it in respect of some but not all of the 365,853
warrants. The defendants say that they were not, because the option
was expressed (in Version 10a) in terms of purchasing "the 365,853
warrants". The claimants submit that the expression allows the option to
be exercised in respect of the 365,853 warrants or any of them. This, they
say, is the implication of the option provision because it contemplates that
by exercising it the Lenders might "cancel any portion of their outstanding
loans" at their Redemption Price (125% of the Loan Amount). I am
persuaded by this submission. It was said by Mr. Castle that the claimants
had not pleaded that they might so have exercised the option, but in
so far as this is not implicit in their pleading, the defendants were not
prejudiced by this and I do not consider that this pleading point should
inhibit me from quantifying damages on what I consider to be the proper
basis.
304.The defendants also dispute that the option was assignable. Prima
facie contractual rights are assignable under English law and there was
no express prohibition on assignment. Nor, in my judgment, is there any
basis for inferring that there was an implied prohibition. (It is true that
the right related to warrants in a French company, but if it be said that
therefore under article 12(2) of the Rome Convention their assignability is
governed by French law, there was no evidence that the relevant French
law is different from English law and it is presumed to be the same.) In
any event, the question whether the option is assignable does not, in my
judgment, affect the measure of the claimants' damages. If the claimants
could not have realised the option by assigning it, they could and, as Mr.
Castrounis explained in his evidence, would have exploited it by entering
into back to back arrangements with the third parties. Thus, it would have
been possible to dispose of a part of the benefit of the call option.
305.Maple Leaf could not in practice exploit the option without formal
documentation of the kind that the Funding Agreement contemplated
and they were deprived of this by the defendants' breach. Mr. Castrounis'
evidence was that if Maple Leaf had been able to exploit the option
contemplated by the Funding Agreement, he would have sought to realise
it in the market, and considered that the option would have been easier to
realise than the warrants themselves: the option provided an opportunity
to a purchaser to obtain a 13% shareholding in the company without
disclosure and notification obligations and at a relatively low price.
Otherwise Mr. Castrounis would have exploited the option by hedging
transactions: this would have involved using the right under the Funding
Agreement to borrow shares from the SPV, and taking a short position
in the stock. If the price rose, Maple Leaf could have used the call option
to cover the position, and if it fell, Maple Leaf would have profited from
its short position. Mr. Castrounis considered that it would not have been
possible to sell large parcels of shares by way of such a hedging strategy
because of the illiquidity of the shares but the strategy could have been
pursued over some weeks or months.
306.Maple Leaf's pleaded case, which Mr. Castrounis explained and
supported in his evidence, is this: that in fact on average some 3,500
shares in Belvédère were sold daily and Maple Leaf could have dribbled
on to the market about 700 further shares each day (or increased the
volume of trading by about 20%) without significantly affecting upon
the market price: thus it could have sold about 70,000 shares between
1 August 2007 and 31 December 2007. By 31 May 2008 this position
would have been worth €4,130,000 (or 70,000 x €59, the difference
between the average share price of €149 during the period between 1
August 2007 and 31 December 2007 and the share price of €90 on 31
May 2008). The price of Belvédère shares fell significantly from the end of
January 2008 from €120. The fall in the price of Belvédère shares meant
that, while a further 70,000 shares might have been trickled on to the
market between 1 January 2008 and the end of May 2008, after the first
two weeks of January 2008, Maple Leaf would in fact have ceased any
profitable hedging activity. The value of positions taken after 1 January
2008 would, it is pleaded, have been only about €300,000.
307.I generally accept Mr. Castruonis' evidence about this and that
this properly and fairly states how the claimants could and would have
exploited the option by hedging. It was suggested by the defendants that
it should be inferred that Maple Leaf would not have exploited their rights
in this way because they did not in fact sell Belvédère securities short in
the period after 1 August 2007. I reject that argument: the defendants'
default prevented Mr. Castrounis from pursuing the hedging strategy that
he described.
308.However, I am not satisfied that scale of activity would have been
as much as the claimants plead. Dr Fitzgerald's evidence was that in
August 2007 there were only some 12,000 shares traded, but I would
suppose that that month, immediately after the completion of the private
placement, was not a representative one. I regard the evidence that in
December 2007 and January 2008 there was an average of 3,374 trades
(slightly fewer than the 3,500 pleaded by the claimants) to be a more
reliable guide to the usual volumes over the period in question.
309.Precise calculations are impossible but the best assessment that I
can make of the value of the position that Maple Leaf could and would
have established by 31 May 2008 is to adopt the method pleaded by
the claimants and supported by Mr. Castrounis' evidence but to apply
it to lower trading volumes. The market was so thin in August 2007
that I am not satisfied that the option could effectively or significantly
have been exploited that month but accept that thereafter Maple Leaf
could have made short sales of an average of 675 shares per day. I do
not have direct evidence of an average share price during the period
from September to December 2007, but the price was falling. All I can
do is suppose that the average price was somewhat lower than that
used by the claimants for the period from August to December 2007,
and therefore take an average price of €135. I am prepared to adjust
this figure when I deliver this judgment if either the claimants or the
defendants provide succinct and cogent evidence about this. On this
basis, I calculate that the value of the position at 31 May 2008 would
have been €2,430,000 plus the €300,000 in respect of sales in the first
half of January 2008: a total of €2,730,000. The claimants do not advance
any claim in respect of any further loss after 31 May 2008.
310.Dr Fitzgerald expressed the view that a trader who was interested
in investing in Belvédère might prefer to buy an option that was "very in
the money", that is to say if the current price of the share was well above
the strike price. Although, as the claimants plead and the defendants do
not, as I understand it, dispute, the share price dropped by November
2007 so much that the option was of little or no value, nevertheless there
was a window after 1 August 2007 when the option was comfortably
"in the money". The attractions for the investor would be then that
he would have not have to pay the full price of shares, he would be
protected against a fall in the share price and any position that he took
would be less transparent. I do not doubt that this is a proper theoretical
analysis of the position, but there is no evidence that there was such a
potential investor. Certainly on 24 and 25 July 2007 Astin and Bucéphale
(admittedly working in tight time constraints) appear to have found
no investor other than Maple Leaf (and Lion Capital who had their own
special motives) who wished to invest in Belvédère as Maple Leaf did,
and presumably other investors who were approached would, like Maple
Leaf, have considered the possibility of a funding arrangement including
an option of this kind. It is pleaded by the claimants that there was
also the possibility of identifying block trades to sell larger blocks of
shares, but little detail is given other than that in the months following
the Funding Agreement Maple Leaf made approaches to canvass interest
in the warrants but, as far as the claimants' pleading goes, there was
interest only from one potential investor. The pleading about this investor
was not supported by documentation or evidence. The real question is
what prospect there was of an investor of this kind making an offer that
was worth more than could be realised by exploiting the option through
hedging. I am not persuaded that it was sufficient to affect significantly
the value of the option.
