Organic Grape Spirit Ltd v Nueva Iqt, S.L.
| Jurisdiction | England & Wales |
| Judge | Lord Justice Arnold,Lord Justice David Richards,Lord Justice Newey |
| Judgment Date | 28 July 2020 |
| Neutral Citation | [2020] EWCA Civ 999 |
| Date | 28 July 2020 |
| Docket Number | Case No: A3/2020/0650 |
| Court | Court of Appeal (Civil Division) |
[2020] EWCA Civ 999
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Mr Justice Morgan
[2020] EWHC 1837 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice David Richards
Lord Justice Newey
and
Lord Justice Arnold
Case No: A3/2020/0650
Mr Tom Weisselberg QC and Mr Peter Head (instructed by Mishcon de Reya LLP) for the Appellant
Mr James Potts QC and Mr Christopher Lloyd (instructed by Howard Kennedy LLP) for the Respondent
Hearing date: 14 July 2020
Approved Judgment
This appeal, from a decision of Morgan J (“the Judge”) dated 30 March 2020, raises a question as to when, if ever, a company against which a freezing order is made should be permitted to pursue a fledgling business.
Basic facts
The respondent, Nueva IQT, S.L. (“Nueva”), is a Spanish company ultimately owned by members of the Bertolino family. Mr Michele Gulino Bertolino (“Michele”) and his sister Mrs Maria Giovanna Gulino Bertolino (“Giovanna”) each hold 2.439% of Nueva's shares. The remainder are owned by Finanziaria Chimica Valenzana, SpA, a company registered in Italy whose shareholders are Michele, Giovanna and their mother, Mrs Antonina Bertolino (“Antonina”). Michele and Giovanna both have 768,000 shares in the Italian company, while the other 1,664,000 shares are held by their mother, but in large part in usufruct for Michele and Giovanna.
The appellant, Organic Grape Spirit Limited (“OGSL”), is a British company incorporated on 21 May 2019. Its only issued shares are held by Mr Federico Gulino Camerero (“Federico”), whose father is Michele. Federico is also OGSL's only registered director. Michele was named as a director when the company was formed, but he is recorded as having resigned on 13 September 2019.
Between 23 September and 11 October 2019, sums totalling €12 million were transferred to OGSL from Nueva pursuant to a contract by which Nueva purportedly agreed to lend OGSL up to €20 million. The contract was signed on behalf of Nueva by Michele, who was at the time one of the company's two managing directors, and purportedly ratified at a meeting of Nueva's board on 14 October 2019. Giovanna, who was the other managing director, opposed ratification, but she was outvoted by Michele and the third director, a Mr Morata.
According to Federico, he wished (and wishes) to use the €12 million to pursue a business opportunity. “The main idea,” he said in a witness statement dated 26 March 2020, “is to produce spirits with tailored flavours that can meet the standard of different markets by, first producing the desired aromatic compounds in the fermented wine and then to separate them with extreme precision and to blend them subsequently into the final product”. Federico prepared a business plan for OGSL in, it seems, September 2019 and he explained in his witness statement that he had “pretty much followed my business plan although I have changed a few points to increase production and profitability”. He also detailed expenditure which OGSL had undertaken to date. In total, he said, some €1.6 million had been spent on setting up a plant and purchasing machinery. The outlay had largely been on the purchase of three warehouse units in Kent, but there had also been expenditure (often by way of deposit) on items such as distillation columns, fermenters, a yeast inoculator, a centrifuge and storage and buffer tanks. OGSL had further paid a deposit to enable it to participate in a food fair that was scheduled to take place in November 2020.
Nueva stresses Federico's youth: he is, we were told, only 24 years of age. On the other hand, he has a degree in chemical engineering from Loughborough University and an MSc in business with accounting and finance from Warwick Business School. By his own account, he has also gained experience from working in a bioethanol plant in Belgium, and in September 2019 he attended a four-day “iStill” University course in the Netherlands on distilling.
At the behest of Antonina and Giovanna, Michele and Mr Morata were both removed from Nueva's board at a general meeting on 20 December 2019 and new directors, including Antonina, were appointed. Since then, Nueva has issued proceedings against OGSL in Spain challenging the validity of the loan contract. It alleges that Michele did not have authority to enter into the contract, that the contract required approval from Nueva's shareholders, that Michele acted in bad faith and that the contract lacked “causa”. It is common ground that under Spanish law the claim is not proprietary in nature.
