Euro Brokers Holdings Ltd v Monecor (London) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery :,Lord Justice Waller,Lord Justice Pill |
| Judgment Date | 11 February 2003 |
| Neutral Citation | [2003] EWCA Civ 105 |
| Docket Number | Case No: A3/2002/1098 |
| Court | Court of Appeal (Civil Division) |
| Date | 11 February 2003 |
[2003] EWCA Civ 105
Lord Justice Pill
Lord Justice Waller And
Lord Justice Mummery
Case No: A3/2002/1098
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR LESLIE KOSMIN QC
(SITTING AS A DEPUTY HIGH COURT JUDGE IN THE
CHANCERY DIVISION)
Mr Terence Mowschenson QC (instructed by Denton Wilde Sapte) for the Appellant
Mr Edward Bannister QC & Mr Andrew Twigger (instructed by Marriott Harrison) for the Respondent
Introduction
This is an appeal from Mr Leslie Kosmin QC (sitting as a Deputy High Court Judge in the Chancery Division). By his order dated 9 May 2002 he decreed specific performance of the obligation of Monecor (London) Limited (Monecor) to sell to Euro Brokers Holdings Limited (Euro Brokers) its entire shareholding in Euro Brokers Finacor Limited (EBFL) in accordance with clause 11(2) of a written agreement dated 31 December 1998 (the Shareholders' Agreement) made between Monecor, Euro Brokers, EBFL and others. The contractual obligation of Monecor to sell all of its shares in EBFL to Euro Brokers was held to have arisen from the exercise of an option by Euro Brokers to buy Monecor's shares in EBFL in the event of the failure of Monecor to meet a call to provide further capital needed in the business of EBFL.
The Deputy Judge granted Monecor permission to appeal and ordered a stay of parts of his order until determination of the appeal or earlier order of the Court of Appeal.
The Parties
The appellant, Monecor, is a wholly owned subsidiary of a French company, Finacor, which was in turn owned by a State controlled entity, CDR Enterprise SA (CDR). Finacor is no longer owned by CDR (see para 22 below).
The respondent, Euro Brokers, is an English company ultimately owned by a Delaware Corporation, Maxcor Financial Group Inc (Maxcor).
EBFL (formerly called Euro Brokers International Limited) is a joint venture company, in which Monecor and Euro Brokers were equal shareholders pursuant to a Share Sale agreement dated 21 December 1998. Monecor agreed to subscribe for 50% of the share capital of EBFL and to transfer to EBFL the shares in an English Company, Finacor Limited, and the assets and undertaking of its branch in Paris. EBFL was established in December 1998 to operate in the capital market currency and interest swap business in the City of London, where it is subject to the regulation of the Financial Services Authority (FSA). The FSA rules require brokerage companies, such as EBFL, to report to it, on a monthly basis, the amount of their capital base at the last working day of each month in order to meet the "minimum regulatory capital requirement." The minimum is broadly equivalent to two months of the company's recurring expenditure. In the year 2000 that figure was £3,825,000. In fact, the Finance Director of EBFL, Mr Pask, sought to maintain a buffer of £500,000 over the required minimum amount. Monecor accepts that the buffer had been agreed by the shareholders in EBFL.
The Shareholders' Agreement
This dispute arises out of the Shareholders' Agreement made between Monecor and Euro Brokers to regulate the relationship between them as shareholders in EBFL and certain aspects of the affairs of EBFL. As reflected in the Articles of Association the share capital of EBFL was equally divided into A shares, both ordinary and preference, held by Euro Brokers, and B shares, both ordinary and preference, held by Monecor.
By clause 6 the parties agreed to procure that there should at all times be three A directors and two B directors comprising the Board of EBFL, the A directors being appointed in writing from time to time by Euro Brokers and the B directors being appointed in writing from time to time by Monecor. These provisions are reflected in Articles 14 and 15 of the Articles of Association.
Clause 6(2) provides
"The Shareholders shall procure that meetings of the Directors are held at least four times a year and that a notice of each such meeting and, when practicable, an agenda of the business to be transacted at the meeting and all papers to be circulated at or presented at the meeting, are given or sent to all Directors entitled to receive notice of the meeting and to each Shareholder at least 3 days before the meeting and a copy of the minutes of the meeting are sent to such persons within 3 days after the meeting. Notwithstanding this, if agreed by an A Director and a B Director the Directors may also convene meetings of the Board ad hoc, on such shorter notice and with such lesser documentation (if any) as may be necessary or appropriate in the context of the particular circumstances."
