Barclays Bank Plc and Others v British and Commonwealth Holdings Plc
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE KENNEDY,LORD JUSTICE ALDOUS,SIR ROGER PARKER |
| Judgment Date | 28 July 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0728-16 |
| Docket Number | CHANF 94/1620/B |
| Court | Court of Appeal (Civil Division) |
| Date | 28 July 1995 |
[1995] EWCA Civ J0728-16
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Harman)
Before: Lord Justice Kennedy Lord Justice Aldous and Sir Roger Parker
CHANF 94/1620/B
MR WILLIAM STUBBS QC and SIR THOMAS STOCKDALE (instructed by Messrs Wilde Sapte, London EC4) appeared on behalf of THE APPLICANT
MR POTTS QC and CHRISTOPHER BUTCHER (instructed by Messrs Clifford Chance, London EC1) appeared on behalf of THE RESPONDENTS
Friday 28 July 1995
For the reasons given in the judgment handed down, this appeal is dismissed.
The Defendants in this action, British and Commonwealth Holdings PLC, (B & C), appeal against certain parts of the order of Harman J. dated 14th November, 1994, in which he answered ten questions posed in a Special Case. The Plaintiffs which consist of six banks and a company called Tindalk Ltd., seek to support the judge's conclusion not only upon the grounds stated by him but also upon further grounds contained in their Respondents' Notice.
These proceedings arise out of the collapse of B & C in 1990. It was incorporated on 1st November, 1955, under the name The British and Commonwealth Shipping Co. Ltd. It changed its name on 15th February, 1982, to the British and Commonwealth Shipping Co. PLC and then on 13th January, 1987, to British and Commonwealth Holdings PLC. It was placed in Administration on 3rd June, 1990.
As of August 1987 B & C's capital consisted of £54 million divided into 324,036,401 Ordinary Stock Units of 10p. each and 215,963,599 Shares of 10 p. each. None of the shares had been issued. However a company called Caledonia Investments Ltd. (Caledonia) together with an associated company were the owners of 101,478,412 of the Ordinary Stock Units which therefore amounted to just less than a third of the issued share capital of B & C. Caledonia was a company owned by the Cayzer family who in 1987 wished to cease being a large shareholder in B & C. Thus it was decided that Caledonia would divest itself of its interest in B & C. The way that that was achieved was concisely set out by the judge.
"In order that Caledonia could avoid placing very large numbers of B & C's shares on the Stock Exchange, which might have led to a substantial fall in the share price to the detriment of Caledonia and the dissatisfaction of the Board of B & C, an elaborate and ingenious scheme was formulated by some of the best known solicitors practising in the City of London with the advice of well-known specialist counsel. The scheme involved the cancellation of 90 million Stock Units in B & C held by Caledonia partly by purchase by B & C of some Stock Units for £100 million and partly by cancellation of the remaining Stock Units in exchange for the issue to Caledonia of new Redeemable Preference Shares in B & C. The new Redeemable Preference Shares would be redeemed in four equal tranches at a price of approximately £81.1 million for each tranche at the wish of either the holder or B & C on the 31st December of each of the years 1988 to 1991. There were provisions as to dividends which are immaterial for the present purposes.
In order for Caledonia to be sure that it would receive its £81.1 million odd in each of the years 1988 to 1991 even if B & C failed to redeem the relevant tranche of the shares, Caledonia was to be granted the right to sell those tranches of its Redeemable Preference Shares at the redemption prices to a company called Tindalk Ltd. (hereafter Tindalk) formed for the purpose which would be financed by six banks. Further B & C was to covenant with the six banks that it would conduct its affairs so as to maintain certain asset rates. Any breach of covenant would give rise to a claim in damages by the banks against B & C.
