Caledonian Maritime Assets Ltd v HCC International Insurance Company Plc
| Jurisdiction | England & Wales |
| Judge | Mr. Simon Gleeson |
| Judgment Date | 28 January 2022 |
| Neutral Citation | [2022] EWHC 164 (Ch) |
| Docket Number | Case No: BL-2021-000379 |
| Court | Chancery Division |
[2022] EWHC 164 (Ch)
Mr Simon Gleeson
Sitting as a Deputy High Court Judge
Case No: BL-2021-000379
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
7 Rolls Buildings
Fetter lane, London
EC 4A 1NL
Charles Hollander Q.C. and Kyle Lawson (instructed by Addleshaw Goddard LLP) for the Claimant/Respondent
Alexander Polley (instructed by Gowling WLG (UK) LLP) for the Defendant/Applicant
Hearing dates: 12 January 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
A commercial agreement was negotiated between sophisticated commercial parties, advised by experienced solicitors, and executed as a deed, referred to in this judgment as the “Deed of Settlement”. As a result of a series of subsequent developments, the terms of this deed produced an outcome which came as a surprise to all those involved in its negotiation, producing a significant windfall gain for one party at the expense of the owner of the other. It is therefore no great surprise that this has resulted in a claim being brought for the rectification of that deed. The Defendant has applied to have this claim struck out, or in the alternative to have summary judgment.
The Facts
It is necessary first to say a little about the facts surrounding the claim. The Claimant, CMAL, is the asset owning arm of the Caledonian MacBrayne ferry operator, and in 2015 it placed an order with Ferguson Marine Engineering Limited (“FMEL”) for two vessels to be used in its operations. The terms of the contract were that CMAL paid partially in advance for the ferries, but had the right to cancel the order and have its money returned if FMEL breached the contract to supply them.
CMAL clearly doubted the creditworthiness of FMEL, and therefore it was arranged that the defendant HCCI would provide credit insurance to CMAL in respect of FMEL's repayment obligations. HCCI provided this by issuing indemnity bonds (“Bonds”) to CMAL. The terms of these Bonds were that, in the event of HCCI becoming entitled to recover the specified sums from FMEL under the contract, it would also be entitled to claim those sums from CMAL as primary obligor.
As consideration for the issue of the Bonds, FMEL paid HCCI a premium, and entered into a deed of indemnity (the “Deed of Indemnity”) whose effect was that FMEL (a) agreed to indemnify HCCI in respect of any payments which it was required to make under the Bonds, (b) granted a charge over its assets in respect of its liabilities under that indemnity, and (c) entered into various other covenants designed to bolster HCCI's position in the event of FMEL's default. Significantly – and critically for this litigation – the Deed of Indemnity contained not only an indemnity from FMEL, but, as a result of various amendments, came to include an indemnity from a company called MacKellar Sub-Sea Limited (“Mackellar”). Mackellar was a sister company of FMEL, both companies being ultimately owned by Ferguson Marine Engineering (Holdings) Limited.
It is necessary to pause here to note that Mr Hollander argues that the position in which HCCI ended up was inherently suspicious because it was “circular”, in that if HCCI incurred liability to one person, it could recover it from the sole shareholder of the other. However, that is the nature of credit insurance. A credit insurer does not take the absolute risk of the insured liability. When he enters into a commitment to a creditor, he matches it with an indemnity from the debtor, such that the risk he takes is that the recovery from the debtor will be less than the payment out to the creditor. “Circularity” in this sense is inherent in the nature of the business.
HCCI was not of course the only creditor of FMEL. Most importantly, FMEL was in practice being kept going by a series of loans from the Scottish Government (the “Scottish Ministers”), who also required security from FMEL in respect of its repayment obligations to them. As a result, an intercreditor deed (the “Intercreditor Deed”) was entered into between the various creditors of FMEL in February 2019, regulating between themselves their rights under the various security arrangements in existence. The effect of the Intercreditor Deed was that HCCI was the first ranking creditor in respect of its claims for repayment of any amounts due to it; the Scottish Ministers were the second ranking creditor, and other creditors were subordinated to both claims. The deed, as is common in such deeds, contained a “turnover clause”, by which any creditor receiving monies from any obligor was obliged to pay those monies over to the secured creditors in the order specified in the deed – thus, a junior creditor receiving money from any obligor was required to turn it over to a more senior creditor until that senior creditor's claim was discharged in full. The most senior creditor was HCCI. CMAL was not a party to this deed. The Scottish Ministers, being party to the deed, were of course fully aware of its terms.
