Criterion Properties Plc v Stratford UK Properties LLC and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Hart,Mr Justice Hart |
| Judgment Date | 27 March 2002 |
| Neutral Citation | [2002] EWHC 496 (Ch) |
| Docket Number | Case No: HC 01 C02962 |
| Court | Chancery Division |
| Date | 27 March 2002 |
[2002] EWHC 496 (Ch)
The Honourable Mr Justice Hart
Case No: HC 01 C02962
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Alan Steinfeld QC and Mr Nicholas Cherryman (instructed by Denton Wilde Sapte, Solicitors) for the Claimant
Mr Charles Hollander QC (instructed by Ashurst Morris Crisp, Solicitors) for the 1st Defendant
Mr James Ayliffe (instructed by Berwin Leighton Paisner, Solicitors) for the 2nd Defendant
Hearing dates : 13–14 March 2002
Judgment Handdown date: Wednesday 27 March 2002
| I direct pursuant to CPR Part 39 P.D. 6 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. |
Mr Justice Hart
In this action the claimant Criterion Properties Plc ("Criterion") seeks an order setting aside an agreement dated 30 March 2000 ("the second supplementary agreement") purportedly made between Criterion, the first defendant Stratford UK Properties LLC ("Oaktree") and the third defendant, Criterion-Stratford Umbrella GP Ltd ("The General Partner"). That agreement was made in order to vary the terms of an Investment and Shareholders Agreement ("the ISA") made on 26 January 1998 between the same parties. Criterion also claims against the second defendant, Aubrey Glaser ("Mr Glaser"), that as its director he was in breach of duty in causing Criterion to enter into the second supplementary agreement.
The ISA had been entered into pursuant to an agreement between Criterion and Oaktree to enter into a limited partnership under the Limited Partnership Act 1907 (as amended) with a view to investing in real property. The ISA provided for the establishment and regulation of the activities of the General Partner and other companies set up under the partnership, and a Limited Partnership Agreement of the same date provided for the formation and establishment of the partnership. At the date of the ISA, 150 of the General Partner's issued shares were already registered in the name of Criterion and the remaining 850 shares were issued and allotted to Oaktree in accordance with Clauses 3 and 4 of the ISA. Clause 7.1 and 7.2 of the ISA provided so far as material as follows:
"Clause 7.1
(1) In the event of:
(a) Impasse;
(b) Bankruptcy of a Shareholder; or
(c) breach of this agreement or the Umbrella Partnership Agreement by a Shareholder which is not remedied to the satisfaction of the other Shareholder within 14 Business Days of its occurrence;
the Offeror may serve a notice (hereinafter called the "Sale Notice") on the other Shareholder (in this clause called the "Offeree") stating the grounds on which the notice is served and making both the following alternative offers:
(x) to purchase all of the Ordinary Shares owned by the Offeree (the "Offeree Shares"), any Debt owed by the Company to the Offeree and its associated companies (the "Offeree Debt") and the Offeree's (and its Connected Persons') entire interest in the Umbrella Partnership ( Offeree Partnership Interest") at the Sale Price (as defined in clause 7.2(a));
(y) to sell all of the Ordinary Shares owned by the Offeror (the "Offeror Shares"), with any Debt owed by the Company to the Offeror and its associated companies (the "Offeror Debt") and the Offeror's (and its Connected Persons') entire interest in the Umbrella Partnership ( "Offeror Partnership Interest") at the Sale Price (as defined in clause 7.2(a)).
Clause 7.2
(2) Sale Price
(a) Both the offers set forth in clauses 7.1(x) and (y) shall be made at the same price per Ordinary Share and proportionate interest in the Umbrella Partnership (which may be a positive or negative figure), specified by the Offeror in the Sale Notice being such price as the Offeror shall in its absolute discretion think fit, and at 100p in the pound in respect of Debt (in each case payable in cash) ( "Sale Price");
(b) An offer for Ordinary Shares, Debt and an interest in the Umbrella Partnership is not severable into separate offers and accordingly any acceptance must relate to all of them."
"Impasse" was defined as meaning an inability on the part of the Board of the General Partner to approve a draft Business Plan or to agree on a material issue relating to the implementation of a Business Plan or on any one of certain other specified matters: see Clause 1.1. The privilege and duty of preparing the draft Business Plan was for Criterion: see Clause 5.3.
