AMG Global Nominees (Private) Ltd v SMM Holdings Ltd and another

Hearing dates: 20/11/07 – 6/12/07

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

The issue in this case arises in the course of the application by AMG Global Nominees (Private) Limited (“AMG”) under Section 359 of the Companies Act 1985 (“the Act”) to rectify the register of two companies incorporated in England, SMM Holdings Limited (“SMMH”) and THZ Holdings Limited (“THZH”) so that the registers show AMG to be the registered holder of all the issued shares of SMMH and THZH (“the Main Proceedings”). At the material time the capital of SMMH and THZH was represented by bearer share warrants which, until their delivery to AMG in circumstances which I will describe, were held by T & N plc (“T & N”) (the old Turner and Newall Limited), an English company, as security for the purchase price under a contract whereby those shares were purchased by Africa Resources Limited (“ARL”), a company registered in the British Virgin Islands, controlled by a Mr Mawere. SMMH's only valuable asset comprised its holding of the whole of the issued shares in a Zimbabwean company, SMM Holdings (Pvt) Limited (“SMMZ”) which owns asbestos mines in Zimbabwe which, in the past and to some extent still, are an important resource for the economy of Zimbabwe. The only valuable asset of THZH is its holding of all the issued shares in a company called Endurite Properties (Private) Limited. This case is primarily concerned with SMMH and its subsidiary SMMZ.

The managing director of AMG is a Mr Gwaradzimba who is also the state-appointed Administrator, under Zimbabwean legislation, of SMMZ. AMG claims in the Main Proceedings to be entitled to the bearer share warrants in SMMH and THZH by reason of a mortgagee's sale (“the SSA”) by T & N to it of those shares pursuant to a security over the shares held by T & N. ARL has commenced Part 20 proceedings against AMG claiming declarations that it alone is entitled to the bearer share warrants and that AMG has not acquired title to them under the SSA which was ineffective because the power of sale under T & N's mortgage had not arisen. I am concerned to determine the Part 20 claim.

The background facts

By early 1996, by reason of worldwide adverse publicity, T & N had become anxious to dispose of its investments in the mining of asbestos, in particular, through the mines operated by SMMZ in Zimbabwe. Accordingly it had placed SMMH and THZH on the market.

On 7 ^th March 1996 ARL entered into an agreement with T & N (“the SPA”) for the purchase from T & N of the bearer share warrants representing the share capital of SMMH and THZH for a total consideration of US $60 million payable in accordance with the terms of the agreement. The SPA was completed on 15 ^th March. Those terms reflected the agreement of the parties that the purchase price should be paid by 12 monthly instalments of $5 million to be found from the proceeds of export sales of asbestos by SMMZ outside Zimbabwe. T & N wished to be paid the consideration for the sale outside Zimbabwe. It is accepted that the purchase price had to be found from this source because of the exchange control regulations in force in Zimbabwe at the time. Further regulations required that all exports of mined products from Zimbabwe were to be made through the agency of the Minerals Marketing Corporation of Zimbabwe (“MMCZ”), a state-owned corporation. The exchange control regulations also required that a percentage (which varied from time to time) of the foreign currency realised by the sale of those mined products was required to be surrendered to the Reserve Bank of Zimbabwe (“the RBZ”) to be converted into Zimbabwe dollars at a rate much less favourable than that obtainable in the open market. The parties to the SPA were T & N as vendor, inter alia, of the shares in SMMH and THZH, T & N International Limited as vendor of shares in a Zimbabwean company referred to as AAM, with which we are not hereafter concerned, and ARL as purchaser from both those companies.

Also on 15 ^th March 1996 an agreement was made between ARL, Africa Construction Limited (another British Virgin Islands company as nominee for ARL in respect of deferred shares of SMMH and THZH), SMMH, THZH, and T & N as “creditor”. This agreement was intended to provide security for the payment of the purchase price becoming due under the SPA. It was referred to as the “memorandum of deposit and charge” or “the MDC” and I will continue to do so.