On 13 March 2020, Nueva issued a claim for a worldwide freezing order to be made under section 25 of the Civil Jurisdiction and Judgments Act 1982 in aid of the proceedings which it was to bring in Spain. The matter came before Nugee J on 16 March on a without notice basis. He acceded to the application, granting an injunction until 30 March, but it was stated in the order that it did not prohibit OGSL from dealing with or disposing of any of its assets in the “ordinary and proper course of business” and Nugee J explained in his judgment that the order was not intended to prevent expenditure on the business Federico was seeking to develop. In the course of his judgment, Nugee J said the following:
“6. I should make it clear that I do not regard spending money on developing a start-up business, if that is genuinely what is being done, as dissipation, and I do not think there is anything in the point that because it is a start-up it cannot be said to have an ordinary course of business. There is effectively here a fairly stark choice between whether this is a genuine attempt to finance a business to be run by Federico along the lines that the business plan suggests, in which case I think that such matters as buying warehouses, buying distilling equipment, spending money on marketing, setting up a website and getting the business up and running cannot be characterised as dissipation. Dissipation, as I understand it, means – this is not a definition but a paraphrase of what is found in the authorities – an unjustified removal or disposing of your assets in order to avoid (or with the effect of avoiding) a judgment debt.
7. If you are genuinely trying to develop a new business, I do not regard that as dissipatory, even if the business may be imprudent, even if the business plan may be sketchy and somewhat shaky. Trying to develop a business is not the same as avoiding a judgment.
…
12. … I am prepared to accept that there is a sufficient risk of dissipation to justify a short-term injunction at least until the return date, when the respondent can give their side of the story.
13. However, … such an injunction will not prevent Organic Grape from spending money in the ordinary course of its business and, for reasons that I have already made clear, I regard spending money on the continued development of its business, if that is what is genuinely being done, as not a dissipation that should be restrained by this injunction. The intention behind it is to stop the reaction to being sued in Spain being one of taking any cash assets that are still available to Organic Grape and moving them in such a way as to make them more difficult to recover in the event that the claim is successful. It is not intended to strangle at an early stage this new start-up business which, if it is a genuine business, is entitled to pursue its business in the way that it wants to without the court stopping it.”
The matter came before the Judge on 30 March 2020. He continued the freezing order which Nugee J had granted but, unlike Nugee J, barred OGSL from pursuing the project which Federico had outlined in the business plan and his witness statement. Thus, paragraph 4(4) of the order provided that OGSL must not:
“In any way deal with, dispose of or diminish the value of any of its assets so as to develop any new business or enterprise including but not limited to the business of producing alcohol and related products as described in the ‘Business Plan’ … and/or the first witness statement of Federico Gulino …”.
Likewise, paragraph 10(2) of the order stated:
“This Order does not prohibit the Respondent from dealing with or disposing of any of its assets in the ordinary and proper course of business, but the Respondent must give the Applicant's solicitors 7 days' notice of its intention to do so in respect of any transaction exceeding € 10,000 in value. For the avoidance of doubt, the Respondent is not permitted to rely on this paragraph in order to deal with, dispose of or diminish the value of any of its assets so as to develop any new business or enterprise including but not limited to the business of operating a business of producing alcohol and related products as described in the ‘Business Plan’ … and/or the first witness statement of Federico Gulino …”.
In his judgment, the Judge noted that an applicant need not show that a respondent is attempting to evade successful enforcement of a judgment to obtain a freezing order. One asks, he said, whether the effect of the relevant dealing is liable to be that the assets available for execution are reduced. On the other hand, “some dealings, which may have the effect of reducing the respondent's assets, are regarded as justified and not to be restrained” (paragraph 22). The Judge considered it helpful “to consider whether it is just and appropriate to make a Freezing Order in the present circumstances” (paragraph 31). In that context, he referred to the approach taken by Brereton J in Harrison Partners Construction Pty Ltd v Jevena Pty Ltd [2005] NSWSC 1225, (2005) 225 ALR 369, a New South Wales case, which he saw as...
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Table of cases
...(2d) 494 (SC 1971).........................................................................541 Organic Grape Spirit Ltd v Nueva IQT, [2020] EWCA Civ 999 ........................ 190 Orman v Marnat Inc, 2012 ONSC 549 ....................................................... 684, 695 OSED Howe ......