England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/02/2008

Mr Justice Evans-Lombe:

1. The issue in this case arises in the course of the application by AMG Global Nominees (Private) Limited ("AMG") under Section 359 of the Companies Act 1985 ("the Act") to rectify the register of two companies incorporated in England, SMM Holdings Limited ("SMMH") and THZ Holdings Limited ("THZH") so that the registers show AMG to be the registered holder of all the issued shares of SMMH and THZH ("the Main Proceedings"). At the material time the capital of SMMH and THZH was represented by bearer share warrants which, until their delivery to AMG in circumstances which I will describe, were held by T & N plc ("T & N") (the old Turner and Newall Limited), an English company, as security for the purchase price under a contract whereby those shares were purchased by Africa Resources Limited ("ARL"), a company registered in the British Virgin Islands, controlled by a Mr Mawere. SMMH's only valuable asset comprised its holding of the whole of the issued shares in a Zimbabwean company, SMM Holdings (Pvt) Limited ("SMMZ") which owns asbestos mines in Zimbabwe which, in the past and to some extent still, are an important resource for the economy of Zimbabwe. The only valuable asset of THZH is its holding of all the issued shares in a company called Endurite Properties (Private) Limited. This case is primarily concerned with SMMH and its subsidiary SMMZ.
2. The managing director of AMG is a Mr Gwaradzimba who is also the state-appointed Administrator, under Zimbabwean legislation, of SMMZ. AMG claims in the Main Proceedings to be entitled to the bearer share warrants in SMMH and THZH by reason of a mortgagee's sale ("the SSA") by T & N to it of those shares pursuant to a security over the shares held by T & N. ARL has commenced Part 20 proceedings against AMG claiming declarations that it alone is entitled to the bearer share warrants and that AMG has not acquired title to them under the SSA which was ineffective because the power of sale under T & N's mortgage had not arisen. I am concerned to determine the Part 20 claim.

The background facts

3. By early 1996, by reason of worldwide adverse publicity, T & N had become anxious to dispose of its investments in the mining of asbestos, in particular, through the mines operated by SMMZ in Zimbabwe. Accordingly it had placed SMMH and THZH on the market.
4. On 7^th March 1996 ARL entered into an agreement with T & N ("the SPA") for the purchase from T & N of the bearer share warrants representing the share capital of SMMH and THZH for a total consideration of US $60 million payable in accordance with the terms of the agreement. The SPA was completed on 15^th March. Those terms reflected the agreement of the parties that the purchase price should be paid by 12 monthly instalments of $5 million to be found from the proceeds of export sales of asbestos by SMMZ outside Zimbabwe. T & N wished to be paid the consideration for the sale outside Zimbabwe. It is accepted that the purchase price had to be found from this source because of the exchange control regulations in force in Zimbabwe at the time. Further regulations required that all exports of mined products from Zimbabwe were to be made through the agency of the Minerals Marketing Corporation of Zimbabwe ("MMCZ"), a state-owned corporation. The exchange control regulations also required that a percentage (which varied from time to time) of the foreign currency realised by the sale of those mined products was required to be surrendered to the Reserve Bank of Zimbabwe ("the RBZ") to be converted into Zimbabwe dollars at a rate much less favourable than that obtainable in the open market. The parties to the SPA were T & N as vendor, inter alia, of the shares in SMMH and THZH, T & N International Limited as vendor of shares in a Zimbabwean company referred to as AAM, with which we are not hereafter concerned, and ARL as purchaser from both those companies.
5. Also on 15^th March 1996 an agreement was made between ARL, Africa Construction Limited (another British Virgin Islands company as nominee for ARL in respect of deferred shares of SMMH and THZH), SMMH, THZH, and T & N as "creditor". This agreement was intended to provide security for the payment of the purchase price becoming due under the SPA. It was referred to as the "memorandum of deposit and charge" or "the MDC" and I will continue to do so.
6. The substantial issue in the case centres on the provisions of clause 3 of the SPA, providing for the method of payment of the $60 million deferred consideration, and the provisions of the MDC, dealing with what constituted "default" under it, so as to make the power of sale under the MDC over the bearer share warrants arise and become exercisable.
7. Under the heading "Consideration" clause 3 of the SPA provides as follows:-

"3(1) In this clause:

"LIBOR" means the rate quoted by National Westminster Bank plc in the London interbank market for six months US dollar deposits.

(a) The Consideration for the SMMH shares and the THZH shares shall be the sum of US $60 million payable as set out in this clause 3;

(b)The Purchaser [ARL] shall pay the Consideration to T & N in monthly instalments of US $5 million (each a "Principal Amount"). Each Principal Amount shall be paid on the last day of each month …by telegraphic transfer to the account of T & N's subsidiary T & N Export Services Limited at National Westminster Bank plc … in US dollars and the Purchaser shall procure that such payments shall be made by the Minerals Marketing Corporation of Zimbabwe ["MMCZ"] on its behalf at the instruction of the relevant Company entitled to payment from MMCZ of equivalent amounts in respect of export proceeds of that company received between 1^st March 1996 and the date on which each Principal Amount falls due.

(c) The first Principal Amount shall be paid on or before 29^th March 1996.

(d) To the extent that a payment of a Principal Amount is not made on the due date, such amount (a "Carry Forward Amount") shall bear interest at the rate of LIBOR plus 2 per cent per annum accruing and applied on a daily basis.

(e) Interest shall accrue on the outstanding balance of the Principal Amounts (disregarding any Carry Forward Amount) at the rate of LIBOR plus 1 per cent per annum accruing and applied on a daily basis.