311.Against this background, the claimants' primary claim about this
head of damages is that they should be measured by the value of the call
option at the beginning of August 2007, when, but for the defendants'
default, they would have obtained the option rights in a documented
form that they could have exploited. They have an alternative case, that
they are entitled to damages measured by the profit the claimants would
have achieved from exploiting the option. I must therefore consider (i)
whether the proper measure of damage is the market value of the option
(or something as closely equivalent thereto as possible) or whether it is
the profit that Maple Leaf would in fact have made; and (ii) if the former,
whether the value is to be assessed at the date when the claimants
should first have had the call option in a properly documented form.
312.The defendants submit that these claims are too remote to be
recoverable because the loss resulting from being deprived of a call
option that naturally arises in the usual course of events is the loss of
the opportunity to exercise the option, in this case to buy warrants.
Other losses, it is said, were not within the reasonable contemplation
of the parties at the time that the Funding Agreement was made. I
reject that submission. I cannot accept that any experienced investor or
businessman such as the defendants would not have readily appreciated
the various ways in which a call option can be exploited, and indeed Mr.
Rouvroy appreciated at least by early on 26 July 2007 that the option
might be exploited to sell the shares short.
313.Subject to this remoteness argument, the defendants submitted that
the proper measure of damages is the profit that the claimants would in
fact have made from the option, but that any loss suffered from being
unable to adopt the hedging strategy that Mr. Castrounis described is not
recoverable. The argument is that it results from being unable to exploit
not the call option but from not having the right to borrow shares, and
no claim has been pleaded on this basis. I reject this submission. It is
a pleading point devoid of any merit: the claim is for loss an effective
cause of which was breach in respect of the call option as well as the
borrowing rights. Further, I would, had it been necessary, have allowed
any amendment of the pleadings to deal with this objection.
314.In any event, in my judgment, the proper measure of damages is the
value of the option. Section 51 of the Sale of Goods Act 1979 provides
that where a seller wrongfully neglects or refuses to deliver goods to the
buyer the damages are the estimated loss directly and naturally resulting
in the ordinary course of events from the seller's breach of contract and
that, where there is "an available market for the goods in question", the
measure of damages is prima facie to be ascertained by the difference
between the contract price and the market or current price of the goods
when they should have been delivered "or (if no time was fixed) at the
time of the refusal to deliver". The 1979 Act does not apply directly
to this case, but, as Lord Brown said in Golden Strait Corp v Nippon
Yusen Kubishika Kaisna, [2007] UKHL 12 at para 79, "… the rule is by
no means confined to the sale of goods context and … has been applied
whenever there is an available market for whatever has been lost and
its explanation is that the injured party should ordinarily go out into that
market to make a substitute bargain to mitigate (and generally thereby
crystallise) his loss". Moreover, if there is not an available market, the
court assesses the value on such evidence as is available: see Harlow &
Jones v Panex, [1967] 2 Lloyd's Rep 509, 530, and Benjamin's Sale of
Goods (2006) 7th Ed para 16-077.
315.I also accept the claimants' submission that the value of the call
option should be assessed as at the beginning of August 2007. The
general principle is that damages are assessed at the date of the breach,
although it is not an absolute rule: Johnson v Agnew, [1980] AC 367
at p.400 per Lord Wilberforce. The defendants say that the value of the
option should not be measured as in August 2007 but at a later date
when, because of the fall in the share price, the option had no value at
all; and that accordingly no damages are recoverable in respect of the call
option.
316.In support of this contention, the defendants rely on the fact that,
until they abandoned their claim for specific performance in the course of
the trial, the claimants continued to press for performance of the Funding
Agreement, arguing that it had not terminated. Therefore, it is said,
whether or not they behaved reasonably in seeking to extend the Funding
Agreement, the claimants took the risk that the value of the option might
fall, and that the defendants were entitled to "rely" upon the claimants'
purported extensions of the Funding Agreement. In fact there is no
evidence that I accept that the defendants did so rely in any significant
way. In any event, it cannot be said that, by continuing to seek to have
the defendants perform their obligations, the claimants acquiesced in their
failure to perform them timeously. I reject the defendants' submissions
that it meets the broad justice of the case to displace the prima facie
rule that damages are measured at the time of breach. On the contrary,
it would mean that the claimants, having wrongfully been deprived of
the opportunity to exploit the option before the share price fell, would
unjustly be deprived of any compensation for that loss.
317.Dr Fitzgerald's evidence was directed to establishing the value of the
option at the beginning of August 2007. He explained, consistently with
Mr. Castrounis' evidence, that there would have been two reasons that
the option would have been valauble: because it might have been sold,
and because it might have been exploited through a hedging strategy. For
the reasons that I have indicated, however, in my judgment the value of
the option in this case was really attributable to the opportunity that it
provided to adopt a hedging strategy of the kind that Mr. Castrounis had
in mind.
318.Dr Fitzgerald calculated the theoretical warrant price and so the
theoretical value of a call option over the warrants by use of Bloomberg
pricing models, which he described as "standard reliable pricing tools".
There is no dispute that this was an appropriate method to adopt. His
calculations were criticised, however, on the basis that in applying this
model he used official closing prices. It was suggested that he should, like
Mr. Léger, have used bid prices. I reject that criticism. A bid price does
not represent a deal actually struck, but what a potential buyer offered.
The more unreasonable the offer and therefore the less likely it is to be
accepted, the longer it is likely to stand as a bid price in the market. I see
no good reason for preferring bid prices over the closing prices used by Dr
Fitzgerald that represent a mid-point between offer prices and bid prices.