In May 2019 it became clear that FMEL was badly behind with the contract to deliver the two ferries to CMAL, such that CMAL was entitled to terminate the contract and demand repayment of the money paid by it. This presented CMAL with a problem. On the one hand, if it terminated the contract with FMEL it could claim repayment of the monies advanced (amounting to £24,250,000) from HCCI under the Bonds. On the other, CMAL's primary requirement was not for the repayment of the money, but the delivery of the ferries. Terminating the contract would almost certainly have resulted in the failure of FMEL and the exercise by HCCI of its rights under its security arrangements, with the likelihood that work on the partially completed ferries would cease for an indefinite period. CMAL decided that its primary objective was to procure that work on the ferries continued, and it therefore had to remove the threat of HCCI exercising its security rights. This in practice could only be done through a negotiated settlement with HCCI.
Negotiations for such a settlement were therefore commenced. HCCI's opening position was that it would be happy to walk away – that is, it would be released from its obligations under the Bonds, and in exchange would release the rights and securities which were given to it in consideration of its entry into those Bonds. CMAL, however, insisted that HCCI make some payment in respect of the release of its liabilities, and it was eventually agreed that HCCI would, in exchange for a payment of £4,850,000, be released from all of its remaining potential obligations under the Bonds. This agreement was documented in the Deed of Settlement, which is the document which the claimant now seeks to have rectified.
It is at this point that the positions of the two parties in this litigation begin to diverge. It is agreed that CMAL's primary concern was to secure the release of HCCI's claims on FMEL, in order to remove the threat to FMEL continuing in business and working on the ferries. It was the common intention of both parties that these rights should be given up, and they were, through deeds of release entered into pursuant to the Deed of Settlement. However, it will be recalled that HCCI also had an indemnity in respect of its liabilities from another group company — Mackellar. Mackellar was at this time a dormant company. The position seems to have been that it was believed that Mackellar might have a small positive asset value, but there was a common assumption that the amount was unlikely to be significant. The question of what the parties believed the position to be as regards the continuation of the Mackellar indemnity is the crux of this case.
CMAL say that they thought the Mackellar indemnity was to be brought to an end by the document which they were executing, that the fact that it was not was unconscionably concealed from them, and that they were therefore misled into executing a deed which they would not otherwise have signed. CMAL therefore argue that the deed should be rectified so as to have the effect of releasing the Mackellar indemnity along with the CMAL indemnities.
HCCI say that they had no reason to believe that the continuing existence of the indemnity was of any significance to CMAL, and that on the facts they were entitled to believe (and did believe) that CMAL were indeed aware that this was the effect of the deed which they executed. They therefore oppose rectification.
It may be asked how it came about that an indemnity from a dormant company worth at best a small amount of money could have acquired such significance? The answer lies in the way in which matters developed after the date of the Deed of Settlement. The removal of the HCCI security facilitated the appointment of administrators, and it was the actions of the administrators which precipitated the windfall.
The administrators resolved to sell the business of FMEL as a going concern, and this sale was completed in December 2019 for the sum of £7,543,857. The sale was (effectively) to the Scottish Ministers – the purchaser was a vehicle called Macrocom (1067) Limited which was wholly owned by the Scottish Ministers, and the purchase price was paid to FMEL by reducing the amounts due from FMEL to the Scottish Ministers.
The question of who was entitled to this amount depended on whether the Intercreditor Deed was still in force. If it was, the Scottish ministers were obliged to pay over this amount to the senior creditor under the deed until its claim was satisfied. If it was not, the money belonged to FMEL.
The Intercreditor...
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