The Witz Company LLC v Edmund Truell
| Jurisdiction | England & Wales |
| Judge | John Kimbell |
| Judgment Date | 17 November 2023 |
| Neutral Citation | [2023] EWHC 2877 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Claim No. LM-2020-000017 |
[2023] EWHC 2877 (Comm)
John Kimbell KC
(sitting as a Deputy High Court Judge)
Claim No. LM-2020-000017
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KBD)
Royal Courts of Justice Rolls Building,
Fetter Lane, London EC4A 1NL
Gabriel Buttimore (instructed by Hill Dickinson LLP) for the Claimants
Andrew Maguire (instructed by Moore Barlow LLP) for the Defendant
Hearing date: 17 – 18 October 2023
APPROVED JUDGMENT
This judgment was handed down remotely and circulated to the parties' representatives by email and released to The National Archives. The date and time for hand-down is deemed to be Friday 17 November 2023 at 10:30 am
John Kimbell KC sitting as a Deputy High Court Judge:
Introduction
These proceedings concern a dispute between two men, Mr Truell and Mr Hurwitz. The subject of their dispute is a private investment in the form of a contract for difference.
The Defendant (‘ Mr Truell’) is one of the founders of the Tungsten Corporation (‘ Tungsten’), a digital invoicing company. Until 2016, Mr Truell was the CEO of Tungsten.
The Second Claimant (‘ Mr Hurwitz’) is a US citizen. He was the CEO of Tungsten's American operations. In that capacity, he reported to Mr Truell. When, in March 2016, Mr Truell stepped down from the board of Tungsten, he was replaced as CEO by Mr Hurwitz.
The First Claimant (‘ TWC’) is an LLC incorporated in Delaware USA. TWC is used by Mr Hurwitz as a vehicle for private investments for himself and his family.
The contract for difference
In April 2015, while they were working harmoniously together at Tungsten, Mr Truell and Mr Hurwitz agreed to enter into a contract for difference (‘ the CFD’). Under the CFD, Mr Hurwitz agreed to transfer £150,000 to a Swiss bank account held by a company controlled by Mr Truell. In return, Mr Truell was personally obliged to grant to TWC certain rights which depended on the performance of a number of shares in a Guernsey-based cell company.
The dispute which emerged in 2019 is about the scope and content of Mr Truell's obligations under the CFD. Mr Truell had initially suggested that the CFD was not intended to give rise to any legally binding obligations. That defence was struck out at an earlier stage of the litigation. He now contends that on its true construction the CFD only requires Mr Truell to pay TWC £904. The correspondence I have seen suggests strongly that what really fuels the CFD dispute is a grievance that Mr Truell has about the circumstances in which he left Tungsten and Mr Hurwitz took his place there as CEO.
Judgment by consent
Following a successful summary judgment application by TWC, judgment was entered by consent in favour of TWC on 20 June 2022 (‘ the June 2022 Consent Order’). As a result of that application, it is no longer in dispute that in February 2019, TWC validly gave valid notice to terminate the CFD and that Mr Truell is obliged to make a payment to TWC under the CFD. The only remaining question therefore is how much is due.
This nature of this hearing
The consent order of 20 June 2022 ordered that there be a hearing to assess the sum due to TWC. Paragraph 1 of the June 2022 Consent Order leaves open the question of whether TWC's claim is for a fixed sum claimable as a debt under the CFD or whether TWC's claim is for damages for breach of the CFD.
The assessment hearing came before me on 17 – 18 October 2023. I heard evidence from Hurwitz and submissions from Mr Buttimore for TWC and Mr Maguire for Mr Truell. Mr Hurwitz gave his evidence and answered all the questions put to him in a straightforward and tempered manner. I accept his evidence. I did not hear any evidence from Mr Truell because he was debarred from giving evidence by an order made on 21 July 2023 by Mark Cawson KC, sitting as a High Court Judge. The debarring order was the result of an unexplained persistent failure by Mr Truell to comply with orders in relation to disclosure.
The nature of contracts for difference
Contracts for difference (‘ CFDs’) are a type of commercial contract in which the parties agree to pay each other the difference between an opening and closing price of an asset. In a standard commercial CFD, the parties are usually referred to as the ‘CFD provider’ and the ‘CFD holder’ respectively. The provider will have to pay the holder if the closing price is higher at the end of the relevant period than the opening price. If, on the other hand, the price is lower, the holder will have to pay the provider the difference – see Smithton Limited (Formerly Hobart Capital Markets Ltd) v Guy Naggar & Others [2013] EWHC 1961 (Ch) at [10] and [2014] EWCA Civ 939 [14].
