Rivertrade Ltd v EMG Finance Ltd and Another (First and Second Defendants/Appellants) (3) EMG Holdings Ltd (Third Defendant) (4) Forburg Ltd (Fourth Defendant/Third Appellant)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Kitchin,Lord Justice Ryder,Lord Justice Moore-Bick,Re |
| Judgment Date | 21 December 2015 |
| Neutral Citation | [2015] EWCA Civ 1295 |
| Date | 21 December 2015 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2014/0145 |
[2015] EWCA Civ 1295
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Hon Mr Justice Mann
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
(VICE-PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION)
Lord Justice Kitchin
and
Lord Justice Ryder
Case No: A3/2014/0145
and
and
Nicholas Bard (instructed by Spring Law) for the Claimant/Respondent
Gabriel Buttimore (instructed on a direct access basis) for the Second and Fourth Defendants/Second and Third Appellants
Hearing date: 1 December 2015
Introduction
In these proceedings the claimant ("Rivertrade") sought an order requiring the third defendant ("Holdings") to repay a loan of £300,000. It also claimed that it was entitled to enforce security which had been given for the loan. This security took the form of the benefit of a contract (in the form of monies receivable under it) made between the first defendant ("Finance") and a Malaysian entity called Ranhill Berhad ("Ranhill").
On 25 November 2011 Rivertrade obtained summary judgment on its claim in respect of the loan. The question whether Rivertrade was entitled to enforce the security remained very much in dispute, however. Two issues arose which are of particular relevance on this appeal. The first concerned the extent of the security. Rivertrade contended that it had been agreed that it was entitled to security over all of the monies receivable under the Ranhill contract ("the Ranhill proceeds" or "the Ranhill receivable") and further, that all of the Ranhill proceeds had been assigned to it. The defendants responded that if and in so far as the agreement and assignment were effective, there was only an agreement to give Rivertrade security over 35% of the Ranhill proceeds and that only this part of the proceeds was ever assigned.
The second concerned the effectiveness of the agreement and assignment. Finance was the counterparty to the Ranhill contract and so was, prima facie, the appropriate assignor. However, the loan agreement and assignment were executed by Holdings, and Finance was not a party to these transactions on the face of the relevant documents. Further, in May 2008, that is to say over one year before the date of the loan, Finance had assigned all of its receivables to Holdings, and Holdings had in turn assigned those receivables to the fourth defendant ("Forburg"). Prima facie, therefore, Holdings had nothing it could assign by way of security.
The action came on for trial before Mann J in May 2013. It occupied eight hearing days. On 28 November 2013 he gave judgment in favour of Rivertrade. He found that the agreement provided for 100%, and not merely 35%, of the Ranhill proceeds to be asssigned as security for the loan. He also found that the circumstances gave rise to an estoppel by convention which had the effect of debarring Finance and Forburg from asserting title to the Ranhill proceeds against Holdings, and therefore from asserting that Holdings was not an appropriate assignor; and further, that Forburg was estopped from asserting that it had any title to the Ranhill proceeds which was higher than that of Rivertrade. He continued that to allow those companies to behave otherwise would falsify the assumption on which all parties were operating in the relevant period and that it would do so in a manner which would be quite inequitable. It followed that Rivertrade was entitled to apply all of the Ranhill proceeds towards satisfaction of the judgment it had earlier obtained.
There is a further aspect of the claim which I must also mention at this stage. In or about July 2009 Finance began proceedings in Malaysia against Ranhill to recover the Ranhill proceeds. Rivertrade funded that litigation. It was successful and, in March 2010, judgment was obtained against Ranhill in the sum of $600,000. These moneys were paid by Ranhill but then frozen in Malaysia pending judgment in this action. Mann J held that it had been agreed that Rivertrade could recover from these moneys the costs and expenses it had incurred in connection with the Ranhill proceedings.
