QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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(1) Mr. Nasser Kazeminy (2) Triomphe Investments I, LLC (3) Triomphe Investments II, LLC (4) Triomphe Investments III, LLC (5) Triomphe Investments IV, LLC |
Claimants |
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Mr. Kamal Siddiqi Fraver-Nash Technology Limited (in liquidation) Frazer-Nash Research Limited Metrocab Limited (in liquidation) Metrail Holdings AG Kamkorp Limited Kamkorp Investments Limited |
Defendants |
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Joe Smouha QC and Richard Hill (instructed by Herbert Smith LLP) for the Defendant
Hearing dates: 25 and 26 November 2009
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Crown Copyright ©
Mr. Justice Teare:
The contemporary documentary evidence
"Siddiqi hereby agrees, on behalf of himself and on behalf of each Group Company, that no Group Company shall sell or offer to sell any equity securities ……….or borrow any money without first offering such right to lend money to Siddiqi, Kazeminy, Grano and Centurion in the same proportions as that in which they are equity owners of (or lenders to, in the case of a loan) the Group Companies as of the date of such sale or offer. Kazeminy shall match any loans made by Siddiqi to, or equity invested by Siddiqi into, any Group Company, or on a pro rata basis in the same proportion as that in which they are equity owners of (or lenders to, in the case of loan) the Group Companies at the date of he loan or equity investment by Siddiqi."
"5. Siddiqi hereby agrees, on behalf of himself and on behalf of each Group Company, that no Group Company shall repay any debt owed by any of them to any of Siddiqi, Kazeminy, Grano or Centurion or any party affiliated with or elated to any of them except as follows: the first £20 million ……will be paid by the Group Companies to Kazeminy, Grano, Centurion and Siddiqi pro rata in the same proportion as the Group Companies' indebtedness on such date to such parties, thereafter all such repayments shall be made to Siddiqi, until he is paid in full, and then to Kazeminy, Grano and Centurion, pro rata, until they are paid in full.
6. The parties acknowledge that, for the purposes of Sections 3 and 5: (a) as of the date hereof, the Group Companies owe Kazeminy $4,750,000 plus accrued interest in the amount of $695,704.98, Grano $2,000,000 plus accrued interest and (b) the amount of indebtedness of any Group Company to Siddiqi, and the amount of any equity investment by Siddiqi in any Group Company, shall be as determined by reference to the audited financial statement of the Group Companies. The obligations in clause (a) shall be evidenced by promissory notes in the forms attached hereto as Exhibits A,B and C."
i) Clause 5 indicates that the parties were not treating the promissory notes as repayable in accordance with their terms.
ii) Clause 6 indicates that the purpose of the notes was merely to evidence the loans.
iii) The scheme of repayment in clause 5 is consistent with the suggested oral agreement. It contemplates that the Claimant would only receive a pro rata percentage of the first £20m. available to the Group Companies and that the balance would only be paid after the loans made to the companies by the First Defendant himself had been repaid. This scheme therefore contemplates repayment being made after substantial profits had begun to flow from the Technology. The scheme does not sit happily with repayment being contemplated in January 2008.
"Any profits of the holding company and its subordinate entities, and any funds received by any of them in exchange for any equity interest in any such entity, shall be used and applied in the following order: to repay, pro rata, to Kazeminy and Siddiqi, any of the loans contemplated by clauses 1,5 and 6 (ie up to $15,000,000 in aggregate principal amount) made by them; (b) to repay, in pro rata amount, all loans previously made by Kazeminy, the Kazeminy Trusts, Centurion and Grano to the holding company or any other entity in which Siddiqi had or has direct or indirect interest; and (c ) to repay all loans made by Siddiqi to such entities. Any profits in excess of the amounts necessary to repay the foregoing amounts shall be distributed to the shareholders of the holding company in accordance with their then respective proportionate interest in the holding company."
"1. Each of the Borrowers is jointly and severally liable for each of the Advances in Exhibit A, repayable in accordance with the payment terms set out in the promissory notes reflecting the Advances, and each promissory note is hereby deemed amended to reflect the same.
