Cabvision Ltd v Feetum and Others

JurisdictionEngland & Wales
JudgeLord Justice Jonathan Parker,Sir Peter Gibson,Lord Justice Ward,or
Judgment Date20 December 2005
Neutral Citation[2005] EWCA Civ 1601
Date20 December 2005
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A2/2005/0100

[2005] EWCA Civ 1601

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION

THE HON MR JUSTICE LEWISON

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Ward

Lord Justice Jonathan Parker and

Sir Peter Gibson

Case No: A2/2005/0100

HC04 C03931

Between:
Cabvision Limited
Appellant
and
(1) Leonard Paul Feetum
(2) Stephen Richard Marsden
(3) Simon Alan Smith
Respondents

John McDonnell QC and Mark Watson-Gandy (instructed by Messrs Jens Hills & Co ) for the Appellant

Paul Girolami QC and Siward Atkins (instructed by Messrs Salans ) for the Respondents

Lord Justice Jonathan Parker

INTRODUCTION

1

This is an appeal by Cabvision Ltd ("CV") , the third defendant in the action, against an order made by Lewison J on 5 January 2005. The respondents to the appeal are the first three claimants in the action, Mr Leonard Feetum, Mr Stephen Marsden and Mr Simon Smith. They are among the five founder members of a limited liability partnership known as Tower Taxi Technology LLP ("the LLP") . The LLP is the fourth defendant in the action.

2

On or about 3 December 2004 CV purported to appoint the first two defendants in the action, Mr Mark Levy and Mr Jeremy Berman, as administrative receivers of the LLP pursuant to a power in that behalf contained in a Debenture dated 5 April 2004 granted by the LLP to CV ("the Debenture") .

3

In the action, the respondents and the two remaining founder members of the LLP, Mr Sharp and Mr Church (the fourth and fifth claimants in the action) , challenge the validity of that appointment. They contend firstly that as at the date when the appointment was purportedly made no 'Insolvency Event' (as defined in the Debenture) had occurred, and accordingly that the power to appoint administrative receivers had not arisen; and secondly that in any event the Insolvency Act 1986 ("the 1986 Act") , as amended by the Enterprise Act 2002 ("the 2002 Act") , prohibits any exercise of the power. CV joins issue on these contentions. It further contends that the respondents do not have the requisite status (locus standi) to bring the action, and that only the LLP can do so.

4

Mr Sharp and Mr Church have taken no part in this appeal. Mr Sharp provided us with a witness statement on behalf of himself and Mr Church, in which he explained their position and made a number of factual observations. We have read that witness statement, but in the event neither Mr John McDonnell QC (for CV) nor Mr Paul Girolami QC (for the respondents) found it necessary to refer to it in the course of argument. In the circumstances, there is no need for me to consider it further.

5

Before the judge Mr Levy and Mr Berman adopted a neutral stance as to the validity of their appointment, and they too have taken no part in this appeal.

6

Hence the dispute on this appeal is between CV on the one hand and the respondents on the other.

7

The action was commenced on 17 December 2004. Due to the perceived urgency of the matter, application was made to Lindsay J on 23 December 2004 for directions. He directed that the issue as to status (which I shall call "the status issue") and the issue as to whether the 1986 Act, as amended by the 2002 Act, prohibited the exercise of the power to appoint administrative receivers (which I shall call "the 1986 Act issue") be listed to be heard by 6 January 2005 as an application for summary judgment under CPR Part 24. In the event, the application was listed before Lewison J on 5 January 2005. The hearing lasted a full court day. At the conclusion of the hearing the judge adjourned for a few minutes and then delivered judgment. His judgment, delivered under conditions of great pressure and effectively extempore, is, if I may respectfully say so, of a very high quality: higher, certainly, than I could have achieved in similar circumstances. For those who wish to refer to it, it is now reported at [2005] 1 WLR 2576.

8

In his judgment, the judge resolved both the status issue and the 1986 Act issue in favour of the respondents. Accordingly he granted substantive relief on the claim, declaring by his order that CV's appointment of Mr Levy and Mr Berman as administrative receivers of the LLP was prohibited by the 1986 Act and thus invalid.

9

The judge refused permission to appeal, but permission was granted by Jacob LJ on the papers on 11 February 2005.