319.Dr Fitzgerald's evidence was that the value of the option depended
upon the volatility of the warrants, but acknowledged that it was
impossible to obtain reliable information about their volatility because of
the low volume of trading in them in 2007 and because of their "extreme
illiquidity". Dr Fitzgerald sought to estimate the volatility of the 2011
warrants by reference to the volatility of 2014 warrants in Belvédère
in July 2007 and also the historical volatility of Belvédère shares in the
period to 31 July 2007. On this basis, he calculated the value of the
option to be €9.37 million, but there are, as it seems to me, there are
two difficulties with this valuation. First, the data available to assess
volatility is not directly referable to the warrants and does not take
account of the effect of the private placement and the resulting release
of securities and increase of the free float in Belvédère; and secondly, as
Dr Fitzgerald recognised, it does not take account of the illiquidity of the
2011 warrants.
320.Dr. Fitzgerald suggests that it would be possible in view of the lack
of data about the volatility of the warrants to calculate the value of the
option on the basis that there was zero volatility and on this basis he
estimates that the option would have a value of some €8 million. It seems
to me that this is a necessary adjustment, and that the claimants have
not proved a greater value for the option than €8 million even before
bringing into account their illiquidity.
321.As for the illiquidity of the warrants and the underlying stock, it was
Dr Fitzgerald's opinion that there is no justification for reducing the value
of the option by more than 10% to take account of this. He was of the
view that a "good trader" could have disposed of as many as 100,000
to 200,000 shares within a month at a discount of 5% to 10%, although
he admitted that he had not had experience of a comparable disposal
shortly after a private placement. In view of Mr. Castrounis' evidence, I
am unable to accept this: Mr. Castrounis was, in my judgment, a shrewd
and well-informed investor and I cannot accept that he so markedly
mis-assessed what was feasible. I am therefore not persuaded that Dr
Fitzgerald takes sufficient account of the illiquidity of these instruments or
that a 10% discount takes sufficient account of their illiquidity.
322.In his expert report Mr. Léger states that the discount should be
30%, but he provides no reasoning that I can accept to support this.
Indeed, as Mr. Lenon pointed out, his reasoning would appear to support
the contention that when the option was as much "in the money" as it
was in August 2007, the discount should be no more than 16.5% and
probably less than that. Certainly I found nothing in Mr. Léger's evidence
about this that has assisted me to resolve this question.
323.I am driven to conclude that I have no reliable guide about the effect
of illiquidity on the value of the option other than the evidence of Mr.
Castrounis about the value that it would have had to the claimants, in
the sense of the profit that they have made from it. In my judgment
the claimants have established only that the value of the option was the
profit that the claimants would have achieved by adopting the strategy
described by Mr. Castrounis and no more. It was worth at least that much
to them and to others who might adopt such a strategy. It is perhaps
less surprising than might at first appear to be the case that this is a
proper measure of the value of the option: there are cases in which the
court regards the best evidence of value of goods as being the price
for which they were eventually sold by the claimants (see McGregor on
Damages (2003) 17th edition para 20-107), and my reasoning is, in
principle, similar. I therefore conclude that the claimants have established
damages in respect of the call option in the sum of €2,730,000, but have
not proved greater damages under this head.
Did the claimants mitigate their loss?
324.The defendants contend that the claimants did not mitigate their
damage and advance two arguments. First they plead that Maple Leaf
did not mitigate its loss because it did not sell the warrants on terms
proposed in Mr. Rouvroy's email of 10 October 2007 or those proposed in
Paul Hastings' letter dated 18 December 2007. I reject that contention.
The proposals would have required the claimants to abandon their claims
for a 25% return on the funding, the fee for Astin and the claim in respect
of the option under the warrants. The claimants made a reasonable
decision to reject the proposals.
325.In their closing submissions (but not earlier) the defendants also
submitted that the claimants failed to mitigate their damage by not
selling the warrants. If I am right in my view about the meaning of the
termination provision and the extent of Maple Leaf's entitlement under
it, the reasonableness of Maple Leaf's conduct would be examined when
quantifying its entitlement under the provision and not as a matter of
mitigation of damages.
Did the defendants make a fraudulent misrepresentation to Maple Leaf
upon which Maple Leaf relied?
326.Until it was expanded by an amendment for which I gave permission
during the trial, Maple Leaf's claim in deceit was that by signing Version
9 the defendants falsely represented their intentions about honouring the
Funding Agreement, and this led Maple Leaf to enter into the agreement
contained in Version 9. I shall call this the allegation of "Version 9 deceit".
By the amendment Maple Leaf introduced what I shall call its claim of
"subscription deceit": that the representation in Funding Agreement
remained uncorrected until (at least) 5.36pm on 26 July 2007 and that
Maple Leaf relied on it in then submitting its amended subscription for
warrants in Belvédère.
327.A defendant is liable in deceit if he makes a false representation
knowing it to be untrue or being reckless as to whether it is true, and
intends that the claimant should act in reliance on it, and if the claimant
does so and suffers loss: see, for example, Clerk & Lindsell on Torts
(2006) 19th Ed para 18-01. However, it does not suffice to establish a
case of fraud that, on an objective interpretation of Funding Agreement,
the defendants made a representation and did not have an honest belief
in the truth of that representation. The test for fraud is subjective and the
question in the case of each defendant is whether he honestly believed
to be true any representations that he intended to make: see Cartwright,
Misrepresentation, Mistake and Non-Disclosure (2007) para 5.18 and
Akerhielm v De Mare, [1959] AC 789 at p.805. There must be "moral
obliquity": per Lindley LJ in Angus v Clifford, [1891] 2 Ch 449, 468. The
court does not readily find that such dishonest conduct is established
and requires more convincing evidence to establish it than to establish
negligence or other kinds of civil liability because the law considers it the
less likely that people behave dishonestly: Hornal v Neuberger Products
Limited, [1957] 1 QB 247 at p.258 per Denning LJ and Re H, [1996] AC
563 at p.586-7 per Lord Nicholls.
