El Nasharty v J Sainsbury Plc
| Jurisdiction | England & Wales |
| Judge | Mr Julian Flaux Q.C.,THE HON. MR JUSTICE TOMLINSON,The Hon. Mr Justice Tomlinson |
| Judgment Date | 13 November 2007 |
| Neutral Citation | [2003] EWHC 2195 (Comm),[2007] EWHC 2618 (Comm) |
| Docket Number | Case No: 2007 Folio 920 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 November 2007 |
[2003] EWHC 2195 (Comm)
MR JULIAN FLAUX Q.C. (sitting as a Deputy High Court Judge)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Nicholas Stadlen Q.C. and Charles Graham Q.C. (instructed by Withers LLP) for the Claimants
Ian Mill Q.C. and Andrew Green (instructed by Denton Wilde Sapte) for the Defendant
Hearing date: 16 September 2003
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.
The Defendant in these proceedings seeks a stay of the proceedings pursuant to section 9 of the Arbitration Act 1996, alternatively under the inherent jurisdiction of the Court. The background to the application is as follows.
The Defendant, the well-known food retailer, entered into two contracts in 1999 with the Claimants, Amr Amin Hamza El Nasharty ("Amr") and Manar Abdel Alim Nowara ("Manar") for the purchase of shares in an Egyptian company, Egyptian Distribution Group SAE ("Edge") of which those individuals were shareholders. The First Claimant is the brother of Amr, the Third Claimant is their mother, the Second Claimant is the wife of the First Claimant and Manar is the wife of Amr. The Fourth Claimant is an adviser to the El Nasharty family.
The first contract dated 9 March 1999 ("the March 1999 Share Sale Agreement") provided for the sale to the Defendant of shares in Edge equivalent to 25.1% of the issued share capital. At the same time the same parties entered into a Shareholders Agreement ("the March 1999 Shareholders Agreement) regulating the relationship between the vendors and the Defendant as shareholders. Both those contracts were signed on behalf of each of the Claimants, Amr and Manar by Amr pursuant to a composite power of attorney dated 10 March 1999. It is not disputed that this duly authorised him to execute those contracts.
By a further contract dated 25 October 1999 ("the October Share Sale Agreement") the Claimants, Amr and Manar agreed to sell the Defendant shares in Edge equivalent to a further 55% of the issued share capital. At around the same time, on 2 November 1999, the vendors and the Defendant entered a further Shareholders Agreement ("the November 1999 Shareholders Agreement"). Both those contracts were signed on behalf of each of the Claimants, Amr and Manar by Amr. Again it is common ground that he had authority to do so pursuant to the composite power of attorney.
Each of these four contracts contained an arbitration clause in the following terms:
"The parties agree that any proceedings in relation to this Agreement shall be subject to arbitration:
(a) in Paris;
(b) under the rules of the International chamber of Commerce;
(c) in the English language; and
(d) before three arbitrators."
Under both Share Sale Agreements, the vendors gave various warranties to the Defendant, including warranties as to the trading and financial position of Edge. The two Share Sale Agreements also provided that the vendors should be under no liability in respect of any claim under the warranties unless notice in writing was given to Amr as the Vendor Representative on or before 9 March 2001 ("the warranty deadline"). The two Shareholders Agreements also contained, in clause 13.2, undertakings not to transfer shares otherwise than as permitted by the Agreements. In contrast with the Sale Share Agreements, no limitation was placed upon the period during which a claim for breach of those undertakings could be brought.
Under the October 1999 Share Sale Agreement, the consideration payable by the Defendant was in two tranches, an initial consideration payable of LE 163,200,000 and a deferred consideration of LE 61,600,000, the U.S. dollar equivalent of which (U.S. $ 17,803,468) was paid into an escrow account. Under clause 4 of the October 1999 Share Sale Agreement, the vendors had rights ("Deferred Consideration Rights") to be paid a share of the deferred consideration determined in accordance with a formula dependent on the trading performance of Edge during a 12 month period ending in 2001.