THE FACTS IN SUMMARY

10

CV is a UK resident company which carries on the business of generating revenue from advertising in taxicabs. It has developed a computer software system known as 'ICT Software' for the display of information, entertainment and advertising on a screen installed in the passenger compartment of the cab. The screen is activated when the passenger enters the cab. The sound volume can be controlled by the passenger, but the visual display on the screen can only be turned off by the cab driver.

11

By December 2003 the development of the system had reached the stage where CV was seeking third party investors, with a view to the commercial exploitation of the system by generating revenues from the advertising displayed on the screens. The LLP was designed by the claimants (who are tax advisers) as the vehicle for raising the desired investment in the project. The attraction of the investment lay in the opportunity for higher rate taxpayers to claim tax relief in the form of capital allowances in an amount greater than the amount of their investment. This opportunity was created by 'gearing up' the amount of capital invested by individual subscribers to the project by the addition of a bank loan of an amount equal to three times the capital so subscribed. Thus 25 per cent of the total capital available to the project would represent capital subscribed by investors and the remaining 75 per cent would represent bank borrowing. In consequence, for every £25 invested a higher rate taxpayer could expect to obtain tax relief in a sum of £40.

12

The LLP was incorporated on 21 March 2003 under the Limited Liability Partnerships Act 2000 with the name 'Tower Taxi Technology One LLP'. Its name was subsequently changed to its present name. The claimants (that is to say, the respondents together with Mr Sharp and Mr Church) were its founder members.

13

Following discussions between the claimants and the management of CV, it was decided that the aim of the project should be to install the system in up to 10,000 cabs. The claimants and CV further concluded that in order to fund the project up to that level the LLP would need to raise £90M, £75M of which would cover the maximum cost of acquiring the necessary licences from CV, and the remaining £15M of which would be required to meet associated costs (including installation costs) . This in turn meant that a maximum of £22.5M would need to be raised by way of capital subscribed to the LLP, and a maximum of £67.5M by way of bank loan.

14

By an Agreement ("the LLP Agreement") dated 4 December 2003 and made between the claimants and the LLP, it was agreed that the LLP would enter into a number of specified agreements ('the Approved Contracts') . These included an agreement with CV for the purchase by the LLP of the necessary licences to exploit the ICT Software ('the ICT Software Agreement') , and an agreement with a bank (in the event, Lloyds TSB Bank plc) for a facility of up to £67.5M ('the Facility Agreement') .

15

The LLP Agreement recited that the LLP would seek to raise capital to finance the project (i.e. up to £22.5M) by the issue of shares in the LLP ('Participating Shares') . It provided (in clause 2.2) that the LLP was incorporated solely to acquire and exploit the ICT Software, and (in clause 2.7) that the Approved Contracts should be entered into and completed as soon as practicable. Clause 6 of the LLP Agreement provided that the claimants (referred to as 'Designated Members') should constitute the first members of the board of the LLP and that the business and affairs of the LLP should be managed and controlled by the board.

16

The ICT Software Agreement was dated the following day, 5 December 2003. By clause 2.1 of that agreement CV granted to the LLP an exclusive licence to use the ICT Software in up to 10,000 cabs on payment of 'the Price'. 'The Price' was defined as meaning "£75,000,000 … or such other sum as may be calculated after taking into account any reductions in the Price arising pursuant to clause 3 …". Clause 3.1 provided that the Price would be unconditionally due on the date of the agreement and would be paid by 31 March 2004. Clause 3.2 provided a mechanism for reducing the price proportionately in the event that less than the maximum amount of £22.5M should have been subscribed by that date. Clause 3.3 enabled the LLP to pay additional amounts on account of the price (i.e. up to the maximum of £75M) should further capital be subscribed thereafter. The ICT Software Agreement contained no provision for a minimum price. By clause 3.7 CV undertook to procure a bank loan to assist the LLP in paying 'the Price', together with guarantee from another bank as security for the loan.

17

On the same day, 5 December 2003, the LLP issued an Information Memorandum under the title 'An opportunity to participate in an innovative new business'. The Information Memorandum described in some detail the nature of the project and the expected tax advantages for investors who were higher rate taxpayers. It also introduced the requirement of a minimum level of subscriptions of £6.25M, failing which the project (and hence the purchase of the ICT Software from CV) would not proceed. Under the heading 'Bank Funding' the...

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