Halton International Inc. v Guernroy Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Patten |
| Judgment Date | 09 September 2005 |
| Neutral Citation | [2005] EWHC 1968 (Ch) |
| Docket Number | Case No: TLC 61404 |
| Court | Chancery Division |
| Date | 09 September 2005 |
[2005] EWHC 1968 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
THE HONOURABLE MR JUSTICE PATTEN
Case No: TLC 61404
(1) Halton International Inc (holding) Sarl (formerly Halton International Inc)
(2) Mohtaram Kaddoura
Alan Steinfeld Q.C and Alexander Pelling (instructed by Taylor Wessing) for the Claimants
Paul Girolami Q.C and Catherine Addy (instructed by Allen & Overy) for the Defendant
Hearing dates: 7 April – 25 May 2005—18–20 July 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The Claimants and the Defendant in this action are shareholders in an English private company called British Mediterranean Airlines Limited ("BMed") which was founded as a business in 1994 and which operates scheduled air services between London and various destinations in Asia and the Middle East. The First Claimant, Halton International Inc (Holdings) SARL ("Halton") is a Luxembourg company which was formed from the merger in December 2002 of two BVI companies, Halton International Inc ("HII") and Halton Overseas ("HOL") and their subsequent re-incorporation in Luxembourg as a single company in June 2004. At all times material to this action Halton and its predecessors HII and HOL were controlled by Dr Oussama Tabbara ("Dr Tabbara") and his son Omar and Dr Tabbara is now the sole director and shareholder of Halton. Although at one stage, the Defendant raised an issue about the status of Halton as a claimant and shareholder in BMed, no point is now taken about this.
Dr Tabbara and the Second Claimant Mr Kaddoura are two of the original founders of BMed. Dr Tabbara was born in 1938 and has a Degree and Doctorate in Business Administration from the University of Beirut and the International University of Vienna, respectively. He is the Chairman of Nexia Middle East, a major accounting and audit firm with fifteen offices around the Middle East and North Africa, and is also a partner in accounting and audit firms in Beirut and Saudi Arabia. Apart from his professional practice, he has extensive business interests around the world which include a major agricultural business in Chile and a family operated travel agency based in Jordan which is run by a company called Al-Kareem. In his professional capacity he has in the past given expert assistance to the Court in Lebanon and he accepted in cross-examination that he might properly be described as an accountant of some experience and distinction.
Mr Kaddoura like Dr Tabbara, is Lebanese by birth and was known socially by Dr Tabbara prior to the events with which this action is concerned. He has lived in Rome since before 1994 and is an Italian citizen. His evidence is that although his flat in Rome was what he described as his legal address, he travelled extensively to Beirut and to Libya on business during the period with which we are concerned and was often away from home. In 1994 Dr Tabbara and Mr Kaddoura received an approach from Mr Nadim Lababidi ("Mr Lababidi") who also ran a travel business in Beirut called Pan Asiatic Travel and was an old friend and business colleague of Dr Tabbara. He invited them to participate in a consortium of private investors based in Lebanon and the Middle East, which Mr Lababidi was forming in order to set up BMed as a scheduled airline. A total of £5m paid up share capital was required and Dr Tabbara and Mr Kaddoura each invested £1m in return for 20 per cent of the issued share capital in the company. Dr Tabbara made his investment through HII. Mr Kaddoura said that his investment represented family money in which his brother Izzat had an interest. His brother owned and operated the Coral Beach Hotel in Beirut. It was put to Mr Kaddoura (but denied) that Ezzat was the person who was primarily interested in the investment because of the benefit BMed could bring to his hotel business and that Mr Kaddoura was used to front the investment because he had an EU passport from Italy. It was apparently a CAA requirement that a majority of the issued shares had to be held by either British or other EU nationals, in order to comply with the agreements made between the UK, Lebanon and Jordan for the operation of scheduled air services between London and those destinations. In the end nothing turns on whether Mr Kaddoura acted for himself or as a nominee for his brother.