328.Maple Leaf says that, whether or not the Funding Agreement was
contractually binding, by signing Version 9 the defendants represented
that "it was their genuine intention to honour their obligations under the
Agreement including the undertaking to complete further documentation
necessary to carry into effect the terms of the agreement". Mr. Lenon
cited authority to support this submission: in Ray v Sempers, [1974] AC
370 at p. 385G Lord Morris said that "If someone goes to a restaurant
… by his conduct in ordering a meal he would be representing that he
had the intention of paying …": and see p.379D per Lord Reid and p.382E
per Lord MacDermott. In In re Eastgate, [1905] 1 KB 465 Bigham J
said that, when a person made purchases on credit, he represented
that he intended to pay for them. However, the question what, if any,
representation a person makes when he enters into a contract or accepts
performance under it depends on the facts of the particular case.
329.I accept the claimants' contention that in this case, because the
nature of the agreement was that the investors would commit funds to
the private placement before the defendants carried out their obligations,
the inference is that the defendants were making representations about
their intentions. In two (ultimately inconsequential) respects I disagree
with Maple Leaf's formulation of the representation. First, the case in
deceit against each defendant is put on the basis of his own intention. In
particular it is not put against Mr. Trylinski on the basis that Mr. Rouvroy
acted as his agent and that he is liable for any deceit on the part of Mr.
Rouvroy. I consider that the implied representation that each defendant
made was about his own intentions: I see no basis for inferring that either
made a representation about the state of mind of the other.
330.Secondly, it was apparent when Version 9 was signed that the
Funding Agreement would be followed by further discussions between
the parties, and it would not be surprising if the defendants had it in
mind (quite properly) to negotiate improved terms in the course of those
discussions. The implied representation made by each defendant was
not, without qualification, that he intended to honour the obligations:
his primary intention might well have been to renegotiate the Funding
Agreement. The representation, as it seems to me, was that he intended
to honour his commitments if and to the extent that the other parties
insisted upon him doing so.
331.I also consider that each of the defendants continued until 5.36pm on
26 July 2007 to make such a representation (modified, of course, to take
account of the changes that they had requested and to which Maple Leaf
agreed on 26 July 2007). Although they had indicated that they would
seek changes to the Funding Agreement, they had not indicated that they
would not honour their commitments if changes were not agreed.
332.Mr. Rouvroy accepted when he was cross-examined that by about
11.00am on 26 July 2007 he was very close to deciding not to proceed.
Maple Leaf submits that in fact he and Mr. Trylinski had already decided
not to carry out the Funding Agreement. I have rejected that submission:
I do not consider that the defendants had decided how best to deal with
their difficult position that by then they recognised. However, while they
had not taken a decision that they would to dishonour their commitments
in Funding Agreement, they no longer genuinely had any real intention
to honour them. This suffices to make their continuing representation
untrue.
333.I must therefore consider whether the defendants were dishonest
in continuing to make the representation. As I have said, the court
requires convincing evidence before concluding that a person is guilty
of dishonesty. Nevertheless I have concluded that the defendants were
dishonest on 26 July 2007. They needed the revised subscription form
from Maple Leaf, and they avoided saying anything that might prevent
Maple Leaf from submitting it. They so conducted their exchanges with
Astin that it and Maple Leaf should believe that they intended to honour
their commitments under the Funding Agreement if required to do so.
This is demonstrated by the email in which Mr. Rouvroy said that he would
sign the revised version of the termsheet "right away" when he had no
intention to do so. Mr. Trylinski was fully involved in the decisions about
how to deal with the exchanges with Astin and through it with Maple
Leaf. I am driven to conclude that they were both dishonest in allowing
Maple Leaf to proceed to revise its subscription on the basis of a false
understanding of their intentions.
334.However, Maple Leaf also submits that the defendants did not have
any genuine intention to honour their commitments when they signed
Version 9. In support of this submission Maple Leaf relies upon the
fact that the defendants did not take steps to implement the terms of
the Funding Agreement and immediately sought on 26 July 2007 to
renegotiate terms before eventually stating on 6 August 2007 that they
saw no reason to set up the SPV. I am not persuaded by this submission.
I accept that the defendants probably intended to negotiate improved
terms and probably expected that they would be able to do so, but that
intention would not be inconsistent with the representation that, as I infer,
they impliedly made. It might well be that they were confused in their
thinking when they signed Version 9 and did not properly focus upon the
commitment that they were giving (whether or not that commitment was
contractual). But there is simply not enough evidence to support Maple
Leaf's submission that on 25 July 2007 the defendants did not intend to
honour their commitment or that they were dishonest.
335.In view of this conclusion, I do not need to consider whether Maple
Leaf relied upon the defendants' representations of their intentions when
it entered into the Funding Agreement, but I find that it did do so. Was
Maple Leaf still relying upon the defendants' representations when it
submitted the revised subscription form on 26 July 2007? In my judgment
by 5.36pm on 26 July 2007 the position had changed. Mr. Castrounis,
as I have concluded, had come to the view that the defendants were
not acting in good faith and had told Mr. Bray this. I am not persuaded
that he (or anyone acting for Maple Leaf) was still relying upon any
representation that the defendants were making about how they intended
to proceed. I consider that by then Maple Leaf had decided that it could
not rely upon what the defendants said and no longer trusted them, but
decided to send its revised subscription in reliance upon its contractual
rights. In reaching this conclusion, I recognise that in order to found a
claim in deceit the claimant need not show that he relied solely upon
the representation: "…the misrepresentation need not have been the
sole cause of the claimant acting as he did: provided it substantially
contributed to deceive him, that will be enough": Clerk & Lindsell on Torts,
19th Ed (2006) at para 18-32. But I am not persuaded that the implied
misrepresentation alleged by Maple Leaf did play any part in Maple Leaf's
decision to submit the revised subscription.
336.I therefore reject the claims in deceit: in the case of the allegation
of "Version 9 deceit", because I am not persuaded that the defendants'
representations were fraudulent or dishonest and in the case of the
allegation of "Subscription deceit" because I am not persuaded that Maple
Leaf relied upon the representation.
337.There is another reason that the claims in deceit do not succeed. Loss
must be proved for a claim in deceit to succeed and Mr. Lenon accepted
that Maple Leaf suffered no loss as a result of the representations made
by the defendants if its contractual claim succeeds, as I conclude it does.