(f) Any amount paid shall first be set against any Carry Forward Amount and any interest on such amount. … "

Sub-clauses (2) and (3) of clause 3 contain provisions for the sale of other shares including the AAM shares with which we are not concerned.

8. Clause 4 of the SPA under the heading "Condition Precedent" provides:-

"4(1) The sale and purchase of the Shares is conditional on the receipt by T & N of written confirmation from the Exchange Control Department of the Reserve Bank of Zimbabwe confirming that the payment mechanism for the Consideration as set out in this agreement is approved."

9. Clause 10 of the SPA deals with completion. Sub-clause (7) of clause 10 provides that as part of the completion of the SPA:-

"(7) The Seller [T & N] and the Purchaser [ARL] shall procure that the Memorandum of Deposit and Charge is executed and, once executed by all the parties to that document, the Purchaser shall procure that:

(a) the warrants in relation to the SMMH Ordinary Shares and the THZH Ordinary Shares are delivered to T & N; and

(b) stock transfer forms pre-stamped 50 p executed in blank together with the share certificates, in relation to the SMMH Deferred Shares and the THZH Deferred Shares, are delivered to T & N."

10. The material provisions of the MDC were as follows: at recitals (C) and (D):-

"(C) By an agreement of 7^th March 1996 (the "Agreement") [the SPA] the Creditor has agreed to sell and ARL has agreed to purchase inter alia the entire issued share capital of each of SMMH and THZH.

(D) Pursuant to the terms of the Agreement, ARL has agreed to secure its secured obligations in accordance with the terms of this Memorandum of Deposit and Charge."

Then at paragraph (g) of clause 1, "Default" is defined as meaning "any failure by ARL to pay or procure the payment of the Secured Obligations" and at 1(h) "Secured Obligations" are defined as "the obligation of ARL under clause 3(1) of the Agreement to procure the payment to the Creditor [T & N] on or as soon as practicable after the date on which each Principal Amount is due of the lesser of:

(a) all sums due and payable from MMCZ to the Companies in respect of export proceeds on such date; and

(b) the Principal Amount and all Carry Forward Amounts due and outstanding at such date and all interest accrued thereon."

[Though immaterial for the purposes of this judgment, it seems to me that Principal Amount in sub-clause (b) should be in the plural i.e. "Amounts".]

11. Then, having set out various provisions for the preservation of bearer share certificates and the underlying value that they represented, the MDC provided at clause 8:-

"8 If a Default has occurred and is continuing … the Creditor may, without prior notice to any Shareholder, sell or otherwise dispose of all the title to and interest in the Securities … upon such terms and generally in such manner as the Creditor may, in its absolute discretion, think fit…."

12. Pursuant to the SPA, in the months of March to July 1996 inclusive $20 million were paid by SMMZ to T & N from the proceeds of export sales of asbestos through the agency of MMCZ which had received the whole amount of such sale proceeds, deducted from that amount a commission and passed the balance to SMMZ. The actual payments were; $3.5 million on 29^th March 1996, $1.5 million on 9^th April 1996, $5 million on 3^rd May 1996, $5 million on 31^st May 1996, $2 million on 28^th June 1996 and $3 million on 1^st July 1996. There is no evidence that during this period T & N suggested that ARL was in "default" for the purposes of the MDC or suggested that SMMZ had received export earnings which it had failed to pay over to T & N under clause 3 of the SPA.
13. On 10^th July 1996 a meeting took place between representatives of T & N and SMMZ to review the functioning of the agreement during its first six months to June 1996. ARL's minutes of this meeting were in evidence. It was reported to the meeting that SMMZ's financial results for the period would be below forecast because of marketing difficulties and operational difficulties at the mines. In the result it was agreed that there would be a three months "moratorium" pursuant to which the instalments becoming due of $5 million per month would be replaced by instalments of $1 million per month. Payment of interest on sums due and becoming due would continue as would payments under the "TSA" (an agreement whereby T & N seconded to SMMZ/ARL the services of technical and other staff). A further meeting to review the operation of the SPA at the end of the three month period was agreed.
14. That meeting took place on 31^st October 1996. Mr Topham's note of the meeting dated 11^th November 1996 was in evidence. Mr Topham was T & N's treasurer between 1995 and June 1998. It seems that in the course of the meeting T & N pressed ARL to obtain refinance for their purchase and the weakness of MMCZ as an agent to effect sales abroad of SMMZ's product was raised. It was agreed that a further review meeting would be convened in February 1997 but in the interim the moratorium of payments under the SPA would continue as in the previous three months so that only $1 million would be paid monthly towards the purchase price but interest payments on sums due and becoming due would be maintained.
15. In fact there was a further review meeting between representatives of SMMZ and T & N on 12^th November 1996 including Mr Carruthers of T & N and Mr Mawere. Mr Carruthers was deputy chairman of T & N. At this meeting it was agreed that the moratorium of payments of purchase price continuing at $1 million monthly would continue for a further three months with payments of interest on sums due and becoming due under the SPA being kept up to date.
16. The forecast further review meeting took place on 7^th February 1997. A minute of the meeting was in evidence. It appears that the meeting discussed various methods whereby ARL might be refinanced but in the result it was agreed that the existing moratorium arrangement should continue until April 1997 when the amount payable off the purchase price would be increased to $2 million per month.
17. There was a further meeting between Mr Godfrey Gomwe of ARL and Mr Topham on 18^th February 1997, at which the main subject of conversation was refinancing, in the course of which Mr Topham indicated T & N's preference for a flotation of the shares in SMMZ. However, it seems to have been agreed that, pending such refinancing, ARL would procure a continuation of the payments off of the contract price of $1 million per month while continuing to pay interest due and becoming due, on this occasion, without indicating that that figure would be revised upwards at a date in the future. On 20^th February a meeting took place between Mr Carruthers, Mr Mawere and the vice-president of Zimbabwe at which the latter gave his approval on behalf of the Government of Zimbabwe to an equity placement of shares to refinance SMMZ and pay off T & N.
18. Under the original provisions of the SPA, which had not been varied, at the end of February 1997 the final instalment of the purchase price of $5 million per month should have been paid. In the result since July a further $8 million had been paid off that price by payments of $1 million on 31^st July, 28^th August, 30^th September, 31^st October, 2^nd December, 23^rd December, 1996 and 21^st January, and 28^th February 1997 making total repayments of purchase price amounting to $28 million and leaving a balance outstanding of $32 million.
19. Again there is no evidence that up to the end of February 1997 T & N had suggested that ARL were in default for the purposes of the MDC or that SMMZ had had available the proceeds of export earnings which should have been paid to T & N pursuant to clause 3 of the SPA but had not been so paid.
20. On 15^th October 1997 a meeting took place between ARL and SMMZ on the one hand and T & N on the other in London, the result of which is recorded in a letter from ARL to Sir Colin Hope, chairman of T & N, of 13^th January 1998 which recites the failure of attempts to refinance T & N through a flotation and continues:-

