Enviroco Ltd v Farstad Supply A/S
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,or,Lord Justice Longmore,Lord Justice Mummery |
| Judgment Date | 18 December 2009 |
| Neutral Citation | [2009] EWCA Civ 1399 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 December 2009 |
| Docket Number | Case No: A3/2009/1191 |
[2009] EWCA Civ 1399
IN THE COURT OF APPEAL
(CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
Mr Gabriel Moss QC Sitting as a Deputy High Court Judge
Before: Lord Justice Mummery
Lord Justice Longmore
and
Lord Justice Patten
Case No: A3/2009/1191
HC07C03425
Ms Ceri Bryant (instructed by HBJ Gateley Wareing) for the Appellant Ms Poonam Melwani and Ms Saira Paruk (instructed by Clyde & Co LLP) for the Respondent
Hearing date : 1st December 2009
Lord Justice Patten :
Introduction
On 7 th July 2002 the claimant and respondent to this appeal, Enviroco Limited (“Enviroco”), was instructed to clean the tanks of the oil rig supply vessel, MV Far Service (“the vessel”), prior to its sailing to one of BP's North Sea oil platforms. The vessel is owned by the appellant, Farstad Supply A/S (“Farstad”), but was chartered to Asco UK Limited (“Asco UK”) under a charterparty dated 4 th February 1997.
The cleaning operation took place while the vessel was berthed at Peterhead. During the course of it, oil which had been removed from the tanks came into contact with an ignition source and caused a serious fire in the engine room which killed one of Enviroco's employees and caused substantial damage to the vessel. On 26 th March 2007 proceedings were issued in Scotland by Farstad against Enviroco for damages amounting to some £2.7 million.
Clause 33 of the charterparty contains a series of indemnities by Farstad in favour of Asco UK and its “affiliates” including one in respect of all claims and liabilities resulting from loss and damage to the vessel. “Affiliate” is defined in clause 1(a) of Part B of the charterparty in these terms :—
“‘Affiliate'” means any subsidiary of the Charterer or Customer or a company of which the Charterer or Customer are a Subsidiary or a company which is another Subsidiary of a company of which the Charterer or Customer is a Subsidiary. For the purposes of this definition “Subsidiary” shall have the meaning assigned to it in Section 736 of the Companies Act 1985”.
Clause 1.2 of Part B states that a reference to:—
“a) any statute or statutory provision shall include a reference to any amendment, extension, consolidation or replacement thereof and any order, instrument or other subordinate legislation made thereunder;”
By the time of the accident in July 2002 s.736 of the Companies Act 1985 had been amended by the Companies Act 1989 and it is common ground that these are the provisions which are applied by clause 1(a) to determine the scope of the indemnity contained in clause 33. The relevant sections are ss. 736 and 736A which provided as follows:—
“736 “Subsidiary”, “holding company” and “wholly-owned subsidiary
(1) A company is a “subsidiary” of another company, its “holding company”, if that other company —
(a) holds a majority of the voting rights in it, or
(b) is a member of it and has the right to appoint or remove a majority of its board of directors, or
(c) is a member of it and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in it,
or if it is a subsidiary of a company which is itself a subsidiary of that other company.
(2) A company is a “wholly-owned subsidiary” of another company if it has no members except that other and that other's wholly-owned subsidiaries or persons acting on behalf of that other or its wholly-owned subsidiaries.
(3) In this section “company” includes any body corporate.
A Provisions supplementing s. 736
(1) The provisions of this section explain expressions used in section 736 and otherwise supplement that section.
(2) In section 736(1)(a) and (c) the references to the voting rights in a company are to the rights conferred on shareholders in respect of their shares or, in the case of a company not having a share capital, on members, to vote at general meetings of the company on all, or substantially all, matters.