Damages for deceit claim
338.In these circumstances, I shall mention only briefly the position
about what the damages would have been had I upheld the deceit
claim and had loss resulted from it because I had rejected Maple Leaf's
contractual claim. As a matter of broad principle, the measure of damages
for deceit would have been the amount that would have put Maple Leaf
in the position in which it would have been had the deceit not taken
place: that is to say, the measure of damage for what I have termed
Version 9 deceit would have been the sum that would put Maple Leaf in
the position in which it would have been if it had not entered into the
Funding Agreement; and the measure of damage for subscription deceit
would have been the amount that would have put Maple Leaf in the
position in which it would have been had it not acted provided the revised
subscription form.
339.The damages for "Version 9 deceit", therefore, would have been the
difference between what Maple Leaf paid for the warrants, €29,999,946,
less the value to be brought into account in respect of the warrants
that it received. The normal measure of damages in such a case is the
purchase price of the securities less their actual value, if any, at the time
of acquisition: McGregor on Damages (2003) 17th Ed para 41-010. This
is not, of course, the market price if that price is itself affected by the
deceit by the defendant of which the claimant complains: Smith New
Court Securities v Scrimgeour Vickers, [1997] AC 254 at p.261F. Maple
Leaf submits that what is to be brought into account is the current value
of the warrants, but Mr. Lenon did not develop the argument about that.
If this claim for deceit had succeeded, I should have allowed Maple Leaf to
do so upon an inquiry.
340.The position in the case of the claim of "subscription deceit" would,
to my mind, have been less straightforward. It is to be supposed that
but for the deceit Maple Leaf would have been in the position of having
signed the Funding Agreement in Version 9 and of having agreed to the
variations to it to which it assented through Astin's email of 8.38am
on 26 July 2007: and it is to be supposed that, rightly or wrongly, it
considered itself to be contractually bound by those commitments. If
there was a binding contract between the claimants and the defendants
and Maple Leaf was obliged under it to submit a revised subscription
form, it is difficult to see what damage Maple Leaf could claim to have
suffered as a result of acting as it was contractually bound to act. I
doubt whether it would have been entitled to assert a claim on the
basis that it would not have fulfilled its contractual commitment. If, on
the other hand, there was no binding contract obliging Maple Leaf to
submit a revised subscription form, then the position would, as it seems
to me, have been assessed on the basis that Maple Leaf erroneously
believed that it was so contractually obliged. These questions were hardly
touched upon in counsels' submissions, understandably perhaps since
the claim of subscription deceit was introduced by a late amendment. I
should, if anything had turned upon the measure of damages in these
circumstances, have invited Maple Leaf to develop its argument as to how
it formulated its damages.
Counterclaim
341.I come to the defendants' counterclaim in which they assert that they
are entitled to recover from Astin any liability that they have incurred in
respect of the Funding Agreement.
342.There was no written agreement or mandate that set out Astin's
role in the transaction negotiated in July 2007, and while Astin had
previously dealt with the defendants in their capacity as directors of
Belvédère, it had not previously acted for them in their private capacity.
The defendants plead that "Astin agreed to act as arranger of funding
for the private placement … and identified various proposed investors for
the placement …", and that it is therefore liable to them, Astin being a
regulated investment manager registered with the FSA. At one time the
defendants based their counterclaim, in part, upon common law duties
that Astin was said to have owed them, but that argument is not pursued.
They now rely only upon section 150(1) of the Financial Services and
Markets Act, 2000 (the "2000 Act") that provides:
"A contravention by an authorised person of a rule is actionable at the
suit of a private person who suffers loss as a result of the contravention,
subject to defences and other incidents applying to actions for breach of
statutory duty."
343.There is no dispute that Astin is an "authorised person" within the
meaning of the section, a term defined in section 31(2): see section 417.
Nor is there any dispute that the defendants are "private persons". It is
also common ground that the term "a rule" includes certain Rules made
by the FSA under the 2000 Act: under sections 138 and 153(2) of the
2000 Act the FSA has powers to make rules relating to the conduct of
regulated activities.
344.The relevant rules are set out in the Conduct of Business ("COB")
handbook published by the FSA. The COB handbook includes rules,
evidential provisions and guidance, and the status of a provision is shown
by marking each paragraph with the letter "R", the letter "E" or the letter
"G". Section 149 of the 2000 Act concerns evidential provisions and states
that contravention does not give rise to the statutory consequences of
contravention of a rule, but it may be relied upon as tending to establish
the contravention of a rule, just as compliance with it may be relied upon
as tending to establish compliance with a rule. Section 157 of the 2000
Act states that the FSA may give guidance about, inter alia, the operation
of the rules.
345.The defendants' case is that Astin is liable to them under section 150
because Astin was in breach of COB paragraphs 2.1.3 and 5.4.3, both of
these paragraphs being rules.
346.Astin denies that it contravened any rule in the COB and also denies
that, if it did do so, the defendants suffered loss as a result. Further, it
denies that COB paragraph 5.4.3 has any application to its dealings with
the defendants and it is convenient first to deal with this issue.
Does the rule in COB paragraph 5.4.3 apply to Astin's dealings with the
defendants?
347.Paragraph 5.4.3 of COB is under a heading "Requirement for risk
warning". So far as is relevant it provides:
"A firm must not:
(1) make a personal recommendation of a transaction; or
(2) act as a discretionary investment manager; or
(3) arrange (bring about) or execute a deal in a warrant or derivative; or
(4) engage in stock lending activity;
with, to or for a private customer unless it has taken reasonable steps
to ensure that the private customer understands the nature of the risks
involved."
348.The defendants' complaint is that Astin contravened this rule in that it
had the right under the Funding Agreement to borrow securities because
this involved it engaging in stock lending activity; and in particular
they complain that it was not explained to them that the consequence
of this was that the investors could sell securities in Belvédère short.
