Fons HF ((in Liquidation)) v Corporal Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mark Cawson |
| Judgment Date | 28 June 2013 |
| Neutral Citation | [2013] EWHC 1801 (Ch) |
| Docket Number | Case No: 1MA30294 |
| Court | Chancery Division |
| Date | 28 June 2013 |
[2013] EWHC 1801 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Mark Cawson QC
(sitting as a Deputy Judge of the High Court)
Case No: 1MA30294
Neil Cadwallader, instructed by Heatons LLP, for the Claimant
Andreas Gledhill, instructed by Keystone Law, for the Second Defendant
Hearing dates: 10 and 11 June 2013
Mark Cawson QC
INTRODUCTION
The issue that arises for determination in this claim is the true interpretation of Clause 3.1.1 of a Legal Charge dated 29 September 2008 made between the Claimant, Fons HF ("Fons") (1) and Kaupthing Bank Luxembourg S.A. ("Kaupthing") (2) ("the Charge"), and whether the first legal mortgage of "the Shares" provided for thereby extends to Fons' rights under two shareholder loan agreements dated 17 October 2007 and 15 February 2008 ("the SLAs") pursuant to which Fons lent the respective sums of £563,500 and 35% of £1,500,000 to Corporal Limited ("Corporal"), a company in which Fons was the holder of both ordinary and preference shares.
The expression "Shares" referred to in Clause 3.1.1 of the Charge was defined by Clause 1.1 thereof to mean:
"All shares (if any) specified in Schedule 1 (shares), and also all other stocks, shares, debentures, bonds, warrants, coupons or other securities now or in the future owned by the Chargor in Corporal from time to time or any in which it has an interest".
Both Fons and Kaupthing have entered into liquidation. There is now no issue but that the benefit of the Charge now vests in the Second Defendant, Pillar Securitisation SARL ("Pillar"), which argues that the wording of the definition set out in para 2 above ("the Definition") is, as a matter of true construction thereof, sufficiently wide to catch Fons' rights under the SLAs on the basis that these rights fall within the meaning of "other securities" and/or "debentures" as those expressions are used in the Definition.
Fons, on the other hand, argues that, as a matter of true construction of Clause 3.1.1 and the Definition, neither the word "other securities", nor the word "debentures", ought to be so widely construed as extending to documents such as the SLAs, which merely concern the terms for the making of unsecured loans.
Corporal has played no real part in the proceedings, apart from serving a neutral defence. It was joined as a party to the proceedings merely so as to ensure that it is bound by the decision, and it was not represented before me.
Fons was represented by Mr Neil Cadwallader of Counsel, and Pillar by Mr Andreas Gledhill of Counsel. I am most grateful to them both for their helpful written and oral submissions.
Background
Fons is a public limited liability company incorporated under the laws of Iceland. Under the terms of a subscription agreement dated 30 June 2006, Fons, through its wholly owned subsidiary, Talden Holdings SA ("Talden") (a company incorporated under the laws of Luxembourg), invested a total of £7,000,000 in Corporal by subscribing for 85,750 A ordinary shares at 10p per share, and 6,991,425 preference shares at £1 per share.
On the same day Corporal adopted new Articles of Association, entered into a facility agreement with Royal Bank of Scotland plc ("RBS"), and also entered into a Subordination Deed ("the Subordination Deed") between Corporal (as "Debtor") (1), Baugur Group HF ("Baugur Group"), BG Holdings EHF ("Baugur") and Talden (as "Subordinated Creditors") (2) and RBS (3), regulating the respective rights of the parties in Corporal.
The net result of the above events was that Corporal's capital and debt structure ranked in the following order: —
9.1 Firstly, RBS's secured loan facility of approximately £8,000,000;
9.2 Secondly, £4,483,448 due to Baugur Group under a shareholder loan agreement;
9.3 Thirdly, £19,975,000 preference shares of £1 each in Corporal held as to 65% by Baugur and 35% by Fons; and
9.4 Fourthly, A and B ordinary shares of 10p each in Corporal comprising 24,500 A ordinary shares held as to 65% by Baugur and 35% by Fons, and B ordinary shares (representing only about 2% of the ordinary share capital) held by management.
Baugur had acquired the toy retailer Hamleys in 2003, and Corporal was, at all relevant times, used as a corporate vehicle for the carrying on of this business.
By a Share Purchase Agreement dated 30 March 2007 and made between Fons (1) and Talden (2), Fons acquired Talden's shareholding in Corporal and in three other companies. The purchase price was apportioned or divided such that the purchase price attributable to Talden's shareholding in Corporal was expressed as being £7,000,000.
The circumstances behind the entry by Fons into the SLAs are explained in the witness statement of Alasdair Dunn, the Chief Operating Officer of Corporal, which was adduced in evidence by Fons without challenge. In short, Corporal was, at Baugur's instigation in 2007, looking to develop Hamleys concessions in a number of House of Fraser stores, and this required capital expenditure and other costs to be incurred in excess of those already provided for by Corporal's business plan. As a new banking facility had only recently been agreed with RBS, it was agreed between Baugur and Fons that they should provide the necessary funding between themselves in proportion to their respective shareholdings in Corporal by way of loans. Thus in August 2007 Baugur advanced £1,046,500, and in October 2007 Fons advanced £563,500 to Corporal.