(3) In section 736(l)(b) the reference to the right to appoint or remove a majority of the board of directors is to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board on all, or substantially all, matters; and for the purposes of that provision —
(a) a company shall be treated as having the right to appoint to a directorship if —
(i) a person's appointment to it follows necessarily from his appointment as director of the company, or
(ii) the directorship is held by the company itself; and
(b) a right to appoint or remove which is exercisable only with the consent or concurrence of another person shall be left out of account unless no other person has a right to appoint or, as the case may be, remove in relation to that directorship.
(4) Rights which are exercisable only in certain circumstances shall be taken into account only —
(a) when the circumstances have arisen, and for so long as they continue to obtain, or
(b) when the circumstances are within the control of the person having the rights;
and rights which are normally exercisable but are temporarily incapable of exercise shall continue to be taken into account.
(5) Rights held by a person in a fiduciary capacity shall be treated as not held by him.
(6) Rights held by a person as nominee for another shall be treated as held by the other; and rights shall be regarded as held as nominee for another if they are exercisable only on his instructions or with his consent or concurrence.
(7) Rights attached to shares held by way of security shall be treated as held by the person providing the security —
(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in accordance with his instructions;
(b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in his interests.
(8) Rights shall be treated as held by a company if they are held by any of its subsidiaries; and nothing in subsection ( 6) or (7) shall be construed as requiring rights held by a company to be treated as held by any of its subsidiaries.
(9) For the purposes of subsection (7) rights shall be treated as being exercisable in accordance with the instructions or in the interests of a company if they are exercisable in accordance with the instructions of or, as the case may be, in the interests of —
(a) any subsidiary or holding company of that company, or
(b) any subsidiary of a holding company of that company.
(10) The voting rights in a company shall be reduced by any rights held by the company itself.
(11) References in any provision of subsections (5) to (10) to rights held by a person include rights falling to be treated as held by him by virtue of any other provision of those subsections but not rights which by virtue of any such provision are to be treated as not held by him.
(12) In this section “company” includes any body corporate.”
These provisions have been reproduced (without any material amendment) in what is now s.1159 and Schedule 6 of the Companies Act 2006 but, on this appeal, we are concerned only with the 1985 Act.
The charterparty is governed by English law and in clause 48 contains a choice of forum clause nominating the High Court in London as having exclusive jurisdiction over any dispute arising out of the charter. Enviroco contends that it was, at all material times, an affiliate of Asco UK within the meaning of clause 1(a) and is therefore entitled to rely on the indemnity in answer to Farstad's claim in the Scottish proceedings. It has therefore commenced an action against Farstad in England seeking a declaration to this effect.
The pleaded basis of its claim is that both it and Asco UK are subsidiaries of a third company, ASCO plc. Enviroco's case on this is set out in paragraph 26 of the amended Particulars of Claim. It is pleaded that the company was a subsidiary of ASCO plc within the meaning of s.736(1)(c) of the 1985 Act because ASCO plc was a member of Enviroco and controlled alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights. No reliance is placed on either s.736(1)(a) or s.736(1)(b) because ASCO plc does not have control in the senses described there except with the assistance of others. This is because in November 1999 the share capital of Enviroco (which, prior to that date, was registered in the name of ASCO plc) was split into A and B shares. ASCO plc thereafter held and was shown on the Register of Members as the holder of 333,751 A shares with an equal number of B shares being registered in the name of Stoneyhill Waste Management Limited. Since then ASCO plc has never held more than 50% of the issued share capital of Enviroco.
On those facts Enviroco would have qualified as a subsidiary of ASCO plc within the meaning of s.736. But, on 11 th May 2000, it charged its shares in the company to the Bank of Scotland under a deed of pledge which, as a term of the security, required the shares to be registered in the name of the bank or its nominee. This was duly done. Clause 4 of the deed provided that until the security became enforceable “the full voting and other rights and powers in respect of the Shares” should be exercised by ASCO plc as the bank's proxy subject to a proviso that these powers should not be exercised in a manner which would adversely...
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