The substantial issue in the case centres on the provisions of clause 3 of the SPA, providing for the method of payment of the $60 million deferred consideration, and the provisions of the MDC, dealing with what constituted “default” under it, so as to make the power of sale under the MDC over the bearer share warrants arise and become exercisable.

Under the heading “Consideration” clause 3 of the SPA provides as follows:-

“3(1) In this clause:

“LIBOR” means the rate quoted by National Westminster Bank plc in the London interbank market for six months US dollar deposits.

(a) The Consideration for the SMMH shares and the THZH shares shall be the sum of US $60 million payable as set out in this clause 3;

(b)The Purchaser [ARL] shall pay the Consideration to T & N in monthly instalments of US $5 million (each a “Principal Amount”). Each Principal Amount shall be paid on the last day of each month …by telegraphic transfer to the account of T & N's subsidiary T & N Export Services Limited at National Westminster Bank plc … in US dollars and the Purchaser shall procure that such payments shall be made by the Minerals Marketing Corporation of Zimbabwe [“MMCZ”] on its behalf at the instruction of the relevant Company entitled to payment from MMCZ of equivalent amounts in respect of export proceeds of that company received between 1st March 1996 and the date on which each Principal Amount falls due.

(c) The first Principal Amount shall be paid on or before 29th March 1996.

(d) To the extent that a payment of a Principal Amount is not made on the due date, such amount (a “Carry Forward Amount”) shall bear interest at the rate of LIBOR plus 2 per cent per annum accruing and applied on a daily basis.

(e) Interest shall accrue on the outstanding balance of the Principal Amounts (disregarding any Carry Forward Amount) at the rate of LIBOR plus 1 per cent per annum accruing and applied on a daily basis.

(f) Any amount paid shall first be set against any Carry Forward Amount and any interest on such amount. …”

Sub-clauses (2) and (3) of clause 3 contain provisions for the sale of other shares including the AAM shares with which we are not concerned.

Clause 4 of the SPA under the heading “Condition Precedent” provides:-

“4(1) The sale and purchase of the Shares is conditional on the receipt by T & N of written confirmation from the Exchange Control Department of the Reserve Bank of Zimbabwe confirming that the payment mechanism for the Consideration as set out in this agreement is approved.”

Clause 10 of the SPA deals with completion. Sub-clause (7) of clause 10 provides that as part of the completion of the SPA:-

“(7) The Seller [T & N] and the Purchaser [ARL] shall procure that the Memorandum of Deposit and Charge is executed and, once executed by all the parties to that document, the Purchaser shall procure that:

(a) the warrants in relation to the SMMH Ordinary Shares and the THZH Ordinary Shares are delivered to T & N; and

(b) stock transfer forms pre-stamped 50 p executed in blank together with the share certificates, in relation to the SMMH Deferred Shares and the THZH Deferred Shares, are delivered to T & N.”

The material provisions of the MDC were as follows: at recitals (C) and (D):-

“(C) By an agreement of 7th March 1996 (the “Agreement”) [the SPA] the Creditor has agreed to sell and ARL has agreed to purchase inter alia the entire issued share capital of each of SMMH and THZH.

(D) Pursuant to the terms of the Agreement, ARL has agreed to secure its secured obligations in accordance with the terms of this Memorandum of Deposit and Charge.”

Then at paragraph (g) of clause 1, “Default” is defined as meaning “any failure by ARL to pay or procure the payment of the Secured Obligations” and at 1(h) “Secured Obligations” are defined as “the obligation of ARL under clause 3(1) of the Agreement to procure the payment to the Creditor[T & N] on or as soon as practicable after the date on which each Principal Amount is due of the lesser of:

(a) all sums due and payable from MMCZ to the Companies in respect of export proceeds on such date; and

(b) the Principal Amount and all Carry Forward Amounts due and outstanding at such date and all interest accrued thereon.”

[Though immaterial for the purposes of this judgment, it seems to me that Principal Amount in sub-clause (b) should be in the plural i.e. “Amounts”.]

Then, having set out various provisions for the preservation of bearer share certificates and the underlying value that they represented, the MDC provided at clause 8:-

“8 If a Default has occurred and is continuing … the Creditor may, without prior notice to any Shareholder, sell or otherwise dispose...