On about 8 April 2001, the Defendant, Amr and Edge entered into an agreement ("the April 2001 Re-Sale Agreement") whereby the Defendant agreed to sell back to Amr the shares which it had purchased under the two Share Sale Agreements. The April 2001 Re-Sale Agreement provided that the monies held in the escrow account would be paid to the Defendant and the Deferred Consideration Rights would be extinguished. That Agreement also extended the warranty deadline to 30 September 2001. It provided that Amr would make a "Further Purchaser Payment" and subject to his doing so and completion occurring, the warranties in the two 1999 Share Sale Agreements would terminate and be of no further effect. Amr signed the April 2001 Re-Sale Agreement not only on his own behalf but on behalf of each of the Claimants and Manar. The Claimants contend that he had no authority to enter this Agreement on their behalf and that they are not bound by it
At the same time on 8 April 2001, the Defendant, Amr and Edge entered into a further contract contained in a letter purportedly signed by Amr on his own behalf and on behalf of Manar and each of the Claimants whereby, if Amr failed to pay an element of LE 8 million of the Further Purchaser Payment to the Defendant by 30 April 2001, the Defendant could bring a claim under the warranties in the 1999 Share Sale Agreements. Again, the Claimants contend that he had no authority to enter this contract on their behalf and that they are not bound by it.
By a further contract contained in a letter dated 27 September 2001 signed by Amr again purportedly on his own behalf and on behalf of Manar and each of the Claimants, it was agreed to extend the warranty deadline to 30 March 2003. Once again, the Claimants contend that he had no authority to enter into this contract on their behalf and that they are not bound by it. For the sake of simplicity, save where it is necessary to differentiate between this contract and those made on 8 April 2001 referred to in the previous two paragraphs, I will refer to all three compendiously as "the 2001 Agreements". The April 2001 Re-Sale Agreement contained an arbitration clause in materially the same terms as that set out in paragraph 5 above.
The Defendant contends that the Further Purchaser Payment was not made. On 26 March 2003, Denton Wilde Sapte, solicitors for the Defendant, wrote to Amr as Vendor Representative on behalf of, inter alia, the Claimants giving notice of claims for misrepresentation and/or breach of warranty under the March and October 1999 Share Sale Agreements as to the trading and financial position of Edge. It was alleged that the gross margin had been seriously misrepresented. The Defendant's claims were said to be for at least £130 million. The letter also gave notice of separate claims for breaches of the Shareholders Agreements alleging breach of the undertakings not to transfer shares otherwise than as permitted by the Agreements. The letter referred to these claims being brought before an ICC arbitration tribunal.
Faced with these potential claims, the Claimants issued the present proceedings on 1 May 2003. In the Particulars of Claim the Claimants advance their case that the 2001 Agreements were made without authority. They seek declarations from the Court that they are not bound by any of the 2001 Agreements and that, as regards any claim by the Defendant under the warranties in the 1999 Share Sale Agreements, the warranty deadline always remained 9 March 2001 and none of the Claimants ever agreed to extend the warranty deadline to 31 March 2003 or otherwise.
In their submissions to the Court through their solicitors and Counsel the Claimants were at pains to emphasise to the Court that their reason for commencing these declaratory proceedings was to preclude the Defendant from pursuing a claim in arbitration for breach of the warranties in the 1999 Share Sale Agreements. The basis for this was that, if they were correct that they were not bound by the 2001 Agreements, the consequence was that the warranty deadline was not extended and the claim made on 26 March 2003 was outside the time limit imposed by the deadline. It was this rather than a desire to pursue a claim to enforce the Deferred Consideration Rights which was said to have motivated these proceedings. For present purposes, I am prepared to accept this explanation, although it seems to me that, at least in considering that part of the Defendant's application which is made under section 9 of the Arbitration Act rather than the inherent jurisdiction of the Court, the Claimants' motive for bringing the proceedings is strictly irrelevant. What matters is the effect of the claim and hence the substance of the real dispute between the parties, an issue to which I return in more detail below.
Faced with these proceedings, on 28 May 2003, the Defendant issued the Application Notice which is before the Court, supported by the first witness statement of Gillian Harris, a partner in Denton Wilde Sapte. As already indicated, a stay of the current proceedings was sought under section 9 of the Arbitration Act 1996 alternatively pursuant the inherent jurisdiction of the Court. I will consider these two limbs of the application in turn.
As originally formulated in Ms Harris' witness statement, the application under section 9 was founded upon two alternative bases: (i) the presence of the arbitration clause set out at paragraph 5 above in the...
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