CFDs enable parties to speculate on whether the market in a particular asset will go up or down and to profit from the price difference without either of them owning the underlying asset. The subject of the contract is often defined by reference to the price movements on an exchange or commodity index. A spread bet is an example of a CFD as is an interest rate swap: see Robert Day v Forex Capital Markets Limited [2023] EWHC 1349 (Comm) [13] – [15] and Spreadex Limited v Dr Vijay Ram Battu [2005] EWCA Civ 855 [2].
The closing price for a CFD is ascertained when the agreed original term of the CFD expires or when the CFD is brought to an end by service of a notice by the holder or provider. Notices to terminate CFDs are commonly called notices to strike.
The CFD in this case
The CFD in issue in this case was drafted by Mr Truell (possibly with the assistance of the solicitors whose name appears on the first page, Moore Blatch). Mr Hurwitz had never entered into a CFD before.
It was originally intended to be a CFD between Mr Truell and Mr Hurwitz personally. However, before it was signed by both parties (as appears from the face of the signed version) TWC was substituted for Mr Hurwitz. In the body of the CFD, Mr Truell is referred to as ‘EGIFT’ and TWC as ‘RH’.
Clause 1 contained the following definitions:
“CFD: Contract for Difference
CFD Shares: The Shares in DCFIL referred to in Schedule 1
Contractual Term: a term of years ending on, and including 31 December 2025.
DCFIL: Disruptive Capital Finance Investments Ltd
Premium: £150,000”
Clause 2 was headed “Grant of contract for Difference” and provided:
“2.1 EGIFT will grant to RH a CFD for the Contractual Term
2.2 The grant is made in consideration of RH paying immediately to EGIFT the Premium.”
Clause 3 which was at the heart of the hearing is headed “The Rights”. It provided as follows:
“3.1 EGIFT grants RH the following rights under the CFD
3.2.1 All payments received from DCFIL whether capital or income in nature in respect of the CFD Shares received after the date of the Agreement
3.2.2 A sum equal to the Net Asset Value attributable to the CFD Shares calculated on the last day of the month before notice is given by RH to EGIFT of his intention to strike the CFD; or in the absence of such notice, on the last day of the Contractual Term,
and paid 30 days later.
3.2 In the event of dispute, the Net Asset Value shall be calculated by the independent directors of DCFIL in conjunction with the auditors of DCFIL”
Schedule 1 headed “The CFD Shares” in the executed version appeared as follows:
“6.0549 A shares in DCFIL and 6.0549 B shares in DCIFL, taken as a unit BEING
The Premium Divided by the NAV of £ calculated as at 28.2.2015”
The CFD also contained an entire agreement clause in standard terms, a governing law clause stipulating that it is governed by English law and a jurisdiction clause which selected the courts of England and Wales for dispute resolution.
The CFD in this case was thus not a classic CFD in that whilst Mr Truell was obliged to pay TWC the value of the defined shares in DCFIL at the end date, TWC was not obliged to pay Mr Truell anything if the value on closing was less than the opening price of the shares. The CFD is also non-standard in that Mr Hurwitz could wait to see what happened to the value of the shares in the course of a month and if it fell dramatically he could avoid that loss by giving notice to strike before the month end.
Rectification of the CFD
By paragraph 8 of the June 2022 Consent Order the CFD was rectified to replace DCFIL with “Zedra PCC (no. 1) Disruptive Capital Protected Cell Company” (‘ Zedra’). Zedra has had a number of different names since December 2014. It was then called the Rockhopper Cell but has remained at all times the same legal entity, namely a protected cell company (‘ PCC’) under section 3 of the Companies (Guernsey) Law 2008.
Protected cell companies
Like any other company under Guernsey or English law, PCCs have a board of directors, share capital, articles and a memorandum. However, a PCC consists of a core and separate cells. The assets and liabilities of each cell are segregated and protected from those of other cells. For that reason, cell companies lend themselves well to being vehicles for investment funds.
Zedra is an investment vehicle owned by Barclays Wealth. Its assets consist of various shareholdings and other investments. A company called Ice Floe Limited of Guernsey, acted as the investment adviser to Zedra.
DCFIL
DCFIL is a company based in London. It was the sub-adviser to Zedra. Both Ice Floe and DCFIL are owned and controlled by Mr Truell.
Legal principles for interpretation of the CFD
The applicable principles were not in dispute. The principles to be derived from Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; Re Sigma Finance Corp [2010] 1 All ER 571; Rainy Sky SA v Kookmin Bank...
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