Clause 11 of the Shareholders' Agreement is central to the case. It concerns the future funding requirements of EBFL. The material parts are as follows-
"(1) All further funding requirements of the Company shall be provided by the Shareholders on an equal basis, but it is agreed that neither Shareholder shall be obliged to provide any form of further funding or capital to the Company
(2) If at any time further funding shall be required by the Company in order to satisfy such capital adequacy requirements as are applicable to the Business at the relevant time or for the purpose of enabling the Company to pay its debts as they fall due, the Board shall issue a notice to each Shareholder specifying the amount required, the reasons there for and the necessary timing of such payment (a "Capital Call"). If either Shareholder does not respond to the Capital Call within the time period set out therein or responds that it will not meet such Capital Call, ("the Declining Shareholder"), the other Shareholder shall have the right to provide the whole of the relevant funding itself and if it does so, it may within 90 days following the date on which it provides such funding, require the Declining Shareholder to sell to it the entire shareholding in the Company of the Declining Shareholder……"
Clause 11(2) then spells out detailed provisions for the ascertainment of the purchase price of the Shares by EBFL's auditors.
The principal issues in the case are (a) whether a "Capital Call" within the meaning of clause 11(2) of the Shareholders' Agreement was made and, if so, (b) whether Euro Brokers is entitled to specific performance of the Shareholders' Agreement in respect of the shares held by Monecor in EBFL, Monecor having failed to meet the Capital Call. As this issue turns in part on the formal procedural requirements for making the Capital Call, it is necessary to refer briefly to other provisions in the Shareholders' Agreement.
Clause 1(1) defines the "Board" as meaning "the board of directors at the relevant time of the Company"; the "Directors" as meaning "the A Directors and the B Directors"; the "A Directors" as meaning "the directors appointed from time to time by the A Shareholder"; and the "B Directors" as meaning "the directors appointed from time to time by the B Shareholder."
Clause 2 provides that the agreement
"is being entered into in order to regulate the relationship of the Shareholders as members of the Company….."
Clause 26(2) states that the provisions of the agreement prevail in the case of any conflict between them and the Memorandum and Articles of Association. Clause 27 provides that
"(1) This agreement and the documents referred to in it…contain the whole agreement between the parties relating to the transactions contemplated by this agreement and supersede all previous agreements between the parties relating to these transactions."
It is also necessary to refer briefly to the Articles of Association of EBFL which, in respect of the Board, reflect the terms of the Shareholders' Agreement. The Articles concerned with the "Proceedings of Directors" provide that
"22. The quorum for a meeting of the directors shall throughout the meeting be at least one A Director and one B Director…
"23. Except as otherwise agreed by all the members, a committee of the directors shall include at least one A Director and one B Director and the quorum for a meeting of any such committee shall throughout the meeting be at least one A Director and one B Director….
"24. (1) Except as otherwise agreed by all the members, in the case of an equality of votes at any meeting of the directors or a committee of the directors the chairman of the meeting shall not have a second or casting vote…
(2) Except as otherwise agreed by all the members, questions arising at any meeting of the directors or of any committee of the directors shall be decided by a majority of votes…."
The Issues, Arguments and Decision in Outline
The basis of Euro Brokers' claim for specific performance of clause 11(2) of the Shareholders' Agreement is that a "Capital Call" was made in an e-mail sent by the Finance Director of EBFL, Mr William Pask, on 31 October 2000 requiring additional capital of £500,000 to be paid by 30 November 2000. It is accepted that Monecor agreed to pay £250,000 to EBFL, that on 30 November 2000 Monecor in fact paid £100,000 to EBFL and that it failed to pay the further sum of £150,000 within the time agreed for payment.
Monecor denies, however, that any "Capital Call" within the meaning of clause 11(2) was made by EBFL's Board, as, at the material time and as Euro Brokers well knew, EBFL had no properly constituted Board. It was inquorate, as there were no B directors on the EBFL Board. None had been appointed by Monecor to replace B directors, who had resigned. Monecor had not realised that...
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