Mohammad Jafari-Fini v Skillglass Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,Lord Justice Moore-Bick,Lord Justice Laws |
| Judgment Date | 30 March 2007 |
| Neutral Citation | [2007] EWCA Civ 261 |
| Docket Number | Case No: A3/2006/0211 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 March 2007 |
[2007] EWCA Civ 261
Lord Justice Laws
Lord Justice Carnwath and
Lord Justice Moore-Bick
Case No: A3/2006/0211
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR STUART ISAACS QC
HC04CO2105
Royal Courts of Justice
Strand, London, WC2A 2LL
Thomas Beazley QC & Mark Vinall (instructed by Messrs. Peters & Peters) for the Appellant
Ali Malek QC & John Odgers (instructed by Messrs. Pettman Smith) for the 1 st & 3 rd Respondents
Andrew Butler (instructed by Messrs. Forsters) for the 2 nd Respondent
Hearing dates: Wed 31 st January 2006, Thurs 1 st & Fri 2 nd February, 2007
Summary
The appeal is dismissed. For the reasons given in the judgments of Moore-Bick LJ (para 73–109) and Laws LJ (paras 120–122) the majority uphold the judge's finding of a “Major Default” by PAL, arising from PAL's failure to disclose to Skillglass a bribe paid by the Claimant. Carnwath LJ would have allowed the appeal on that issue, holding that neither the bribe nor PAL's knowledge of it had been established to the required standard of proof (judgment paras 42–52; see also his more detailed analysis in an appendix attached at the end of the judgments). The appeal on the grounds of procedural unfairness is dismissed unanimously, for the reasons given by Carnwath LJ (paras 53–60) and Moore-Bick LJ (paras 64–67). The court also comments on the contractual effect of the October notice of default, assuming no Major Default (paras 112–118).
Introduction
This is an appeal against a judgment of Mr Stuart Isaacs QC (sitting as a Deputy High Court Judge), on preliminary issues directed by the Court of Appeal.
The judgment followed a 7 day trial between 13 th and 21st December 2005, during which the deputy judge heard evidence from nine witnesses, and reviewed copious documentary material. Mr Jafari-Fini (“the Claimant”) conducted his case in person. He had been represented by solicitors until January 2005, but apparently he could not afford legal representation thereafter. He has been represented in the appeal by leading and junior counsel, with the support (so we were told) of an unnamed third party.
The case arose out of his acquisition in 2003 of control of Chesterton International Plc (“Chesterton”), the well-known commercial and residential estate agency, and its subsequent collapse in March 2005. The history is complex, but the aspects with which we are concerned fall within a relatively narrow compass, relating principally to the consequences of a bribe allegedly paid by the Claimant in on 27th June 2003 in connection with the acquisition.
The judgment below is available on BAILII ( [2006] EWHC 77 (Ch)), to which those interested may refer for a detailed account of the facts. For a shorter account of the factual context reference may be made to the judgment of Chadwick LJ in this court given in March 2005 ( [2005] EWCA Civ 356), from which I shall draw gratefully in the course of this judgment.
Dramatis Personae
It is important at the outset to identify the key players in the action, and the main supporting roles.
Mr Jafari-Fini has been involved in the United Kingdom property market since 1989. He became interested in acquiring Chesterton in early 2003, when he already owned about 11% of its shares. He acquired Phoenix Acquisitions Ltd (“PAL”), the second defendant, as a vehicle for the acquisition. His investment advisers were Babcock & Brown. The other main party was David Rowland, a wealthy financier in Guernsey. He agreed to help fund the proposed acquisition. He has a family company, Rowland Capital CI Limited (“Rowland Capital”).
The funding was effected through a company called Resurge Plc, and its wholly owned subsidiary Skillglass Limited. Resurge (since renamed Adeste Investments Plc) and Skillglass were respectively first and third defendants to the action. Resurge was publicly quoted on the London Stock Exchange's Alternative Investment Market (“AIM”). Its joint managing directors at the material times were Jonathan Rowland (David Rowland's son) and (until he resigned on 8 th April 2004) Jamie Constable. Skillglass was a wholly-owned subsidiary of Resurge. Its sole business was to borrow money from Resurge and Rowland Capital and lend money to PAL.