This loan made by Fons was unsecured, and was documented by the first of the SLAs, dated 17 October 2007. This provided, in essence, that:-
13.1 The loan would bear interest at a rate of 8% per annum, rolled up on an annual basis (Clause 3);
13.2 The loan should become repayable:-
13.2.1 If an "Exit Event" occurred, which included default in making any payment due, Corporal ceasing to trade, and Corporal becoming insolvent;
13.2.2 At any time on demand by Fons following the last day of the "Subordination Period" (as defined by the Subordination Deed, and meaning in essence, when RBS had been repaid).
(Clauses 4 and 5).
Two particular provisions of the first SLA should be noted:-
14.1 Clause 4.2 provided that a certificate from Fons as to the amount at any time due from Corporal to Fons under the SLA should, in the absence of manifest error, be conclusive; and
14.2 By clause 6, it was provided that any payment made by Corporal under the SLA should be made in full, without set off or counterclaim and, unless otherwise required by law, free and clear of any deductions or withholdings.
The following year (2008) Baugur and Fons agreed to provide further loans to Corporal to fund the refurbishment of Hamleys Store on Regent Street, London. £1,500,000 in total was advanced, 65% of this sum being advanced by Baugur, and 35% by Fons.
These further advances were made pursuant to the second SLA dated 8 February 2008. The essential difference between this and the first SLA was that both Baugur and Fons were made party to the second SLA as "the Lenders", making the one "Loan" of £1,500,000. Otherwise, the second SLA was, so far as relevant, in the same terms as the first SLA, although it should be noted that the certificate provided for by Clause 4.1 was, in the case of the second SLA, to be given by Baugur as "Agent".
The circumstances leading up to the grant of the Charge were dealt with in evidence on behalf of Fons by Andri Freyr Stefansson ("Mr Stefansson"), now Senior Legal Counsel with Landsbankinn HF, who was, between February 2007 and April 2009 in-house legal Counsel for Fons. In evidence Mr Stefansson confirmed the contents of his witness statement dated 24 April 2013, before being cross-examined in respect of a number of matters dealt with therein.
As at June 2008, Fons owed some 2.5 billion Icelandic Krona (ISK) to Kaupthing on an unsecured basis. Mr Stefansson referred in his witness statement to this equating to approximately £12,500,000, although a web printout from the "OANDA" website put to Mr Stefansson in cross-examination suggests that 2.5 billion ISK equated to approximately £14,000,000 as at the end of September 2008.
Mr Stefansson refers to Fons, in 2008, having come under pressure from Kaupthing to provide security for its indebtedness, and that of its subsidiary Talden, to Kaupthing. According to Mr Stefansson, the Board of Directors of Fons suggested that the appropriate mechanism would be for Fons to provide a charge over its shares in Corporal — see para 10 of Mr Stefansson's statement.
Certainly, it is clear from an exchange of emails between Fons' majority shareholder and Chief Executive Officer, Palmi Haraldsson ("Mr Haraldsson"), and Kaupthing's Chief Executive Officer Magnus Gudmundsson ("Mr Gudmundsson") on Sunday 4 May 2008, that there had been high level communication between the two companies about a " pledge" of Fons' shares in Corporal in order to support Fons' and Talden's indebtedness to Kaupthing, Fons having already provided a guarantee for Talden's indebtedness to Kaupthing. Thus in an email dated 4 May 2008, Mr Gudmundsson asked of Mr Haraldsson: "Who will give us a pledge in hamlays (sic)? Who should we talk to?"
After this high level exchange, the matter was passed on to others to deal with, being dealt with thereafter on behalf of Kaupthing by Andri Sigurdsson ("Mr Sigurdsson"), a "Senior Lawyer", and subsequently by Solvi Solvason ("Mr Solvason"), "Head of Corporate and Financial Law". Matters were dealt with thereafter on behalf of Fons by Mr Stefansson, who at that stage had graduated with a law degree, but had not been formally admitted to practice.
Mr Stefansson was cross-examined by Mr Gledhill on...
To continue reading
Request your trial
-
Provident Insurance Corporation Ltd v The Commissioner of Inland Revenue
...Motors Acceptance Corporation Australia v South Bank Traders Pty Ltd [2007] HCA 19, (2007) 227 CLR 305. 53 See Fons HF v Corporal Ltd [2013] EWHC 1801 (Ch) at 54 Such as West Coast Ent Inc v Buller Coal Ltd [2013] NZSC 87, [2014] 1 NZLR 32. 55 Above n 46, at 144. 56 As was argued in Denmar......
-
Provident Insurance Corporation Limited v The Commissioner of Inland Revenue
...Motors Acceptance Corporation Australia v South Bank Traders Pty Ltd [2007] HCA 19, (2007) 227 CLR 305. See Fons HF v Corporal Ltd [2013] EWHC 1801 (Ch) at Such as West Coast Ent Inc v Buller Coal Ltd [2013] NZSC 87, [2014] 1 NZLR 32. involved in reading down or impliedly limiting the terms......