The scheme involved a reduction of the capital of B & C and therefore required the sanction of the court. On 12th October, 1987, this court made an order sanctioning the scheme and confirming the reduction of capital. On 16th October, 1987, B & C purchased 21 million odd Stock Units from Caledonia for £100 million and issued the new Redeemable Preference Shares to Caledonia. Thereafter the first tranche of "A" Class Redeemable Preference Shares was redeemed at its proper price on 31st December, 1988, and the second tranche of "B" Class of such shares was so redeemed on 31st December, 1989. As I have said, in the summer of 1990 B & C was held to be or to be likely to become insolvent and was placed in Administration. The Administrators are still running B & C and endeavouring to sort out the various claims. Naturally B & C did not redeem either the "C" Class Redeemable Preference Shares on 31st December, 1990, or the "D" Class Redeemable Preference Shares on 31st December, 1991. Further B & C was in breach of its covenants to the six Banks.
Caledonia exercised its right to require Tindalk to purchase the third tranche of "C" Class Preference Shares which was effected on 27th June, 1991, and the fourth tranche of "D" Class Preference Shares which was effected on 23rd July, 1992 —a date after issue of the writ herein. Tindalk was provided with finance to make its purchases from Caledonia by loans from the six banks. Those loans are likely to be irrecoverable from Tindalk since the Preference Shares held by it are unlikely to be of any value. Thus Caledonia has received the same sum of money as it would have received as a shareholder if all its Preference Shares in B & C had been redeemed although two tranches were not so redeemed. The six Banks have financed Tindalk's purchase of two tranches of Preference Shares and the six Banks claim damages for breach of covenant by B & C in the amount paid to finance the two purchases. The economic effect is that instead of the sum required to redeem the Class "C" and Class "D" Preference Shares being paid out of the shareholders' funds, and therefore ranking behind creditors, the sum claimed by the six Banks as damages (which is the same amount and has been paid to the former shareholder Caledonia) will rank as a creditors' claim equally with other creditors. Plainly creditors of B & C will be much disadvantaged by the result which is said to have been arranged."
The scheme of arrangement was achieved using three agreements. The Loan Agreement dated 8th October, 1987, was between five of the Banks and Tindalk. Under that agreement the Banks made available a loan facility to Tindalk for the sole purpose of enabling Tindalk to comply with the obligation in the Option Agreement to purchase the Redeemable Preference Shares from Caledonia. On the same day the same banks, Caledonia and B & C signed the "Stand-by Agreement". The purpose of the Stand-by Agreement was to provide a facility for use by B & C if it had sufficient distributable reserves, but insufficient cash flow to enable it to make dividend or redemption payments in relation to the Preference Shares on the due date. The Stand-by Agreement contained in Clause 18 a covenant by B & C to the Banks to comply with the covenants and undertakings in an agreement that was proposed called the Option Agreement and in Clause 19 to indemnify the Banks against any loss or expense which any of them might sustain or incur as a consequence of default by B & C in the performance of any obligations expressed to be assumed by it in the Stand-by Agreement.
After the order of the Court of 12th October, 1987, sanctioning the scheme and the reduction of capital, B & C, the first five Plaintiffs and Caledonia entered into the Option Agreement on 16th October, 1987. It contained terms the effect of which are set out in the judge's summary of events which I have quoted. In effect Tindalk granted to Caledonia the right (a put option) to require Tindalk to purchase all or some of Caledonia's Preference Shares at a price equal to that which would have been payable by the company on redemption. Tindalk also granted to Caledonia the right to require Tindalk to pay to Caledonia an amount equal to the price which would have been payable by the company on redemption in respect of each Preference Share then held by Caledonia. The obligation of Tindalk in relation to the put option would be guaranteed by the Banks in proportions in which they had agreed to participate in the Option Agreement. It also contained in Clause 6.01 covenants by B & C of which the following are relevant:
"6. Covenants and Undertakings
6.01 B & C shall
….
(3) Procure that the amounts standing to the credit of the Redemption Reserve shall at all times be equal to the amounts set out below:-
From the date hereof up to and including 31st December, 1988, £275 million
From 1st January, 1989, until all the Preference Shares have been redeemed an amount equal to the amount required to redeem the outstanding Preference Shares (including the premium on redemption) together with all dividends which would fall due to be paid thereon in respect of any period down to the due date of redemption;
(4) Procure that the profit on ordinary activity before finance charges, taxation and extraordinary items in each of B & C's financial years (as shown by the audited consolidated profit and loss account of the Group for the relevant financial year) will be at least 175% of the aggregate of the finance charges of such...
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