Halton International Inc. v Guernroy Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,Lord Justice Tuckey,Chancellor of the High Court |
| Judgment Date | 27 June 2006 |
| Neutral Citation | [2006] EWCA Civ 801 |
| Docket Number | Case No: A3/2005/2146 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 June 2006 |
[2006] EWCA Civ 801
Chancellor of The High Court
Lord Justice Tuckey and
Lord Justice Carnwath
Case No: A3/2005/2146
HC03C3778
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Mr Justice Patten
Royal Courts of Justice
Strand, London, WC2A 2LL
Alan Steinfeld QC & Alexander Pelling (instructed by Messrs. Taylor Wessing) for the Appellants
Paul Girolami QC & Catherine Addy (instructed by Messrs. Allen & Overy LLP) for the Respondents
Background
British Mediterranean Airways Ltd. ("BMed") was founded in 1994. It operates scheduled services between London and various destinations in Asia and the Middle East. The parties are all shareholders. The first claimant ("Halton") is a company controlled by Dr Tabbara. He and the second claimant, Mr Kaddoura, were two of the original founders of BMed. They are both Lebanese by birth, but with extensive world-wide business interests. The initial proposal for the airline came from another Lebanese businessman, Mr Lababidy, a friend and colleague of Dr Tabbara. The Defendant ("Guernroy") is also a shareholder in BMed, its shares being held as nominee for various trusts connected with Wafic Said, a wealthy Syrian businessman. He was also approached initially to invest by Mr Lababidy.
BMed's initial performance was poor and by 1996 it needed substantial fresh capital. At that time it was offered a possible solution to its problems, in the form of a franchise in the Middle East from British Airways (BA). By August 1996 a franchise agreement had been entered into with BA but it was dependent on BMed being able to raise £5.5 million of new equity. This proved an insuperable obstacle, until in October 1996 an arrangement was reached between the shareholders to enable Mr Said to seek to raise the necessary finance, including the so-called "voting agreement".
The judge found that the voting agreement was signed by all the principal shareholders by 30 th October 1996. It had been sent to them on 23 October 1996 under cover of a memorandum from Mr Said's lawyer explaining why it was necessary. This memorandum contained the following statement:
"Guernroy Limited will ensure that all of the existing shareholders of British Mediterranean are given the opportunity to participate on a pari passu basis in all financing proposed during the period of the authority described below.
The directors of Guernroy are of the opinion that in order to protect the interests of British Mediterranean, a full authority must be granted to Guernroy…"
The arrangements were to "remain in effect for so long as the British Airways franchise continues".
In the voting agreement itself, the Preamble (para E) stated that the parties had agreed that "… voting control should be vested in Guernroy to facilitate negotiations with British Airways…" By Clause 1, headed "Transfer of Voting Rights", the other shareholders appointed Guernroy "to be their true and lawful attorney" to take action and execute documents on their behalf "as Guernroy shall in its absolute discretion think proper to do…", including voting on their behalf at any meetings. By clause 2.4, they were required to deliver to Guernroy all share certificates or other title documents. Clause 4 expressed the mutual intention that Guernroy should seek to procure funding to meet the requirements of British Airways, and should be free to do so—
4.2 …. in any manner which Guernroy, in its absolute discretion, considers fit including for the avoidance of doubt funding raised pursuant to or in connection with a fresh issue of Shares (whether by way of rights or otherwise) or other securities in the Company or by way of bank borrowings or other borrowings of any nature whatever…."
As to what followed the signing of the agreement, it is sufficient for present purposes to quote the summary from Mr Steinfeld's skeleton:
"Thereafter, on 6 February 1997 at a short noticed EGM of BMed, Guernroy, who waived notice for the meeting on behalf of the Cs, used its powers under the voting agreement to ensure that 27.5 million new shares in BMed were issued at a price of 20p each to (a) Guernroy, which received 16.25 million of them; to (b) Lord Hesketh, the chairman of BMed's board and a personal friend of Mr Said, who was allotted 5 million of them; and to (c) two other companies controlled by personal friends of Mr Said, who between them received the remaining 6.25 million shares. In particular, D used the voting agreement to pass a resolution disapplying the Cs' rights of pre-emption under BMed's articles. The effect of these allotments was to increase D's holding in BMed from 20.1% to 50.9% and to reduce the holding of C1's predecessors from 23.6% to 4.9%, and C2's holding from 17.5% to 3.7%. The Judge has found as a fact that the Cs had on 29 November 1996 been sent a letter by D which gave them notice that investment in BMed shares was being invited by D but that they chose not to take part.
The Cs did not become aware of the allotments of February 1997 until September 2001. At that time there was a further issue of shares in BMed. The Cs were invited to participate on the basis of their holdings as diluted by the allotments of February 1997, which was how they discovered that their interest had been diluted. They decided not to participate at that stage because they did not wish to prejudice their case that the dilution of their interest was wrongful and that they should have been offered the opportunity to purchase shares based on their holding pre-6 February 1997."