Forburg, the second defendant, Mr Shailesh Govindia, and Finance filed a notice of appeal against the judgment of Mann J and his consequential order but Finance has played no further part in the appeal, was not represented at the hearing and, so we were told, has now been dissolved. We have only heard submissions on behalf of Forburg and Mr Govindia. They contend that:
i) the judge wrongly found that Rivertrade was entitled to security over 100% of the Ranhill proceeds;
ii) it was not open to the judge to find that an estoppel by convention operated in the way that he did in light of the way the case was pleaded and argued;
iii) the judge erred as a matter of law in concluding that an estoppel by convention could and did have the effect of providing Rivertrade with effective security over the Ranhill proceeds; and
iv) the judge erred in finding that there was an agreement that Rivertrade could recover the costs and expenses it had incurred in connection with the Malaysian proceedings from the Ranhill proceeds.
Background
Forburg, Holdings and Finance were all companies in the EMG group of companies which carried on business providing corporate financial services. Finance, a Jersey company, was a wholly owned subsidiary of Holdings, another Jersey company, which was itself a wholly owned subsidiary of Forburg, a BVI company. The directors of Forburg, Holdings and Finance included a Mr Paul Hofer who, as will be seen, signed some of the relevant documents and gave evidence at the trial on behalf of Rivertrade. However, the controlling mind behind all of the companies in the EMG group was Mr Govindia. He was centrally involved in all of the transactions in issue in these proceedings and was the effective decision maker in the EMG group. The others directors, including Mr Hofer, more or less did his bidding.
Rivertrade, a UK company, was the investment vehicle of Mr John Kinder. He first became involved with the EMG group in 2007. At that time Mr Govindia was seeking funds to support the EMG group and Mr Kinder agreed to provide £500,000 in the expectation that he would receive some shares in a group company, probably in Holdings. Those shares never materialised.
In April 2008 Mr Govindia needed further funds to deal with critical cash flow problems in the EMG group and approached Mr Kinder again. Initially Mr Kinder was not enthusiastic but eventually agreed to lend £500,000 on terms which were agreed in May of that year. In outline, Mr Kinder agreed to lend £500,000 to Forburg until 30 November 2008. Forburg agreed to provide Rivertrade with security in the form of an assignment of the benefit of an agreement referred to as the Intelcan/Brasov transaction. Further and importantly, Rivertrade insisted upon an assignment to Forburg via Holdings of all transaction fees due to Finance. As a result, on 20 May 2008 Finance executed an assignment to Holdings in these terms:
" Assignment of Transaction Revenue to Cover Loan Repayment Plus Interest
We write to confirm that we hereby assign to [Holdings] all transaction revenues pertaining to all it's signed mandates to cover the repayment of Loans plus interest received by [Holdings] from [Forburg] for working capital purposes of [Holdings] and its Subsidiaries."
On the same day, Holdings executed an assignment to Forburg in these terms:
" Assignment of Transaction Revenue to Cover Loan Repayment Plus Interest
We write to confirm that we have received an assignment of all transaction revenues from [Finance] pertaining to all it's [sic] signed mandates to cover the repayment of Loans plus interest received by [Forburg] for working capital purposes required by [Holdings] and its Subsidiaries.
[Holdings] hereby assigns in its entirety the above said assignments received from [Finance] to [Forburg] to cover the repayment of the Loans plus interest received from you."
At the end of 2008 the EMG group was still in serious financial difficulties. The term of the May 2008 loan expired on 30 November 2008 but Rivertrade agreed an extension for six months. This did not meet the needs of the group, however. Accordingly, Mr Govindia approached Mr Kinder for further financial support. On 23 December 2008 Mr Kinder agreed to provide a further £200,000 by way of a loan to Holdings for a term of two months, repayable on 1 March 2009. This loan was secured by a pledge of bonds in an entity called LML India.
It is convenient at this point to mention the Ranhill transaction. In January 2008 Finance agreed to provide financial services to Ranhill in return for a retainer of $100,000 per month, expenses and a success fee. By the end of 2008, a sum in excess of $640,000 was said to be due and owing to Finance under the terms of this agreement.
In March 2009 the finances of the EMG group were still in a parlous state. Holdings was now in default of the December 2008 loan agreement and monies were needed to pay rent, salaries and other critical creditors. On 10 March 2009 Rivertrade served a notice of default in relation to the December 2008 loan agreement and on 25 March issued a demand that the LML India bonds be liquidated and that any shortfall be met from the receivables due to the EMG group under the terms of the...
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