"As a consequence of these events, the pressure on cash flow to meet essential working capital requirements was so great that it became impossible to continue the US $1 million per month capital repayments to T & N. Following discussions in London it was agreed that such payments would be suspended until March 1998 when it was viewed that the situation would improve as a consequence of other funding initiatives being pursued."

21. Sir Colin Hope in his reply of 4^th March 1998, following a T & N board meeting, did not dissent from this arrangement but recorded that T & N's accounts for 1997 would contain "a temporary provision against the amount receivable from ARL." In result a similar provision appeared in the T & N 1998 accounts and the outstanding price and accrued interest (by then, as a result of further payments reduced to $23 m and interest) was written off in T & N's 1999 accounts.
22. On 1^st December 1997 SMMZ was granted an indefinite exemption from the effect of the Zimbabwe Act which required all foreign sales of its products to be arranged through the agency of MMCZ.
23. In December 1997 an attempt to float the non-mining businesses of SMMZ failed as recorded in the letter of 13^th January 1998 to Sir Colin Hope to which I have already referred. In the interim further payments off of the purchase price payable under the SPA were made totalling $9 million, of $1 million on 27^th March and 27^th April, of $2 million on 5^th June and 5^th July, and $1 million on 1^st August, 2^nd September and 7^th October, all of 1997. The payment of $1 million on 7^th October 1997 was the last payment, procured by ARL, towards the purchase price payable under the SPA, the final total of payments made under that agreement being $37 million, leaving $23 million outstanding.
24. In June 1998 Federal Mogul Corporation took over the T & N group of companies and therefore took over the relationship between T & N and ARL/SMMZ. SMMZ had, for some time, been negotiating to obtain a loan financed by a foreign bank referred to as KBC. On the insistence of the RBZ this loan had to be channelled through MMCZ. Accordingly by an agreement of 3^rd September 1998 between SMMZ and MMCZ the latter granted to SMMZ a loan facility up to the aggregate principal amount of US $60 million to be "applied by the Borrower for the purposes of enabling the Borrower to restructure its existing short-term debt and to provide working capital…." By clause 8.14 of the agreement SMMZ was expressly prohibited from making any payment to T & N, save under the TSA, for so long as any amount remained outstanding under the facility. This facility was paid off by SMMZ in November 2002. The amount advanced was repayable by 8 six-monthly instalments commencing 18 months after the date of the agreement.
25. On 13^th April 1999 a meeting took place between ARL/SMMZ, by Mr Mawere and a Mr Mkushi, and Mr David Ludlow and a Mr Paul Arnold for T & N. Mr Ludlow was an in-house lawyer of T & N. A file note of the meeting of T & N was in evidence. That note recorded Mr Ludlow confirming that T & N were still expecting to be paid the outstanding balance of the purchase price but were not looking to enforce their security over the share warrants. Indeed Mr Ludlow is recorded as offering to release that security to ARL, which offer was not taken up by Mr Mawere. ARL for its part drew attention to the ban on making any payments to T & N resulting from its loan agreement with MMCZ. The note records that there was no proposal from ARL "on how the outstanding debt could be repaid."
26. The last occasion upon which T & N drew ARL's attention to its indebtedness under the SPA was a fax message of 21^st October 1999 from Mr Arnold to Mr Gomwe in which he says:-

"I take this opportunity to bring you up to date with all outstanding invoices for interest not previously sent to you along with latest statements of the Technical Support fee and Carry Forward Account. Please contact me if you need any additional information."

