Rivertrade Ltd v Emg Finance Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Mann |
| Judgment Date | 28 November 2013 |
| Neutral Citation | [2013] EWHC 3745 (Ch) |
| Docket Number | Case No: HC10CO2118 |
| Court | Chancery Division |
| Date | 28 November 2013 |
[2013] EWHC 3745 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr Justice Mann
Case No: HC10CO2118
Nicholas Bard (instructed by Spring Law) for the Claimant
Gabriel Buttimore (instructed by Whitworth Green) for the Defendant
Hearing dates: 1 st, 2 nd, 3 rd, 7 th, 8 th, 9 th, 10 th & 24 th May 2013
| Index | Paragraph Number |
| Introduction | 1 |
| The EMG Group | 5 |
| The Claimant's Witnesses | 10 |
| Mr Hofer | 11 |
| Mr Kinder | 15 |
| Mr Neil Henry | 16 |
| Mr Bahman Jahanshahi | 17 |
| Mr David Robins | 18 |
| Mr Harvey McGrath | 22 |
| Ms Patricia Zoebelin | 23 |
| The Defendant's Witnesses | 24 |
| Mr Govindia | 24 |
| The position and authority of Mr Govindia in the affairs of the EMG Group | 26 |
| The 2008 transactions | 32 |
| The May 2008 transaction | 33 |
| The December 2008 loan | 49 |
| The April 2009 dealings | 62 |
| June 2009 | 87 |
| The June 2009 documents | 111 |
| The Facility Letter (or loan agreement) | 112 |
| Letter from Rivertrade to the Directors of Holdings and Forburg (the "Cover Letter") | 119 |
| The Forburg Letter | 121 |
| Letter from Holdings about the Ranhill proceedings | 122 |
| The documents generally | 124 |
| Moneys paid | 125 |
| Subsequent events | 126 |
| Corporate authority — the position and status of Mr Robins and Mr Hofer | 136 |
| The Ranhill proceedings | 144 |
| The claims arising out of those facts | 148 |
| Were there binding agreements in April? | 150 |
| The material agreed terms in April | 161 |
| The parties to the April agreements | 167 |
| Was there a further binding agreement in June, and what was its scope? | 172 |
| The formation of the June agreement | 173 |
| Mr Hofer's authority | 178 |
| The effect of the June documentation according to its tenor and its problems for the claimants | 182 |
| The prior assignments and ownership of the Ranhill proceedings | 189 |
| Estoppel and allied doctrines | 203 |
| The force and effect of the debentures | 212 |
| The 2001 debenture — Finance to Forburg | 213 |
| The 2006 debentures | 225 |
| The 2006 Holdings debenture | 233 |
| The 2006 Finance debenture | 239 |
| Conclusions on the debentures | 244 |
| Costs of the Ranhill proceedings in Malaysia | 263 |
| MrGovindia's personal liability | 267 |
| Conclusion | 268 |
Introduction
This is an action which had two principal elements. The first is the recovery of a loan made by the claimant ("Rivertrade") to EMG Holdings Limited ("Holdings"), and the second is the enforcement of security said to have been given for that loan. Summary judgment on the loan itself has been obtained against Holdings and that element therefore falls out of the picture. The trial in this case therefore concerned questions relating to the second aspect, the existence and enforcement of that security.
The subject of that security was the benefit of a contract (in the form of moneys receivable under it) with a Malaysian entity called Ranhill Berhad ("Ranhill"). The contract in question was made between the first defendant ("Finance") and Ranhill, but the documentation in this case provided for security to be given, and assignments to be provided, by Holdings. That gives rise to a range of questions which are said to be questions of construction of the documents and/or rectification, which Rivertrade says have the end effect of giving Rivertrade the benefit of the security notwithstanding that ostensibly the agreement to provide it was not made by the company which owned the asset (Finance). Questions also arise as to the effectiveness of what has happened. The defendants challenge Rivertrade's case that there was a binding agreement to provide security, and also assert what are said to be prior rights to the moneys vested principally in the fourth defendant ("Forburg") by virtue of assignments and debentures. The claimant challenges the validity of some of those assignments and debentures, and in any event says that, in the circumstances (principally circumstances arising out of the general control and authority of the second defendant, Mr Govindia) sufficient consents or agreements are in place to prevent Forburg or Finance asserting any rights in priority to Rivertrade. If those claims to the security fail, then Rivertrade advances personal claims against Mr Govindia based on warranties and fraud.