A "stock lending activity" is defined as the activity of undertaking a
stock lending transaction, that is to say a transaction involving the
disposal of a designated investment subject to an obligation or right to
reacquire the same or a similar designated investment from the same
counterparty. In support of its contention that Astin was obliged to explain
the consequences of the provision about the right to borrow securities,
the defendants refer to COB 5.4.10, which is not a rule but an evidential
provision. It is under the heading "Stock lending activity", and provides
that "A firm should not engage in stock lending activity with or for a
private customer unless it has notified him: …(2) of the consequences
of the stock lending activity, including what impact it may have on the
rights of the holder of the designated investments concerned". (Mr. Lenon
complained that this paragraph of the COB was neither pleaded nor
referred to in the defendants' opening submissions. This is so, but given
that they rely on it not to found a distinct allegation of contravention but
in support of the allegation of contravention of COB paragraph 5.4.3, I see
nothing in this complaint.)
349.Astin denies that it engaged in stock lending activity, and I accept
that submission. The Funding Agreement did not involve either Astin
or the defendants in disposing of instruments subject to an obligation
or right to re-acquire those or similar instruments. The security lending
provision that gave Astin a right under the Funding Agreement to borrow
securities and that the defendants say allowed stock lending activity
contemplated that the SPV might be required to dispose of securities that
it held, but, to my mind, that does not mean that the Funding Agreement
did involve the disposal of investments.
350.Further, the right that the Funding Agreement conferred was a right
to borrow securities held by the SPV: it did not confer any right to borrow
securities from the defendants. Therefore, even if, by acquiring the right
under the securities lending provision, Astin engaged in stock lending
activity, it did not do so with the defendants.
351.Astin has a second argument that COB paragraph 5.4.3 does not
apply to its dealings with the defendants: it submits that the defendants
were not "private customers". COB 4.1.4 paragraph requires that, "Before
conducting designated investment business with or for any client, a
firm must take reasonable steps to establish whether that client is a
private customer, intermediate customer or market counterparty". It
is not contended that the defendants were market counterparties. The
issue is whether, as Astin contends, they were intermediate customers
or whether, as the defendants contend, they were private customers. An
"intermediate customer" is defined for relevant purposes as "a client who
is not a market counterparty and who is … a client who is classified as
an intermediate customer in according with COB 4.1.9 (Expert private
customer classified as intermediate customer)". A "private customer"
is defined for relevant purposes as "a client who is not a market
counterparty or an intermediate customer, …". COB paragraph 4.1.9(1)
provides: "A firm may classify a customer who would otherwise be a
private customer as an intermediate customer if (a) the firm has taken
reasonable care to determine that the client has sufficient experience
and understanding to be classified as an intermediate customer; and (b)
the firm (i) has given a written warning to the client of the protection
under the regulatory system that he will lose; (ii) has given the client
sufficient time to consider the implications of being classified as an
intermediate customer; and (iii) has obtained the client's written consent
or is otherwise able to demonstrate that informed consent has been
given…".
352.The defendants say that Astin has not shown that either of the
defendants (for they are to be considered separately) has sufficient
experience to be designated an intermediate customer. They also say that
there was no written warning and no written or other consent.
353.I am unable to accept the first submission is either relevant or
correct. The difference between a private customer and an intermediate
customer depends not upon the objective characteristics of the client but
upon the view taken by the firm and upon compliance with procedural
requirements.
354.Mr. Ummels described the defendants as "financially sophisticated"
and "financially savvy", although he recognised that Mr. Rouvroy had
more financial sophistication than Mr. Trylinski. Both had substantial
market experience from being officers of Belvédère and were familiar
with equity linked debt finance transactions, and both had substantial
holdings in Belvédère. Mr. Rouvroy had been an active trader on the
French stock market, taking long and short positions. Mr. Bray said that
the defendants were "experts in the use of options and warrants and
[had] dealt extensively with investments such as derivatives and loan
transactions", including those in which Astin acted as arrangers and dealt
with Belvédère through the defendants; and that the defendants would be
classified as intermediate customers rather than private customers.
355.This evidence was not questioned. I accept that it reflects the view
taken by Astin of the defendants' experience and understanding and
that they took reasonable care in forming it. (Guidance as to what a
firm should consider in making this determination is in COB paragraph
4.1.10. It includes the client's knowledge and understanding of the
relevant designated investments and markets and the risks involved; the
length of time that he has been active in the markets and the frequency
of dealings and the extent to which he has relied upon the firm's
advice; the size and nature of transactions undertaken, and the client's
financial standing.) Indeed, for what it is worth, I would agree with the
assessments of Mr. Ummels and Mr. Bray. Moreover, when Astin dealt
with Belvédère, it classified the company as an intermediate customer,
and that classification was based, I infer, upon an assessment of the
experience and understanding of the defendants. It was not suggested
that the classification of Belvédère was inappropriate.
356.However, although Astin would properly have regarded the
defendants as intermediate customers, they called upon Astin to raise
funds at very short notice, no formal mandate letter recording their
categorisation was provided, and so the steps contemplated by COB
paragraph 4.1.9(b) were not taken. Mr. Lenon argued that a failure to
observe the procedural requirements of COB paragraph 4.1.9 does not
mean that a classification by a firm of a customer as an intermediate
customer is ineffective, and that nevertheless the provisions of the COB
are to be applied on the basis that the defendants are intermediate
customers.
357.In support of this argument, Mr. Lenon relies upon the judgment of
by Morgan J in Spreadex Limited v Sanjit Sekhon, [2008] EWHC 1136
(Ch). In that case a spread betting company brought proceedings against
an experienced spread better for money owed when it closed his account
and the claim was resisted on the basis that the claimant was in breach
of the COB rules. A question arose as to whether the defendant was
an intermediate customer or a private customer and in this context Mr.
Justice Morgan had to consider the effect of the failure of the claimant
to warn the defendant in writing of "the protection under the regulatory
system that he [would] lose". He concluded that there had not been
compliance with the requirements for effective classification under COB
paragraph 4.1.9, but that was not the end of the story: he went on to
consider whether, having failed to comply with those requirements,
Spreadex could take advantage of the rule in COB paragraph 4.1.4, which
provides as follows: "A firm which takes reasonable steps to classify its
clients, as required by the rules of this section, and treats a client in
accordance with the classification established for that purpose, does not
breach any other rule in COB to the extent that the breach arises only
from inappropriate classification of that client".