27. The fax message was accompanied by invoices to ARL showing the interest due on the balance of $23 million accumulated over the years at LIBOR plus two per cent.
28. On 1^st October 2001 T & N was placed in administration and Messrs. Squires Gleeve and Freakley were appointed joint administrators. On 21^st February 2003 the Ministry of Finance and Economic Development of Zimbabwe granted to SMMZ a special dispensation to retain 75% of its foreign exchange earnings generated from exports. That exemption was withdrawn on 18^th December and on 1^st April 2004 the export exemption by which SMMZ was exempt from the requirement to channel its foreign sales of product to the export market through the agency of MMCZ was withdrawn. However it seems that the pattern of trading which then emerged was different from that which existed prior to 1^st December 1997 when SMMZ was granted its exemption in that, whereas up to that date MMCZ appears to have dealt with foreign purchasers of SMMZ's product through its own appointed agents, receiving all purchase monies into its own bank and then passing them on to SMMZ, after deducting commission, after 1^st April 2004 foreign purchasers paid SMMZ directly and MMCZ obtained its commission by invoicing that company.
29. Meanwhile on 7^th January 2004 Mr Mawere wrote to the Administrators seeking to negotiate a settlement of the apparent outstanding indebtedness of ARL under the SPA. The Administrators did not respond substantively.
30. On 6^th September 2004 Mr Gwaradzimba was appointed administrator of SMMZ pursuant to legislation by way of presidential decree entitled the Presidential Powers (Temporary Measures) (Reconstruction of State-indebted Insolvent Companies) Regulations 2004. This legislation was later converted into an Act of the Parliament of Zimbabwe. Mr Gwaradzimba's appointment extended to other companies in the SMMZ group incorporated in Zimbabwe. Under the provisions of this legislation a prosecution was launched against Mr Mawere and, separate to that, an attempt was also made to extradite him from South Africa to answer charges. This attempt failed.
31. On 30^th September 2004 a Mr Hampshire transmitted an e-mail to a Mr Moyo. Mr Hampshire had, prior to his retirement in July 1999, been managing director of SMMZ. He was later appointed as a consultant to SMMZ by Mr Gwaradzimba and in that capacity sent this message. Mr Moyo was company secretary of SMMZ and continued to work for Mr Gwaradzimba on the affairs of SMMZ after the latter's appointment as administrator. The purpose of the message was to arrange a meeting between T & N and Mr Gwaradzimba. So far as material the message reads as follows:-

"As I understand the situation the Government of Zimbabwe have now taken control of the SMM group and are anxious to have a clear understanding concerning the current status of the outstanding debt which SMM owes T & N as payment for the company. I presume that ideally you require a written legally-binding confirmation that T & N/Federal Mogul have forgiven/written off the outstanding debt? I understand that the reason why Afaras [Mr Gwaradzimba] wants to set up a meeting with T & N is to resolve the issue outlined above? …If my understanding is correct Chris feels that I may be able to obtain/negotiate a letter on your behalf from T & N confirming the position of the debt without the need for a costly visit from Afaras."

32. In a further message from Mr Hampshire to Mr Moyo, Mr Hampshire wrote:-

"A further thought which you need to consider. If my memory serves me correctly, T & N still hold the share certificates for the SMMZ group. These were to be held until final payment was made by Mawere. Things may well have changed but if I am correct and T & N still hold the shares and even if they are prepared to confirm forgiveness of the debt, they will presumably only release the shares to the legal owner. You will have to be able to prove that the Government of Zimbabwe does in fact have legal title!..."

33. Mr Moyo's response of 1^st October, primarily concerned with arrangements for the proposed meeting in London, concludes by saying:-

"Your understanding of the issues is correct. However it would be prudent to mention the details under consideration when we meet you. We shall be grateful if the meetings are attended by senior T & N executives. The strength of the team visiting T & N shows the seriousness attached to the issues to be discussed. The position of the debt will be raised in these discussions."

34. The meeting took place in London on 28^th October 2004 and was attended by representatives of the administrators of T & N and their lawyers and by Mr Gwaradzimba, Mr Moyo and a Mr Manikai, their legal adviser and a representative of the RBZ. In the result a provisional agreement was arrived at whereby T & N sold the bearer share warrants in both SMMH and THZH in the possession of T & N, as mortgagee, to AMG for US $2 million.
35. On 2^nd November 2004 the Administrators of T & N wrote to Mr Mawere giving him until 4.00 pm the following day to make proposals to pay or compromise ARL's indebtedness to T & N under the SPA. This letter was triggered by a telephone conversation between Mr Rothwell of the joint administrators firm and Mr Mawere as a result of the proposed sale of the bearer share warrants becoming known. No offer was made before 5^th November 2004 when a formal agreement in writing ("the SSA") was entered into between T & N by its administrator and AMG for the purchase of the bearer share warrants by AMG for $2 million. It is ARL's case as Claimant in the Part 20 proceedings that this agreement was ineffective because T & N's power of sale as mortgagee under the MDC had not by this date arisen, and in fact has never arisen.
36. There is no evidence that, before 5^th November 2004, T & N or its administrators ever suggested that ARL was in default under the SPA or that SMMZ had available the proceeds of export earnings which should have been paid to T & N pursuant to clause 3 of the SPA but were not so paid.
37. As a result of the refusal by the directors of SMMH and THZH to register AMG as a member, on 24^th January 2005, AMG commenced the Main Proceedings seeking orders rectifying the registers of members of SMMH and THZH under Section 359 of the Companies Act 1985. On 18^th November 2005 ARL made a successful application to be joined as a Part 20 Claimant to the Main Proceedings.