The present proceedings were issued on 29 October 2003. The claimants asserted that Guernroy had used the voting agreement to obtain a profit for itself, in that it obtained shares in 1997 and in 2001 that have greatly increased in value. They claimed that Guernroy owed a fiduciary duty to them not to use the voting agreement to obtain a profit for itself without their informed consent. The judge rejected the claim that Guernroy owed such duty, which, he said, "simply fails to recognise the commercial realities involved":
"… Mr Said asked to be given carte blanche and that is what in terms Guernroy received. To superimpose on this a radically different set of obligations would be quite inconsistent with the relevant circumstances in which the voting agreement came to be made, as reflected in the terms of the agreement itself."
He went on to hold that in any event the claim was time-barred, the proceedings having been commenced more than six years after the critical actions on 6 th February 1997.
The claimants sought permission to appeal on seven grounds, the last being the limitation issue. Chadwick LJ indicated that there were realistic prospects of success on (at least) some of the substantive grounds, but not on the limitation issue (ground (7)), which was fatal to the claim as a whole. He therefore refused permission, but indicated that if the application were to be renewed argument should be limited to the limitation issue, and that if permission were granted on that issue the court would proceed to determine it. Although attempts were made by the claimants to vary that order, they were rejected. It follows that the only issue before us is limitation.
The basis of the claim
There is a certain artificiality in seeking to decide whether a claim is time-barred, where the judge has been held that no valid claim exists, and where accordingly its nature (if it did exist) has not had to be analysed in detail. In the circumstances, as I see it, we must consider the issue in the most favourable light from the appellants' point of view. Only if we are able to conclude, on that basis, that the appeal must fail, would we be justified in shutting out what has been held to be an arguable appeal on the other grounds. As we indicated to Mr Steinfeld at the outset, one possible outcome of this hearing might be that we simply give permission to appeal on the limitation ground, to be argued in due course in conjunction with the other grounds. However, since we have heard full and expert argument on this issue, and it is one of some general importance, we should attempt if possible to reach a concluded view.
Mr Steinfeld has helpfully summarised his case as follows in his most recent skeleton:
"…it is appropriate to consider what, in their barest essentials, the facts relevant to limitation are. On the Cs' case these are that D held a power of attorney over Cs' shares in BMed ("the voting agreement"). The immediate purpose of this was to enable D to exercise the votes that were attached to those shares ("the votes").
For the purposes of this part of the appeal it must be assumed that (contrary to the findings of the Judge) D was under a fiduciary obligation to exercise those votes for the benefit of the Cs. By reason of that obligation it was prevented from exercising the votes for its own benefit without first obtaining the informed consent of the Cs. In breach of that fiduciary obligation it exercised the votes to allot new shares in BMed to itself ("the new shares").
The Cs seek an order requiring D to make available to the Cs a portion of the new shares, based pro rata on the proportion of BMed that they owned before allotments, in return for payment of the cost price. The basis of this proprietary claim is that the shares when acquired by D were as to that portion held by it on constructive trust for the Cs."
The legal framework
It is common ground that the claim is statute-barred, unless it can be brought within the exception provided by section 21(1) of the Limitation...
To continue reading
Request your trial
-
Anthony Kleanthous v (1) Theodoros Paphitis (2) Malcolm Stanley Cooke and Others
...therefore proceeding on the basis that section 21(1)(a) could apply in the case of a class 2 constructive trust. However, in Halton International Inc v Guernroy Ltd [2006] EWCA Civ 801 Carnwath LJ observed: "I should note that, although the judgment in Gwembe (to which I was a party) proce......
-
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd
...the reasoning in Lister 45 Ch D 1 was followed, namely Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131 and Halton International Inc v Guernroy [2006] EWCA Civ 86 In Gwembe [2004] 1 BCLC 131, a director had made secret profits in breach of his fiduciary duty to the comp......
-
John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd
...in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41, cited with approval by Patten J in Halton International Inc (Holdings) SARL v Guernroy Limited [2005] EWHC 1968 (Ch) at [138], where Mason J said at 97: " That contractual and fiduciary relationships may co-exist ......
-
Saltri III Ltd v MD Mezzanine SA SICAR and Others
... ... New Zealand Netherlands Society "Oranje" Inc v. Kuys [1973] 1 WLR 1126 at 1130D – a decision of the Privy Council ... Wollenberg v. Casinos Austria International Holding GMBH [2011] EWHC 103 § 208 ). In other words, the fiduciary is ... 41 (at page 97) cited with approval in Halton v. Guernroy [2005] EWHC 1968 at § 139 and in Kelly v. Cooper [1993] ... ...