Leedon Ltd v Mr Ghanshyam Hurry and Others
| Jurisdiction | UK Non-devolved |
| Judge | LORD WALKER |
| Judgment Date | 03 November 2010 |
| Neutral Citation | [2010] UKPC 27 |
| Date | 03 November 2010 |
| Docket Number | Appeal No. 0084 of 2009 |
| Court | Privy Council |
[2010] UKPC 27
Privy Council
Lord Rodger
Lord Walker
Lord Brown
Lord Collins
Sir John Dyson SC
Appellant
Michael Brindle QC
(Instructed by Maclay Murray & Spens LLP)
1 st-4 th Respondents
Antony Zacaroli QC
Rishi Pursem
(Instructed by Carrington & Associates)
5 th Respondent
Sir Hamid Moollan QC
(Instructed by Streathers Solicitors LLP)
Introduction
At the end of the hearing on 2 July 2010 the Board announced that the appeal would be dismissed for reasons to be given later. The Board now gives its reasons.
The appeal arose out of an unsuccessful joint venture between two companies incorporated in Mauritius, JPMP MPL Holdings Ltd ("JPMP") and Leedon Ltd ("Leedon"). JPMP was owned by Unitas (originally named JP Morgan Partners Asia Pte Ltd), a private equity investor. Leedon was owned by two brothers resident in Singapore, Mr Anthony Ser and Mr George Ser, who had long experience in the metal stamping industry (and in particular hard disk drives).
The corporate vehicle for the joint enterprise was MPL (I) Ltd ("MPL"), which had a wholly-owned subsidiary, Metalform International Limited ("MIL"). Both these companies were incorporated in Mauritius. MPL is now in compulsory liquidation. MIL had three wholly-owned trading subsidiaries, Metalform (Wuxi) Precision Engineering Co Ltd incorporated in the Peoples Republic of China, Metalform Asia Pte Ltd ("MFA") incorporated in Singapore and Metalform Asia (Thailand) Co Ltd incorporated in Thailand. These five companies form the Metalform Group.
The ownership, control and management of MPL was provided for by its constitution and by a shareholders' agreement dated 24 June 2004 ("the SHA") made between JPMP, Leedon, MPL, MIL and MFA. JPMP held 51% of the issued capital of MPL, designated as B preference shares and ordinary B voting shares. Leedon had the other 49%, designated as A preference shares and ordinary A voting shares. JPMP and Leedon subscribed about US$86.1m and about US$82.7m for their respective shareholdings. The bulk of these funds was lent by MPL to MIL, and passed on by MIL as equity or loan capital to MFA. MFA used these funds, and further syndicated funds advanced by a consortium of banks under a facilities agreement dated 28 June 2004, to purchase the business assets of a company named Holland Leedon Pte Ltd, owned by the Ser brothers. The purchase price was about US$267m. DBS Bank Limited ("DBS") is the security agent for the syndicated loans, which are secured on all the assets of the Metalform Group.
The financial position of the Metalform Group deteriorated sharply in 2005. There was a re-financing operation and an amended facilities agreement executed in or about June 2006. But MFA again defaulted and various notices of default and acceleration were issued between August and November 2006. Receivers and managers were appointed by DBS on 3 November 2006. On 18 December 2006 DBS petitioned for MPL to be wound up, and on 22 January 2007 the Bankruptcy Court ordered MPL to be wound up and appointed Mr Ghanshyam Hurry (a partner in Moore Stephens) and Mr Roderick Sutton (a director in Ferrier Hodgson, Hong Kong) as liquidators.
The issues in the litigation
The issues in dispute in this appeal arise in the liquidation of MPL. They are concerned with a right of first offer conferred on Leedon by Clause 12 of the SHA. The first (and, in the event, the only) issue is whether this right was, on the true construction of the SHA, exercisable at all once MPL was in compulsory liquidation. If Leedon were to succeed on that preliminary point, other interesting and difficult issues would arise, as to whether the right was of a proprietary nature; whether (proprietary or not) it was capable of binding MPL in liquidation; and whether it was overridden by insolvency law as an impermissible fetter on the liquidators' powers.
Mr Brindle QC (for Leedon) candidly accepted, at the beginning of his submissions, that if he failed on the preliminary point of construction, the other issues simply do not arise. The Board concludes that the appeal does fail on this preliminary point, despite Mr Brindle's persuasive arguments to the contrary. It is not therefore necessary or appropriate to express any view on the other issues, on which the Board did not hear any oral submissions.
The SHA
The SHA is a lengthy and sophisticated commercial agreement, containing 24 clauses and 7 schedules. Counsel's arguments have, naturally enough, centred on clause 12, but the clause must be seen in the context of the agreement as a whole. Recital (D) is in these terms:
"This Agreement sets out the terms on which [JPMP] and Leedon are willing to subscribe for Shares in [MPL] and regulates the respective responsibilities of the Shareholders towards the operation and management of the affairs of the Group, including [the business to be acquired by MFA]".
Clause 1 contains a large number of definitions and other provisions as to interpretation, including a definition of "Assets Sale":
"'Assets Sale' means a sale by [MPL] or other member of the Group of all, or substantially all, of the Group's business, assets and undertaking, either by way of a share sale, an assets sale or combination of both."
Clauses 2 to 5 contain the basic provisions for the subscription for shares in MPL as already described, the constitution of the board of directors, and a requirement for the consent of Leedon to matters set out in Schedule 6 of the SHA (alteration of share capital, winding up, major disposals and acquisitions, and so on). Clause 6 contains mutual undertakings restricting competition in various ways. Clauses 7 to 9 contain complex provisions as to the share capital and participation in profits.
There follows a group of six clauses dealing with the rights of the two sets of shareholders, the term 'Investor' being used to refer to JPMP or its permitted transferees and the term 'Vendor Shareholder' being used to refer to Leedon or its permitted transferees. The headings of these clauses give an indication of their scope:
Clause 10: Pre-emption Rights (Issue of New Securities)
Clause 11: Pre-emption Rights (Right of First Offer)
Clause 12: Vendor Shareholder Pre-emption rights (Trade Sale)
Clause 13: Tag-along Rights
Clause 14: Drag-along Right
Clause 15: Exit
Clause 11 contains various restrictions on share transfers followed (clause 11.5 to 11.8) by a right of first offer exercisable when the holder of shares in a class proposes to make a...
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Do you really know where you stand with a pre-emptive rights regime?
...as its wording. This is borne out by a recent decision in England discussed below. Pre-emptive rights and a liquidation In Leedon v Hurry [2010] UKPC 27, the Privy Council held that a pre-emptive clause in a joint venture agreement, relating to the assets of the joint venture company, cease......