The construction of the SPA and MDC and their consequent effect

38. It is clear that the SPA and the MDC were intended to be construed together. Notwithstanding that they are differently dated it is accepted that they were entered into on the same day. That their provisions were intended to interlock is plain from Recitals (C) and (D) of the MDC and the various references in that document to the "Agreement" and the provisions of clause 10(7) of the SPA.
39. By clause 8 of the MDC, T & N's power of sale as mortgagee arose "If a Default has occurred and is continuing…"
40. "Default", under the MDC, is defined in clause 1(g) as "any failure by ARL to pay or procure the payment of the Secured Obligations".
41. In sub-clause 1(h) "Secured Obligations" is defined as meaning "the obligation of ARL under clause 3(1) of the Agreement [the SPA] to procure the payment to the creditor [T & N] on or as soon as practicable after the date on which each Principal Amount is due of the lesser of :-

a) all sums due and payable from MMCZ to the companies in respect of export proceeds on such date; and

b) the Principal Amount and all Carry Forward Amounts due and outstanding at such date and all interest accrued thereon."

42. Thus if on the date that a "Principal Amount" became due there were no proceeds of export sales due and payable from MMCZ, ARL were not required to make any payment "on or as soon as practicable after" that date.
43. Clause 3(1) of the SPA defines ARL's obligation to procure payment to T & N as an obligation to procure a "relevant Company entitled to payment from MMCZ of equivalent amounts in respect of export proceeds of that company received between 1^st March 1996 and the date on which each Principal Amount falls due" to pay to T & N the 12 monthly instalments of $5 million comprising the "Principal Amounts" by which the purchase price of $60 million was to be discharged over the succeeding 13 months.
44. Sub-clause 3(1) (d) deals with what is to happen if any part of a Principal Amount is not paid on due date by providing that "such amount (a "Carry Forward Amount") shall bear interest at the rate of LIBOR plus 2 % per annum accruing and applied on a daily basis." It was therefore provided that if on the due date for payment of a Principal Amount there were insufficient funds derived from "export proceeds" due from MMCZ to "the relevant Company" the deficit was to be carried forward at that rate of interest.
45. Sub-clause 3(1) (e) provided that the diminishing balance of the purchase price awaiting payment by instalments would carry interest at LIBOR plus 1% whereas "Carry Forward Amounts" would carry interest at LIBOR plus 2% until paid. Sub-clause 3(1) (f) required payments from MMCZ to be first applied in reducing Carry Forward Amounts and any interest accrued due on those amounts (and thereafter in payments of Principal Amounts as they came due).
46. There are a number of comments and conclusions to be made on the construction of these provisions of the SPA and MDC:-

i) it seems clear that the term "relevant Company" in clause 3(1) must mean a company controlled by ARL which, in consequence, it was able to procure to do things and which was, at the time the SPA was entered into, conducting a business of production and sale of minerals for export outside Zimbabwe, which business would be subject to the restriction imposed by Zimbabwean legislation requiring such sales abroad to be made through the agency of MMCZ. SMMZ would fall into this category; indeed, it appears to have been the only company which did so.

ii) It is unclear whether failure to procure the payment in full on due date of a "Principal Amount", of which any deficit on the amount required to be paid is, by clause 3(1) (d), available to be carried forward at interest, could constitute a "Default" in payment of "Secured Obligations" pursuant to sub-clauses 1(g) and (h) of the MDC. It seems to me that since sub-clause 3(1) (f) provides for payment in the future of any Carry Forward Amount from "export proceeds" received in the future that such failure was not intended to constitute a default triggering the arising of the power of sale under the MDC and its becoming exercisable.

iii) However neither the SPA nor the MDC contain any provision defining the time at which "Carry Forward Amounts" themselves become finally payable. It follows, it seems to me, that ARL only became liable to "procure the payment" of Carry Forward Amounts when SMMZ received sufficient "export proceeds" to do so. As already noted, by the end of February 1997 all the "Principal Amounts" had become payable and to the extent that they had not been paid had become "Carry Forward Amounts" carrying interest at LIBOR plus 2%.

iv) By a re-amendment of their Part 20 Points of Claim ARL pleaded that it was an implied term of clause 3(1) (b) of the SPA that:-

"In circumstances where the export proceeds of SMMZ were required by SMMZ for its working capital purposes then these purposes first had to be satisfied and SMMZ's continued existence not jeopardised, such that only the amount of export proceeds, if any, remaining were a subject of ARL's procurement obligation."

It seems to be accepted that SMMZ's business did not consist solely of operating mines and selling their products for export and that SMMZ sold a percentage of its mined products internally in Zimbabwe to manufacturers. Thus it will have had income derived from sources other than "export proceeds". I accept that clause 3(1) of the SPA is not to be construed so as to require ARL to procure SMMZ to pay away the entirety of its export earnings in payment of the Principal Amounts as they became due, if to do so would mean that it would not be able to pay its staff and its operating expenses such as maintaining its mines in proper and safe working order, replacing its machinery and other capital stock, paying for fuel and insurance and, later, meeting the expenses involved in undertaking environmental work at the mines. The obligation to procure payment must be construed as limited to any surplus of export proceeds of SMMZ, after receipt of its income from non-export sources and payment of such expenses ("surplus export proceeds"). Mr Oliver drew my attention to evidence that throughout the period between the making of the SPA and the appointment of Mr Gwaradzimba as administrator of SMMZ it was receiving substantial export proceeds both from MMCZ, when it was confined to selling through the agency of that company, and from outside agents when it was exempt from selling through the agency of MMCZ. Much of that evidence was comprised in documents produced by AMG on late disclosure in the course of the hearing. There is no evidence that SMMZ at any stage had surplus export proceeds but failed to pay them to T & N in reduction of the purchase price. By the TSA, T & N staff were seconded to ARL to assist it in administering its business. It seems likely that had any such payable surplus existed from time to time T & N would have got to hear about it. There is no evidence that T & N ever raised with ARL that SMMZ had surplus export proceeds available to pay off the purchase price and accrued interest but had failed to procure MMCZ to pay those proceeds to T & N or to make such payment from surplus export proceeds available from any other source.