One of the other investors approached by Mr Lababidi was Mr Wafic Said. He was born in Syria but now lives in Monte Carlo. He is Chairman of the Said Holdings Group of Investment Companies, which have substantial holdings in securities and real estate in Europe, North America and the Far East. He had known Mr Lababidi since the 1980s and agreed to invest £1m in BMed through the Defendant ("Guernroy") which is a Guernsey subsidiary of Royal Bank of Canada (Channel Islands) Limited and holds its shares in BMed on behalf of various Said family trusts. The trustees were not willing to use existing trust money to make an investment in BMed but were prepared to acquire shares as an investment if funded by Mr Said. He therefore paid both the initial investment and for each subsequent acquisition of shares, including those issued and allotted to Guernroy on 6 February 1997 with which this action is concerned. It is worth recording at this stage, that although Guernroy is (for the reasons I will come to) the proper defendant to these proceedings, none of its directors was called to give evidence in its defence. In relation to each of the transactions and other matters in issue in these proceedings, Mr Said (either personally or through his legal adviser Mr William Heard) acted on behalf of and in the name of Guernroy. Guernroy accepts that it is bound by their actions and is liable for the consequences of those actions, if any. So far as intention and notice are relevant to what I have to decide, it is for the same reason unnecessary to look beyond Mr Said and Mr Heard.
The other investors were a Mr Mohammed Safadi and a Mr Haig Didizian, also Lebanese businessmen, who each invested £500,000. Mr Didizian made his investment through a company called Hachma UK Limited. The remaining £1m of the £5m start up capital was provided by Mr Lababidi's son, Salah, who granted a power of attorney in respect of his shares to his father.
In the case of Dr Tabbara and Mr Lababidi, BMed provided a useful complement to their existing travel businesses which came to act as its general sales agents ("GSAs") providing ticketing services for the airline. According to the evidence, the GSAs held the entire ticket stock of BMed for the particular country in which they were situated. Their function was to distribute tickets amongst travel agents and these sub agents would then sell the tickets and take a commission, which would be deducted from the overall ticket price. The GSA was entitled to a commission, calculated as a set percentage of the amount which was remitted to it by the sub agent, net of the sub agent's own commission. The GSA would then remit the balance to the airline. If the GSA sold tickets direct to a customer rather than through a travel agent, it would be entitled both to the travel agent's commission and to the commission normally due to it as a GSA. The contract with Al-Kareem apparently provided for a GSA commission equal to 3 per cent of the ticket price net of the travel agent's commission. That in place with Pan Asiatic Travel provided for a net GSA commission of 8 per cent of the ticket price.
Dr Tabbara said in evidence that this was not a major part of his travel business, but for reasons which I will come to later, this is in issue. What is, however, accepted is that in 1995 he agreed to set up something akin to a partnership with Mr Lababidi and Al-Kareem established the GSA agency in Jordan to enable BMed to obtain regulatory approval from the Jordanian Civil Aviation Authority to fly to Amman. This relationship with Mr Lababidi subsequently broke down and was terminated in June 1998. There are also proceedings in Jordan between BMed and Al-Kareem in relation to monies allegedly due from the ticketing arrangements prior to the commencement in 1997 of a British Airways franchise which lies at the centre of this English litigation.
BMed was borne out of the cessation of hostilities in the Lebanon. In 1994 British Airways ("BA") did not fly to Beirut and Middle Eastern Airways ("MEA"), according to Mr Said, had outdated equipment and a disorganised management structure. BMed had been incorporated in 1990 under the name London Airtours Limited by a Mr Hugh Parry and a Mr Jack Romero. In 1994 they were seeking to establish a daily scheduled service between London and Beirut and enlisted the support of Mr Lababidi to find investors willing and able to put up the £5m which was required. On 6 July 1994 the company's name was changed to BMed and on 12 October that year, the authorised share capital was increased from 1,000,000 to 5,500,100 shares of £1 each. The 100 £1 shares held by Mr Parry and Mr Romero were designated 'A' shares and the unissued shares were divided into 2,100 A shares and 5,497,900 B shares of £1 each. At the same time new articles of association were adopted under which voting rights were restricted to the 'A' shares; shares could only be issued so that the issued share capital continued to comprise A and B shares in the proportion 1: 2,499; and each holder for the time being of 8 1/2 per cent or more of the 'A' shares could nominate a director to the board. Following this re-organisation, Guernroy, HII, Mr Kaddoura and Salah Lababidi were each issued with 380 'A' shares and...
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