Mohammad Jafari-Fini v Skillglass Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Stuart Isaacs QC |
| Judgment Date | 18 January 2006 |
| Neutral Citation | [2006] EWHC 77 (Ch) |
| Court | Chancery Division |
| Date | 18 January 2006 |
| Docket Number | Case No: HC 04 CO 2105 |
[2006] EWHC 77 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Stuart Isaacs QC (Sitting as a Deputy Judge of the High Court)
Case No: HC 04 CO 2105
The Claimant in person Mr John Odgers and Mr David Simpson (instructed by Pettman Smith) for the First and Third Defendants
Mr Matthew Hardwick (instructed by Forsters) for the Second Defendant
Hearing dates : 13–16 and 19–21 December 2005
Mr Stuart Isaacs QC:
INTRODUCTION
This trial of preliminary issues arises out of the Claimant's acquisition in 2003, through Phoenix Acquisitions Limited ("PAL"), of a majority shareholding in Chesterton International Plc ("Chesterton"), the well-known commercial and residential estate agency and provider of other property-related services. Following its acquisition by PAL, Chesterton was renamed Chesterton International Limited. Chesterton was placed into administrative receivership on 7 March 2005. The Claimant claims to be entitled to be the beneficial owner of a majority of PAL's issued shares. Whether or not he is so entitled essentially depends upon whether PAL and he were in default under various financing agreements dated 16 April 2003 made with the First Defendant ("Skillglass") in order to fund the acquisition. Skillglass was placed into administration on 30 March 2005.
The Claimant, who previously had legal representation but who appeared in person in these proceedings, is a businessman with experience in the United Kingdom property market since 1989, initially in the residential sector and later the commercial sector. He first became interested in acquiring Chesterton in early 2003, when he already owned about 11% of its shares. He engaged the services of investment advisors Babcock & Brown to investigate and advise on the possibility of acquiring Chesterton and to prepare an offer to its shareholders. Through Babcock & Brown's solicitors, Denton Wilde Sapte, he was introduced to Mr David Rowland, a wealthy financier residing in Guernsey, as a source of funding for the proposed acquisition. Mr Rowland effectively controls Rowland Capital CI Limited ("Rowland Capital"), a family company incorporated in Guernsey.
PAL was incorporated on 12 March 2003. On 14 March 2003, PAL's issued share capital was transferred to the Claimant who, together with Mr David Carter of Babcock & Brown, was appointed a director of PAL. The Claimant acquired PAL solely as the vehicle for his proposed acquisition of Chesterton. He resigned as a director of PAL on 16 April 2003. PAL was placed into administration on 5 April 2005.
Mr Rowland was interested in funding the proposed acquisition but was unwilling for the funding to be provided by Rowland Capital itself. Instead, he thought about involving the Third Defendant ("Resurge"), an AIM-listed company in which a company related to Rowland Capital owned about 17% of the shares. The joint managing directors of Resurge at all material times were Mr Jonathan Rowland, David Rowland's son, and Mr Jamie Constable. Resurge was placed into administration on 30 March 2005. It was subsequently refinanced and changed its name to Adeste Investments Plc and came out of administration on 7 September 2005.
Skillglass is a wholly-owned subsidiary of Resurge. Its sole business at all material times was to borrow money from Resurge and Rowland Capital and lend money to PAL. Jonathan Rowland was also a director of Skillglass until 9 April 2003. In this judgment, I shall refer to Skillglass and Resurge together as "the Defendants".
Resurge was interested in the Claimant's proposed acquisition of Chesterton and decided that Skillglass should provide the funding for it.
The key financing agreements were entered into on 16 April 2003: (1) a Term Loan Facility Agreement between PAL and Skillglass ("the Facility Agreement"); (2) a Composite Guarantee and Debenture granted by PAL to Skillglass ("the Debenture"); (3) a guarantee executed by the Claimant in Skillglass' favour ("the Guarantee"); and (4) legal charges over shares and property granted by the Claimant in Skillglass' favour ("the Shares Charge" and "the Property Charge").
On that date, an Investment Agreement was also entered into between the Claimant, PAL, Resurge and Phoenix Holdings Partners LLC ("PHP") which made provision for the subscription of ordinary shares in PAL at Completion (as defined). PHP was a special purpose investment vehicle wholly-owned by Babcock & Brown. It was envisaged that the Claimant would sell his existing holding in Chesterton to PAL in return for shares in PAL and would subscribe approximately £1 million in cash for additional shares in PAL, giving him the majority interest in PAL, with Resurge and PHP as minority shareholders.