v) It does not seem to me that clause 3 of the SPA is to be construed as meaning that ARL was not liable to pay the purchase price of the share warrants to T & N as ARL contend. ARL was bound to pay that price, but only by instalments from a defined source if and when that source produced the necessary funds. In the meantime T & N was entitled to retain possession of the share warrants as security for due performance of ARL's payment obligations. I return to this question under (ix) below.

vi) It was Mr Oliver's submission for AMG that ARL's construction of the SPA and the MDC created commercial absurdity. His first ground for saying this was the submission that, by entering into the SPA, ARL's sole obligation was to procure the payment of surplus export proceeds to T & N, and that this resulted in T & N accepting the risk of never being paid anything. It will be seen from sub-paragraph v) above that I have not arrived at such a construction.

vii) I accept Mr Oliver's second ground for submitting that ARL's construction results in commercial absurdity, namely, the submission that clause 3 of the SPA should be construed so as to confine the source from which export proceeds were to be procured to be paid to T & N to export proceeds passing through the accounts of MMCZ. It seems to me that clause 3(1)(b) of the SPA should be construed as requiring ARL to procure the payment of surplus export proceeds to T & N from whatever source received, if necessary, passing the money through MMCZ if T & N insisted upon it as part of the scheme for payment sanctioned by the RBZ. It must be remembered that the RBZ's approval was given for the payment system set out in clause 3 of the SPA, probably to comply with exchange control regulations of Zimbabwe. There is no evidence from contemporaneous documents or otherwise that ARL or SMMZ ever suggested that export proceeds received from sources other than MMCZ were not subject to the obligation to procure payment to T & N contained in paragraph 3(1) of the SPA.

viii) Mr Oliver's third objection on the grounds of commercial absurdity adds nothing to his second ground.

ix) Mr Oliver's fourth ground is based on his written submission that "T & N's security is dependent on whether, in any given month, any export proceeds are due and payable from MMCZ to SMMZ. If no export proceeds are available, T & N has no security rights. …ARL has not made it clear whether on its construction, if MMCZ had no export proceeds in a particular month, ARL could demand the immediate return of the bearer share warrants". I have held that, construing the SPA and MDC together, ARL did have a primary obligation to pay the purchase price but only from a defined source and, to the extent that that source failed from time to time (and often with the agreement of T & N) the payments to T & N were reduced or ceased. However the obligation to pay the balance of the purchase price was not thereby released and T & N remained entitled to retain the share warrants as security so long as that debt and accrued interest remained unpaid. ARL, while not in default, retained an equity of redemption in the share warrants so long as it did not default in its obligation to pay T & N from surplus export proceeds. There being no evidence of such default, it is not established that T & N were in a position to enter into the SSA. ARL were, at that time and subsequently, able to redeem the share warrants by payment of the balance of the purchase price and interest from whatever source was available to them.

x) It was Mr Oliver's submission that the SPA should not be construed so that such construction gives it an effect which would mean that T & N, in entering into the SPA, were taking a risk of receiving nothing in exchange for transferring to ARL the share warrants. I have already found that an objective of the parties to the SPA and the MDC was to procure that the purchase price was paid from foreign earnings and this was probably a condition of getting exchange control consent from the RBZ for payment of that price to T & N in dollars outside Zimbabwe. On the construction which I prefer T & N were not required to return the share warrants to ARL until they were paid in full. I do not accept that this construction does not give effect to the first sentence of clause 3(1)(b) of the SPA as submitted by Mr Oliver. Nor do I accept that to construe the SPA in this way gives illegitimate effect to the provisions of the MDC as he submits, or that the conduct of the parties, as demonstrated by the evidence, was inconsistent with the construction which I prefer. That ARL did not from time to time require the share warrants to be returned is consistent with their recognizing that, under the combined provisions of the SPA and the MDC, T & N had what was, in effect, a contractual lien on the share warrants until they received payment in full.

47. In conclusion on this part of the case I would again return to the striking fact that up to 5^th November 2004 there is no evidence that T & N ever raised with ARL or SMMZ that there were surplus export proceeds available to make payment to them. The demand made by the Administrators of T & N on 2^nd November 2004 was not made in these terms and, on my construction of the SPA and the MDC, did not give rise to Default under the MDC.

Did T & N ever forgive payment of the balance of the purchase price and accrued interest due under the SPA?

48. T & N wrote off ARL's indebtedness under the SPA in their 1999 Accounts. It appears from Mr Hampshire's e-mail of 30^th September 2004 that a release of this debt was under consideration by T & N at this time but had not happened yet. In his written closing submissions Mr Oliver drew attention to Mr Mawere's answers to certain questions put to him by me at the conclusion of which he accepted that there had been no such release. There is no evidence that there was ever an agreement, supported by consideration from ARL or in reliance upon which ARL acted to its detriment, releasing ARL from its indebtedness under the SPA.

Do the provisions of clause 3 of the SPA constitute the unlawful provision of financial assistance to ARL by SMMH or its subsidiary SMMZ for the purchase of SMMH's shares from T & N pursuant to Section 151 of the Companies Act 1985?