Mr Constable was also a director of Skillglass. He became a director of PAL on 27 th June 2003 immediately following the acquisition, and of Chesterton from 12 th December 2003. It was he who, on 19 th January 2004, allegedly confessed to David Rowland that he had received a bribe from the Claimant. He resigned from all three directorships on 8 th April 2004.
Although Mr David Rowland provided the funds, and was understood by the Claimant to be the “controlling hand” behind Skillglass and Resurge (see, for example, his third witness statement para 107), his own perception was rather different. He regarded his own role as subsidiary to that of his son and Mr Constable. Thus, when asked by the judge why in January 2004 he did not take immediate steps to remove Mr Constable (after he had confessed to accepting the alleged bribe), he said:
“I tell you why: the situation with Resurge, although I was a 17 per cent shareholder, I had no—really—involvement in the running of the company. It was very much Jonathan Rowland and Jamie Constable's deal. They did the deal, and they were very—and I was very conscious of not being involved. They wanted to do their own thing. I was prepared to provide them finance on appropriate terms at the appropriate time but, I mean, if I had of been involved, this sad event would not have happened.” (Transcript Day 5 p 74)
Against that background, it is an unusual feature of the case that, in spite of their central role on the Defendants' side, neither Mr Constable nor Mr Jonathan Rowland was called as witnesses by them. There was a written statement made by Mr Constable in other proceedings, but his account of the relevant events was supported by neither party. Mr Jonathan Rowland was called as a witness at the request of the Claimant, who was also allowed to cross-examine him. The judge found him an unsatisfactory witness and placed no reliance on his evidence (judgment para 130).
Supporting roles were played by various associates of the main players. The three most important were:
i) Mr Ted Webster was an experienced Chartered Surveyor, who became involved as a consultant to the Claimant from the end of 2002. He became a director of PAL in 16 th April 2003. He became a director and Chief Executive of Chesterton on 27 th June 2003, at the request of the Claimant, immediately following the acquisition. Mr Webster was described by the judge as “an honest and straightforward witness”. His evidence was important to the judge's findings both as to the fact of the bribe, and as to PAL's knowledge of it.
ii) Mr Graham Robeson was a close business associate of Mr David Rowland. He became a director of PAL on 27 th June 2003 and of Chesterton from 12 th December. He was directly involved on behalf of David Rowland in the events leading up to the acquisition.
iii) Mr Anthony Brierley was a Chartered Accountant. At the material times he was a director of both Resurge and Skillglass. He became a director of PAL from 2nd September 2003. His evidence was given in the form of a witness statement, and related principally to the meeting of Skillglass on 27 th June, and the potential significance of the alleged bribe.
The legal framework of the acquisition
The key financing agreements were entered into on 16 April 2003. They are described in detail in the judgment below (para 21–33). Chadwick LJ summarised their effect (para 3–7):
“The agreements are dated 16th April 2003 and, so far as material, included the following: first, a facility agreement between Skillglass and PAL; second, a debenture granted by PAL to Skillglass; third, a guarantee executed by the Appellant in favour of Skillglass; and, fourth, legal charges over shares and property granted by the Appellant to Skillglass.
Under the terms of the Facility Agreement, Skillglass agreed to make available to PAL a term loan facility to a maximum principal amount of £12.85 million, or thereabouts, for the purpose of purchasing shares in Chesterton and meeting fees and ancillary costs. Draw down under the agreement could take place when the proposed offer for the Chesterton shares had become unconditional. Repayment was to be made in accordance with the following schedule: (1) within 21 days of the first draw down, £1,299,900; (2) within 180 days of the first draw down, £3,700,100—making in aggregate with the first tranche £5,000,000; (3) within 365 days of the first draw down, such amount as might be required to reduce the amount outstanding under the facility to £4 million; (4) on the second anniversary of the first draw down, the balance then outstanding.”
Of critical importance in the present appeal are the provisions dealing with Skillglass's rights in event of default, including the restriction during the “Certain Funds Period” and the exception for “Major Default”:
“Clause 23.2 of the Facility Agreement provided for the rights which Skillglass was to have in the event of default by PAL. Put shortly, in the event of default Skillglass would be entitled to serve written notice cancelling any future right to draw under the facility, declaring the whole amount already drawn to be immediately due and repayable, and declaring any security granted by PAL—and in particular the debenture to which I have...
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