The amount of the loan was £300,000. The proceeds of the Ranhill contract have now been obtained and amount to some $600,000. They have been secured pending the decision in this action. This is not, therefore, a substantial action, and it is highly regrettable that by the time it started, and on the basis of enquiries made by me, the claimant's costs were also the amount of the debt and the defendants' base costs were over twice the amount of the debt. Unfortunately it does not seem to have settled. I shall therefore have to decide the points in issue.
In the narratives that follow any recitation of fact should be taken as a finding of fact by me unless the contrary appears. Mr Bard appeared for the claimant; Mr Buttimore appeared for the defendants other than the third claimant (which was not represented).
The EMG group
The EMG group is a group of companies which offers, or at the time of the events relevant to this action offered, corporate financial services. Amongst other things, it assisted other entities in raising finance and in advising in relation thereto. Finance is a Jersey company and a wholly owned subsidiary of Holdings (another Jersey company), which in turn is a wholly owned subsidiary of Forburg (a BVI company). At the date of some of the transactions in this case Finance and Holdings had different names. I shall, where possible, ignore the previous names in the interests of ease of exposition, substituting shortened forms of their names in citations from documents where appropriate.
Another EMG company features in the narrative, namely EMG Suisse SA ("Suisse"). As its name suggests, it is a Swiss company. The corporate charts do not show it to be a subsidiary of Forburg. The shares were actually bearer shares, and were held by PRH Group Suisse SA, which is a company owned and controlled by Mr Hofer, one of the individuals who was a director of various companies in the EMG group. A letter of 7th July 2006 from Ernst & Young to Mr Hofer at Suisse, recorded (under the heading "General structure") that Suisse was "beneficially owned by [Holdings]". Mr Hofer signed this letter by way of his agreement to it. A minute of the board of directors of Suisse held on 28th July 2008 was attended by Mr Hofer as chairman with Mr Govindia as a "Special invitee … Advisor representing the sole shareholder holding 100% of the shares". In his cross-examination Mr Hofer acknowledged that he held the shares for someone else, that person being represented by Mr Govindia. However, as a result of his being unpaid various sums he decided he could appropriate the shares to himself. I deal with this a little more below in the context of considering Mr Hofer's credibility. For present purposes I make a finding that Suisse was, for practical purposes, part of the EMG group. This helps to explain why one of its assets was used to support borrowings by Forburg.
The shares in Forburg were owned by an offshore trust, administered by off-shore administrators. I find that those administrators played little independent part in the affairs of the company. Mr Govindia says that the trust was set up by himself and his godfather (mainly the latter) in the late 1990s with moneys coming from business ventures. Originally the beneficiaries were charities, but in 2006 the range of beneficiaries was changed so as to include Mr Govindia's children. Until he fell into dispute with Mr Govindia, Mr Hofer was (Mr Govinida said) the Protector of that trust. Mr Govindia is said not to be a beneficiary.
The identities of the appointed directors of the various companies from time to time are important in the narrative of this case. The following details are significant.
(a) The directors of Forburg were Mr David Robins and Mr Paul Hofer.
(b) The directors of Finance were Mr Robins, Mr Hofer and Mr Govindia.
(c) The directors of Holdings were Mr Robins, Mr Hofer and Mr Govindia.
By the end of 2009 Mr Robins and Mr Hofer had ceased to be directors of all three companies, but the dates on which this occurred are the subject of dispute. Mr Govindia claims to have brought about their departures in May 2009 (Forburg) and July 2009 (Holdings and Finance). The circumstances in which that is said to have happened say something about the degree of control exercised by Mr Govindia over the affairs of the group, as will appear. Mr Robins and Mr Govindia accept that they were removed from all three companies by the end of November of that year at the latest. The significance of this to this case is that their capacity to act as directors in June 2009 is important.
Mr Govindia described himself at the time as CEO of EMG. It was not clear whether he claimed that position in relation to each company, or whether it was just some sort of useful overall title. Despite the fact that he was a director of both Holdings and Finance he did not like signing documents for those companies, and the evidence showed that he asked Mr Hofer and others to sign when formal signatures were necessary. He told Mr Hofer that it looked better if the chairman (Mr Hofer) signed. Mr Govindia disputed...
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