Also on 16 April 2003, Rowland Capital and Skillglass entered into a loan facility agreement under which Rowland Capital agreed to provide Skillglass with sufficient funds to enable Skillglass to advance monies to the Claimant under the Facility Agreement. Skillglass' obligations towards Rowland Capital were secured by a debenture of the same date and by a guarantee and legal charge over shares executed by Resurge in Rowland Capital's favour.
The first drawdown under the Facility Agreement was on 9 July 2003.
On 27 October 2003, Skillglass served on PAL a notice of default under the Facility Agreement ("the October notice of default").
On 11 December 2003, Skillglass served on PAL a notice of demand under the Facility Agreement ("the December notice of demand").
It was common ground that the date for repayment of a sum of £3,700,100 under the Facility Agreement was 4 January 2004 and that the date for a further repayment to reduce the outstanding balance to £4 million was 9 July 2004 and that neither of those repayments was made.
On 14 May 2004, the Claimant issued a claim form against Skillglass. Particulars of Claim were served on 10 June 2004 in which a wide range of relief was claimed on behalf of the Claimant and also PAL. In July 2004, the Claimant applied for permission to amend the claim form to add derivative claims on behalf of PAL and to continue with such derivative claims. On 26 October 2004, His Honour Judge Rich QC, sitting as a judge of the High Court in the Chancery Division, dismissed the Claimant's applications. He also gave directions for the further conduct of the action, including a direction that the Claimant should serve Amended Particulars of Claim deleting the derivative claims on behalf of PAL. Amended Particulars of Claim were served on 9 November 2004. On 16 March 2005, the Court of Appeal dismissed the Claimant's appeal against Judge Rich QC's decision: [2005] EWCA Civ 356.
The Court of Appeal decided that what was required was not a derivative claim by PAL but some machinery whereby PAL was formally bound by the outcome of the Claimant's claim against Skillglass. This was because the real issue was not whether a minority shareholder should be allowed to bring a claim in PAL's name but whether a majority shareholder, the Claimant, whose shares were said to be held on trust for him by Skillglass, should be allowed to use PAL's name to sue Skillglass.
Therefore, the Court of Appeal ordered amongst other things that the action should proceed to the trial of preliminary issues whether the Claimant was entitled to such of the following relief against Skillglass as the Claimant claimed in his Amended Particulars of Claim:
" 1. Declarations that:
a. Skillglass was not entitled to serve the notice of default dated 27 October 2003 ("the October notice of default") or the notice of demand dated 11 December 2003 ("the December notice of demand");
b. Skillglass' actions in serving the October notice of default and the December notice of demand and in subsequently enforcing the Facility Agreement and Debenture in reliance upon the October notice of default and the December notice of demand constituted breaches of the Facility Agreement, the Debenture and of the Nominee Declaration dated 10 July 2003;
c. By reason of Skillglass' aforesaid breaches of the Facility Agreement, the Debenture and Nominee Declaration dated 10 July 2003, [PAL] is discharged from liability under the Facility Agreement and Debenture.
2. A declaration that by reason of the matters set out in (1) above [the Claimant] is discharged from liability under the MJF Guarantee, the MJF Shares Charge and the MJF Properties Charge.
3. Declarations that:
a. No default having occurred under the Facility Agreement, Skillglass was not entitled to make demand under and to seek to enforce the MJF Guarantee, the MJF Shares Charge or the MJF Properties Charge as it purported to do in its letter to [the Claimant] dated 11 December 2003 and subsequently;
b. By making demand under and seeking to enforce the MJF Guarantee, the MJF Shares Charge and the MJF Properties Charge as aforesaid, Skillglass acted in breach of the MJF Guarantee, the MJF Shares Charge, the MJF Properties Charge and of the Nominee Declaration dated 27 June 2003;
c. By reason of Skillglass' aforesaid breaches of the MJF Guarantee, the MJF Shares Charge, the MJF Properties Charge and of the Nominee Declaration dated 27 June 2003, [the Claimant] is discharged from liability under the MJF Guarantee, the MJF Shares Charge and the MJF Properties Charge.
4. An order for the delivery up and cancellation of the MJF Guarantee, the MJF Shares Charge, the MJF Properties Charge and of the Nominee Declaration dated 27 June 2003.
5. A declaration that [the Claimant's] shares in PAL taken by Skillglass in purported enforcement of the MJF...
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Mohammad Jafari-Fini v Skillglass Ltd and Others
...allegedly paid by the Claimant in on 27th June 2003 in connection with the acquisition. 4 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 ......