Under Clause 2.1 of the Limited Partnership Agreement the General Partner was appointed the general partner, with the power to carry on day to day management of the business of the partnership and Criterion and Stratford Associates Ltd ("SAL" a wholly owned subsidiary of Oaktree) were the limited partners. Clause 9 of the Limited Partnership Agreement governed the amount of Capital Contributions and Advances to be made by Criterion and Stratford Associates Ltd, and provided as follows:
" Clause 9.1
The initial capital of the Partnership shall be £1,000 to be contributed by the following Capital Contributions:
General Partner £2
Stratford Limited Partner £849
Criterion Limited Partner £149
Total £1,000
Clause 9.2
The capital of the Partnership may only be increased from time to time as all Partners shall agree and the amount of any increase shall be as agreed between them.
Clause 9.3
The Limited Partners shall each make Advances to the Partnership if and when required by the General Partner as follows. The Criterion Limited Partner shall made an Advance equal to 15 per cent of the amount required by the General Partner but shall at the option of the Criterion Limited Partner be entitled to make an Advance equal to a maximum of 50 per cent of such amount required. Each Advance shall be attributed to an Investment Partnership and any Advance made after the fist Advance made in respect of an Investment Partnership must be in the same proportions as the first Advance. The balance of the amount required by the General Partner shall be advanced by the Stratford Limited Partner provided always that the maximum aggregate amounts advanced by the General Partner, the Criterion Limited Partner and the Stratford Limited Partner shall not exceed £20,000,000.
Clause 9.4
Neither Partner shall while it remains a Partner be entitled directly or indirectly to draw out or receive back any part of its share of its Capital Contribution other than on dissolution of the Partnership pursuant to clause 19.
Clause 9.5
No Partner shall be paid interest by the Partnership or by the General Partner on or in respect of its Capital Contribution or upon any amount, whether of Net Income or otherwise, allocated to any Partner but not yet distributed to it, except as otherwise mutually agreed to by the Partners.
No interest shall be paid or payable on any Advance."
Clause 14 of the Limited Partnership Agreement governed the repayment of Advances to Criterion and SAL and the sharing of profits. Clause 14.3 provided that any Net Income and Capital Contribution attributable to an Investment Partnership available for distribution should be used to pay any Advances or other indebtedness due to Criterion and SAL pro rata to the amount of such indebtedness. Thereafter, Clause 14.4 provided that the profits of the Partnership should be distributed as follows:—
"(a) until the Stratford Limited Partner achieves an IRR (calculated as set forth below) in respect of the relevant Investment Partnership equal to or exceeding 20% distribution of profit in respect of the relevant Investment Partnership in relation to the Limited Partners will be in proportion to the aggregate of each Limited Partner's Capital Contributions;
(b) when the Stratford Limited Partner achieves an IRR in respect of the relevant Investment Partnership exceeding 20%, distribution of profit in respect of the relevant Investment Partnership in relation to the Limited Partners will be in the proportions set out in the Profit Sharing Exhibit with respect to such Investment Partnership…."
Clause 19 provided that, on a liquidation of the partnership and subject to providing for liabilities, any surplus should be distributed so as to ensure that the total distributions accorded with the scheme of division provided for by Clause 14.
Following the establishment of the partnership Criterion and SAL made Advances to the Partnership for the purposes of acquiring four properties in England through the medium of four separate Investment Partnerships.
Oaktree is a subsidiary or associated company of Oaktree Capital Management LLC an institutional money manager and investment adviser registered with the US Securities and Exchange Commission. That company manages approximately US$20 billion for institutional investors and high net worth individuals. Criterion is a UK listed company. Its Chairman at all material times has been a Mr Rolf Nordström. At all material times until the events mentioned below Mr Glaser was its Managing Director.
In a witness statement dated 15 November 2001 Mr Sean Frederick Armstrong, the Managing Director of Oaktree Capital Management LLC describes the background to the second supplementary agreement as follows:—
"In about January 2000, I was contacted by telephone by Aubrey Glaser and, as far as I can recall, Rolf Nordström. They informed me that they were concerned about parties who were acquiring a substantial number of Criterion shares. They went on to explain that, under the London Stock Exchange Take-over Panel's Rules, if a party acquired 30% of the shareholding in a company, it must offer to purchase the other shareholders' shares. We were all concerned about the possibility of a change in control of Criterion as this would...
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