358.Mr. Justice Morgan concluded that Spreadex could take advantage of
the rule in COB paragraph 4.1.4. At paras 136 and 137 of his judgment,
he said this:
"136. … . On one view, it would be strange to say that giving an oral
warning was a reasonable step to classify as required by the rules in COB
4.1 when those rules required a written warning; at least that would be
the situation where there was no difficulty in giving an appropriate written
warning. The rival view would be to ask, more broadly, whether Spreadex
had taken reasonable steps to classify Dr Sekhon as an intermediate
customer. One should have regard to the dealings between those two
parties and ask whether it was in all the circumstances reasonable for Dr
Sekhon to be classified as an intermediate customer even though one of
the procedural safeguards in COB 4/1/9R was not fully met.
137. In my judgment, one can adopt the broader view in this case. The
classification of a client as an intermediate customer under COB 4/1/9R
involves a mixture of an assessment of the experience and understanding
of the client, the obtaining of a written consent from the client and also
compliance with certain procedural requirements. In a particular case, a
procedural requirement may serve no real purpose and no harm would be
done if the procedural requirement was not met in full, or at all. In such
circumstances, the language of COB 4/1/4R which refers to "reasonable
steps to classify" can without undue difficulty justify one in looking at the
substance of the matter and, in effect, dispensing with the procedural
requirement if, in substance, no harm has been done."
359.I am prepared to accept that the reasoning of Mr. Justice Morgan was
justified on the facts of the case before him, but I am unable to accept
that it applies to the facts of this case or that Astin can similarly take
advantage of COB paragraph 4.1.4(2). That rule applies only where a
client has been classified by the firm, albeit "inappropriately": paragraph
4.1.4(1) provides, "Before conducting designated investment business
with or for any client, a firm must take reasonable steps to establish
whether that client is a private customer, intermediate customer or
market counterparty". This was not a case like that in Spreadex in
which the evidence shows that the firm had classified the client: the
furthest that the evidence goes is that, as Mr. Bray states, Astin "would
definitely have described the Defendants as Intermediate rather than as
Private Customers". I have some sympathy with Astin: the defendants
turned to them at such short notice that I can understand that its usual
procedure were not followed. But this does not, to my mind, mean that
the defendants were intermediate rather than private customers for
the purposes of applying the COB. When applying the COB rules and
determining what steps were reasonable in relation to the defendants,
it is of some relevance that their experience and understanding would
have justified their classification as intermediate customers, but that is a
different matter.
360.I conclude, however, that COB paragraph 5.4.3 has no application in
this case because Astin did not engage in stock lending activity.
Did Astin contravene any COB rule?
361.I come to the question whether Astin contravened any rule of COB.
Although I have concluded that the rule in paragraph 5.4.3 did not apply
to Astin's dealings with the defendants, I shall consider whether Astin
would be in breach of the rule if I am wrong in my conclusion about
its application, as well as the defendants' complaint in relation to the
rule in COB paragraph 2.1.3. I have already set out paragraph 5.4.3.
Paragraph 2.1.3 of COB is under a heading "Clear, fair and not misleading
communication". It provides, "When a firm communicates information
to a customer, the firm must take reasonable steps to communicate in a
way which is clear, fair and not misleading". Astin accept that this rule is
applicable to its dealings with the defendants in as much as it is a "firm"
within the meaning of the rule and the defendants were "customers".
362.Thus in considering both rules, it is necessary to consider whether
Astin took reasonable steps. In assessing the reasonableness of how Astin
dealt with the defendants, the following matters are, in my judgment, of
some importance:
i) The defendants were, as I have explained, businessmen of considerable
experience and sophistication. Astin had formed this view as a result of
dealing with them as officers of Belvédère and it was justified in doing do.
ii) Astin reasonably understood that the defendants had available to them
both advice from financial experts, H et Associés and Bucéphale, and legal
advice.
iii) Astin was asked to act under severe time constraints, which the
defendants never suggested were flexible. This was because, although
Astin had urged the defendants to instruct it earlier, they had not done so.
iv) Although Astin repeatedly urged the defendants to review carefully
what they were sent, the defendants did not at any stage of the
exchanges with Astin indicate that it did not understand any part of the
proposals that Astin put forward or that they did not have time properly to
review them.
363.The defendants say that Astin was in breach of the rules in the
COB for two reasons: that it did not make it clear that Version 9 was
more than a "commitment to negotiate terms" and did not explain its
legally binding nature; and that it did not explain that because of the
securities lending provision in the Funding Agreement the claimants (and
Lion Capital) would (as the defendants plead) "be able to short sell the
Defendants' shares which were to be held as collateral by the SAV".
364.I am unable to accept that Astin was in breach of the rule in COB
paragraph 2.1.3 in either of these respects. Mr. Bray made it clear to the
defendants in his email of 7.17pm on 25 July 2007 that the "potential
investors" required that the defendants "sign up to" a document before
committing their funds. He also spoke to Mr. Rouvroy about the need
for a legally binding agreement. I do not consider more was required of
Astin to make it clear to the defendants that when they signed Version 9
they were entering into a legally binding agreement. It took reasonable
steps to communicate to the defendants the nature of the document that
they were asked to sign. They were not in my judgment required to draw
specifically to the defendants' attention the footers in Version 9 or the
jurisdiction clause or governing law clause or any other provisions that
make it clear that it was a legally binding document and that it imposed
obligations upon the defendants personally. Indeed, in my judgment
Astin could probably properly have taken it that these matters would be
apparent to the defendants without it being specifically pointed out to
them and I am not persuaded that Astin would have been in breach of
COB paragraph 2.1.3 even if Mr. Bray had done nothing to draw them to
the defendants' attention.
365.I am not persuaded that advice that the defendants would be
entering into a legally binding commitment by signing Version 9 was
"information" within the ambit of COB paragraph 2.1.3, but assuming that
it is, I consider that the position was clearly and fairly presented to the
defendants and do not consider that there was anything misleading that
they were told in this regard. In any event, Mr. Bray took reasonable steps
to ensure that the position was clearly and fairly presented and that they
were not misled.
366.As for the investors' right to borrow securities, the defendants
contend that in order to communicate the terms of the Funding
Agreement so as to comply with COB paragraph 2.1.3, Astin was obliged
to explain that the investors would be in a position under it to sell the
securities in Belvédère short. Astin's obligation to do so is reinforced, the
defendants say, because Astin itself was one of the lenders who benefited
from the right to borrow: they say that there was something of a conflict
of interest in Astin's position that made it the more imperative that the
implications of the right to borrow were understood by the defendants.