49. In paragraphs 24 to 26 of the Re-amended Part 20 Defence, AMG pleads that the SPA is void as being in unlawful breach of Section 151 and, therefore, title to the share warrants never left T & N. On this basis, the administrators were able to give good title to the share warrants when they entered into the SSA with AMG on 5^th November 2004. Section 151 provides as follows:-

"151. Financial assistance is generally prohibited

(1) Subject to the following provisions of this chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place.

(2) Subject to those provisions, where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

(3) If a company acts in contravention of this section, it is liable to a fine and every officer of it who is in default is liable to imprisonment or fine or both."

50. Section 152 provides:-

"152(1) In this Chapter –

a) "Financial assistance" means –

i) Financial assistance given by way of gift,

ii) Financial assistance given by way of guarantee, security or indemnity, other than an indemnity in respect of the indemnifiers own neglect or default, or by way of release or waiver,

iii) Financial assistance given by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when in accordance with the agreement any obligation of another party to the agreement remains unfulfilled, or by way of the novation of, or the assignment of rights arising under a loan or such other agreement, or,

iv) Any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets…. "

51. The background facts material to this part of the judgment are as follows: under the completion provisions of clause 10 of the SPA it was provided at sub-clauses (4) and (5):

"(4) The Seller [T & N] and the Purchaser [ARL] shall procure that a board meeting of each company is held in order to implement the following matters:

(a) appoint such persons as the Purchaser nominates as additional directors and the secretary of that company [SMMH] and accept the resignations under sub-clause (2)(ix) …

(5) The Purchaser shall procure that the additional directors of SMM appointed pursuant to sub-clause (4)(a) above propose a special resolution to SMM's shareholders approving the payment mechanism set out in clause 3(1) pursuant to Section 58 of the Zimbabwe Companies' Act and that, if passed, a certified copy of such resolution is delivered to T & N. "

52. On 15^th March 1996, the date of completion of the SPA, Mr Mawere, Mr John Mkushi and Mr Edwin Manikai were nominated by ARL to be appointed directors of SMMH and were duly appointed. Section 58 of the Zimbabwe Companies' Act was part of the equivalent provisions of Zimbabwe law dealing with assistance by companies in the purchase of their own shares. In due course on the same day at a general meeting of SMMZ, attended by SMMH as its only shareholder, a resolution was passed which authorised SMMZ to give financial assistance to ARL to pay the $60 million consideration payable under the SPA. Thereafter the payments of that consideration, by SMMZ instructing MMCZ to make payments directly to T & N in the manner that I have already described, proceeded at the direction of the board of SMMZ, of which Mr Mawere had also been appointed a member together with Mr John Mkushi. The passing of the resolution of SMMZ on 15^th March 1996 for the purposes of Section 58 of the Zimbabwe Companies' Act rendered the giving of financial assistance by SMMZ to ARL, in its purchase of the shares of SMMH, lawful under Zimbabwe law. Approval by the Exchange Control Department of the RBZ of the "payment mechanism" contained in clause 3 of the SPA was a condition precedent to the SPA becoming effective: see clause 4(1) which I have set out above. That approval was given.
53. AMG's case under Section 151 is presented as coming under Section 152(1)(a)(iv) and is summarised at paragraph 7 of Mr Oliver's written closing submissions as follows:-

"7. It is AMG's case that SMMH gave "financial assistance" for the purposes of the Act in that it procured, or at least stood by and allowed, its Zimbabwean subsidiary, SMMZ, to pay its export proceeds to T & N. This caused a material reduction in SMMH's assets for the purposes of Section 152(1)(a)(iv) of the Act."

54. It is ARL's case on this point that the relevant assistance to ARL's purchase was provided by SMMZ, a company incorporated in Zimbabwe, to which the provisions of Section 151 and 152 of the Act did not apply by reason of its foreign incorporation. By the law of SMMZ's country of incorporation the assistance provided by SMMZ was lawful. Further or alternatively SMMZ's procuring the diversion of monies due to it from MMCZ to T & N to discharge the purchase price did not cause a material reduction in SMMH's assets for the purposes of Section 152(1)(a)(iv) of the Act.
55. In Arab Bank plc v Mercantile Holdings Limited 1994 Chancery 71 Mr Justice Millett was considering a transaction in which the foreign subsidiary of a target company incorporated in England had allowed a property in England which belonged to it to be charged to a bank to secure an advance by the bank to its parent with the assistance of which it had purchased the share capital of the target company. The financing bank later wished to realise its security and applied to the court for a declaration that its security was valid and that the power of sale conferred by it had arisen and was exercisable. The respondent to the bank's application argued that the bank's security was void because it was obtained under a transaction which was unlawful under Section1 151 of the Companies Act.
56. Mr Justice Millett, having set out the legislative antecedents to Section 151 first asked himself the question, "does the mere giving of financial assistance by the subsidiary ipso facto also constitute the giving of such assistance by the parent company?" and answered it at page 80 of the report:-

"In my judgment the answer is plainly "No". The prohibition is, and always has been, directed to the assisting company, not to its parent company. If the giving of financial assistance by a subsidiary for the acquisition of shares in its holding company necessarily also constituted the giving of financial assistance by the holding company, Section 73 of the Act of 1947 would not have been necessary. Moreover Sections 153 to 158 of the Act of 1985 are clearly predicated on the assumption that it is the conduct of the subsidiary alone which needs statutory authorisation.

This is not to say that the giving of financial assistance by the subsidiary may not involve unlawful conduct on the part of the parent. If the acts of the subsidiary are a breach of Section 151, the conduct of the parent in procuring them will constitute an offence. And even if the section does not apply to foreign subsidiaries, the hiving down of an asset by an English company to such a subsidiary in order to enable it to be made available to finance a contemplated acquisition of shares of the English company would clearly contravene the section: it would constitute the indirect provision of financial assistance by the English company."

57. It follows that if SMMZ had been incorporated in England its giving of financial assistance to ARL in the purchase of its parent's shares would have constituted a breach of Section 151.
58. In the Arab Bank case Mr Justice Millett then set himself the further question "does Section 151 of the Act of 1985 make it unlawful for a foreign subsidiary of an English parent company to give financial assistance for the purpose of the acquisition of shares in its parent company?" His answer at page 81 of the report was that if that section was given its literal meaning assistance by a foreign subsidiary fell within it. He went on, however, to say:-

"The result however is to give the section an extra-territorial effect contrary to the general principles of private international law; for the capacity of a corporation, the regulation of its affairs, the maintenance of its capital and the protection of its creditors and shareholders are generally recognized to be matters for the law of the place of incorporation. But there have been many cases in which the words of a statute have been given a more limited meaning than they are capable of bearing where there is a proper ground for concluding that this was the intention of Parliament."

59. This consideration led the judge to say at page 82 of the report:-

"I have reached the firm conclusion that "any of its subsidiaries" in Section 151 must be construed as limited to those subsidiaries which are subsidiary companies, that is to say English companies."

60. Mr Oliver for AMG does not submit that SMMZ's financial assistance to ARL vitiates the SPA. His submission is that the participation of SMMH by passing the resolution of the general meeting of SMMZ having the effect of authorising SMMZ's assistance, together with its board's inaction in preventing SMMZ from procuring payment of its surplus export proceeds to ARL, constituted the provision of financial assistance by SMMH in the purchase of its shares by ARL. He submits that the board of SMMH must be fixed with knowledge of the payments from MMCZ to ARL which had been authorised by the board of SMMZ by reason of the cross-membership of those boards by Mr Mawere and Mr Mkushi and Mr Mawere's directorship of ARL.
61. I am unable to accept this submission. It does not seem to me that anything done in the course of the transaction in question by SMMH or the members of its board constituted "financial assistance" by SMMH to ARL in paying the purchase price under the SPA. SMMH did nothing which could be characterised as similar to the example given by Mr Justice Millett of a parent company hiving down one of its assets to its foreign subsidiary to enable that subsidiary to apply its value for the purpose of giving assistance in the purchase of the parent's shares. That financial assistance was provided by SMMZ through the payment over of money forming part of its assets and not those of SMMH. There is no principled way of distinguishing the position and actions of SMMZ from those of the foreign subsidiary in the Arab Bank case. In arriving at this conclusion I bear in mind what was said by Mr Justice Hoffmann in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1980]BCLC, 1:-

"There is no definition of giving financial assistance, although some examples are given. The words have no technical meaning and their frame of reference is in my judgment the language of ordinary commerce. One must examine the commercial realities of the transaction and decide whether it can properly be described as the giving of financial assistance by the company, bearing in mind that the section is a penal one and should not be strained to cover transactions which are not fairly within it."

62. This conclusion disposes of this aspect of the case and makes it unnecessary for me to have to go on to consider whether the transaction caused a material reduction in SMMH's assets for the purposes of Section 152(1)(a)(iv). For this purpose AMG called expert evidence the conclusion of which was that since the value of SMMH depended on the value of its shareholding in SMMZ and because a valuation of SMMZ's business on an assets basis before and after the transaction demonstrated that the transaction resulted in a diminution of the value of SMMZ, it followed that there had been a diminution in the value of SMMH. No countervailing expert evidence was called on behalf of ARL but Ms. Britten, AMG's expert, was cross-examined on the basis that it was inappropriate to value SMMZ's business on an assets basis. A mining company was more appropriately valued on an earnings basis and, if the valuations to demonstrate diminution in value were made on that basis, it did not follow that such diversion of SMMZ's income, as had taken place in the course of the transaction in question, would have materially affected downwards the market value of SMMZ's shares. While not deciding the point, it seemed to me that this criticism of Ms. Britten's evidence has force. It does however raise the question of whether a court can reject the evidence of an expert and substitute a conclusion of its own in the absence of expert evidence on the other side supporting that conclusion; a question which I do not have to decide and do not attempt to do so.
63. Mr Oliver also submitted that by facilitating the transaction by which MMCZ gave assistance to ARL in its purchase of SMMH's shares, the directors of SMMH were guilty of misfeasance by failing in their duty to preserve the assets of SMMH. In the light of my conclusion as to the applicability of Section 151 of the Act I find it hard to see how a claim for misfeasance against the directors of SMMH could be made good in respect of their facilitating a transaction that was lawful both in England and the country of incorporation of SMMZ, the principal actor in the transaction complained of. In any event if the claim could be made good it would not itself necessarily lead to avoidance of the SPA.
64. For these reasons, in my judgment, ARL broadly succeeds in its part 20 Claim, save that it is not entitled to an order for delivery up of the share warrants if they are still in the possession of T & N by its administrators. I will discuss the order of the court which is to follow with counsel. As at present advised it seems to me that the declaration sought in (a) of the prayer to the amended Part 20 points of claim should be expressed as subject to T & N's continuing security for the payment of the balance of the purchase price and accrued interest. If T & N have delivered the share warrants to AMG under the SSA, there should be an order for their return.