367.Mr. Bray drew the security lending provision to the defendants'
attention in his email of 6.10pm on 25 July 2007: I have rejected Mr.
Rouvroy's evidence that he did not read that email, but even if he had
not, Astin was entitled to proceed on the basis that he had done so and
conveyed its contents to Mr. Trylinski. I have also found that Mr. Bray
referred to this right when speaking to Mr. Rouvroy by telephone. But the
defendants say that that was not enough: he had to explain how investors
might use the right conferred by the Funding Agreement.
368.I cannot accept that Astin failed to take reasonable steps in this
regard. It had properly drawn the provision to the defendants' attention.
It was entitled to proceed on the basis that the defendants would assess
why the investors might wish to have a provisions of this kind, and the
obvious reason is that they wished to be in a position to trade in the
securities and that this might involve some short selling. Indeed, on Mr.
Rouvroy's own evidence, he recognised this possibility on 26 July 2007.
It was for the defendants to consider the commercial implications of the
Funding Agreement, and to decide, with the assistance of advisers if they
required it, whether they accepted the risks involved.
369.Again, I do not consider that this amounts to a complaint that Astin
failed to communicate information clearly or fairly or a complaint that
Astin misled them. Even if, as the defendants have at times asserted,
Astin had assumed some sort of advisory role to them (and in my
judgment it did not do so), this would not oblige them to give advice
of this kind. It means little to assert that a person has an advisory role
without asserting more specifically the width of the advisory activity that
he is said to have undertaken: see J P Morgan v Springwell Navigation,
[2008] EWHC 1186) (Comm) at para 57 per Gloster J. I cannot accept
that COB paragraph 2.1.3 requires a firm to assume an advisory role of
any relevant kind. After all, the letters that Astin had sent when it was
acting for Belvédère made it clear that it did not do so.
370.I also consider that Astin took such steps as were reasonable in the
circumstances to ensure that the defendants understood the nature of
the risks involved in the funding transaction, including the provision about
security lending, and therefore, if the rule had any application to this
case, Astin was not in breach of COB paragraph 5.4.3.
371.I therefore conclude that Astin was not in breach of the rules in the
COB. In reaching this conclusion I recognise that, in deciding whether
Astin took reasonable steps, the position of each defendant requires
separate consideration; that, as far as the evidence goes, it appears that
Mr. Rouvroy was the more financially sophisticated of the two defendants;
and that Astin dealt primarily with Mr. Rouvroy. However, Mr. Trylinski
was content for Astin to deal directly with Mr. Rouvroy, and he and Mr.
Rouvroy discussed at every stage the proposed funding agreement. In the
circumstances Astin had no real alternative to dealing with Mr. Trylinski
through Mr. Rouvroy and it was reasonable to do so. In taking reasonable
steps to communicate properly with Mr. Rouvroy and to ensure that he
understood the risks involved in the proposed funding agreement, Astin
also took reasonable steps to communicate with Mr. Trylinski and to
ensure that he too so understood.
Did the defendants suffer loss as a result of the contravention?
372.Therefore I dismiss the counterclaim. However, I should refer briefly
to Astin's further argument that, if it was in breach of the rules of COB,
the defendants have not shown that they suffered loss as a result. As I
have said, I accept that the defendants did not realise when they signed
Version 9 that they were entering into a legally binding commitment and,
while they were aware of the investors' right to borrow securities held
by the SPV, it had not occurred to them that this might be used for short
selling. This leads to the question whether the defendants would not have
signed Version 9 if they had appreciated either or both of these matters. I
am not persuaded that in these circumstances they would have behaved
differently in any way: their evidence is simply too unreliable to establish
this.
373.I consider that the defendants were determined to have in place by
the end of 25 July 2007 the funding that they needed to retain control
of Belvédère. They were confident that they could negotiate improved
terms if they needed to do so. I consider that they would still have been
confident of this even if they had realised that they were agreeing to
legally binding terms. I am also unable to accept that they would have
been deterred by the risk of the investors short selling the securities in
Belvédère. After all, Mr. Rouvroy did appreciate this risk on 26 July 2007
and, while the defendants sought to renegotiate several of the terms that
had been agreed, they did not seek to renegotiate the securities lending
provision.
374.In my judgment, the defendants have failed to prove that, if there
were any contravention to a rule of the COB, they suffered any loss as a
result.
Conclusions
375.Therefore, subject to any further arguments that the parties wish to
present about whether they extended the Funding Agreement and how
this affects the relief to be granted, my conclusions are these.
i) The court has jurisdiction to determine these claims under article 24
of the Brussels Regulation, under article 23 of it and in the case of the
claims in deceit under article 5 of it.
ii) The claimants have permission to bring claims in debt for the Loan
Redemption Amount.
iii) The claimants and the defendants concluded a contractually binding
Funding Agreement in the terms of Version 9, as consensually varied on
26 July 2007.
iv) The Funding Agreement terminated automatically under the
termination provision on 2 or 3 August 2007.
v) The entitlement to payment under the termination provision is not
penal.
vi) I reject the defendants' argument that the 1999 Regulations provide a
defence to the claims.
vii) I reject the defendants' argument that the 1974 Act provides a
defence to the claims.
viii) Maple Leaf is entitled by way of remedies for breach of contract (i)
to €7,499,986.50, (ii) to any loss resulting from the sale of the warrants
together with any fees incurred and reimbursement of any expenses
incurred, and (iii) to damages that I presently calculate in the sum of
€2,730,000 (but I am prepared to receive further evidence about this
calculation).
ix) Astin is entitled to recover in respect of its claim for €2,503,500. My
present view is that it is recoverable as damages, but I am prepared to
hear submissions that it is recoverable in debt.
x) I reject the claims in deceit, in the case of the Version 9 deceit
because I do not find misrepresentation or dishonesty, in the case of
the subscription deceit because I do not find reliance and in both cases
because I do not find loss.
xi) I reject the counterclaim because COB rule 5.4.3 does not apply to
the circumstances of this case, because Astin was not in breach of any
COB rule and because no loss resulted from the matters of which the
defendants complain.
376.I invite submissions about the claim for statutory interest.