2. Nothing herein is intended to modify the liability of Siddiqi with respect to the $5,445,704.98 promissory note dated September 20, 2006."
"If you do not exercise this option to repay all my loans and interest by July 5 2008 this offer will be null and void and I will retain my ownership at 15.5% as is specified in our original agreements signed and dated January 23 2007. "
"I had intended to continue my financial support of the business until we raised sufficient funds to sustain our operations and to commercialise our products. I had to stop funding because you were not fulfilling your commitments and you have been unwilling to cede operational authority to me. The lack of funding, capital raising and operational focus have delayed commercialisation by a full year. Those shortfalls can be fixed before it is too late. I just hope it is not too late to fix the lack of trust and respect. As your friend, I implore you to try. As my friend I commit to you that I will try. But, Kamal, for this to succeed you need to live by your commitments – issue the company stocks to all partners, as you committed, and give me operational control."
"We had agreed that all loans would be transferred to the holding company and only when we make a profit that these loans would be paid pro rata."
i) During the period from September 2006 to May 2007, when the parties signed several written agreements recording their agreements, the alleged overarching agreement was not put into writing.ii) It is said that the alleged agreement (that the Defendants were only to repay the debts out of profits) is consistent with the agreement dated 20 September 2006 and is reflected in the agreement dated 23 January 2007. This is an important submission because the Claimants' counsel has submitted that the suggested oral agreement is "completely inconsistent with all the contemporaneous documentary evidence". For the reasons I have given I am unable to exclude the possibility that when those two agreements are construed in the light of the relevant background they may be shown to be consistent with the alleged agreement.
iii) The other part of the alleged oral agreement (that the First Claimant would fund the Technology through to launch) is not consistent with the agreements dated 20 September 2006 and 23 January 2007.
iv) The final agreement dated 4 May 2007 is not consistent with the alleged oral agreement that the loans would only be repaid out of profits.
v) The First Defendant does not mention the final agreement in his statement or explain how he came to sign it in circumstances where there was a binding oral agreement stemming from September 2006 that the loans would only be repaid out of profits.
vi) The loans were not demanded on their due dates.
vii) In his letter dated 6 September 2008 (before any demand for payment was made) the First Defendant stated that he and the First Claimant had agreed that the loans would only be paid pro rata when a profit was made. That allegation was not denied in the First Claimant's letter dated 11 September 2008.
The prospects of a successful defence
i) It is said that it would have been commercial lunacy for the First Claimant to have made the suggested oral agreement. It would amount to an open-ended commitment to fund a group of companies entirely under someone's control and a right to receive repayment if and when that other person chooses to market the product and make a profit. This is supported by the First Claimant's second witness statement. However, whilst the suggested agreement does indeed appear to be unwise from his point of view I know very little about the First Claimant save that he must be a very wealthy man who is willing to take risks with his money. Whether the loans made by him on the terms suggested by the First Defendant would be so unwise that it is unrealistic to suggest that he would have agreed to those terms is something which can only properly assessed at trial when the Court will know more of the First Claimant and of the relevant background to his investment in the Defendants.ii) It was also said that terms such as "commercialisation" and "profits" are so hopelessly vague that there is no prospect of them possibly constituting a viable defence. However, "commercialisation" is a term used by the First Claimant himself in his email dated 28 August 2008 and "profits" is used in clause 5 of the agreement dated 23 January 2007. I do not therefore consider that this point is particularly strong in the context of this application.
iii) It was said that the First Defendant had been caught out in a lie about a particular promissory note, namely, the only one of which he was the sole maker. This allegation led to the First Defendant making a fourth witness statement during the hearing in which he both explained and maintained his evidence. I am unable on a hearing of this nature to say that his evidence is fanciful.
iv) The Claimants said that the First Defendant had said in the past that apparent obligations were not what they appeared to be because of a "wider agreement". It was said that if he told the truth on that occasion then it is inconceivable that he would have been content in the present case to rely upon an oral overarching agreement that was not recorded in writing. If proved this would support the Claimants' case but not, in my judgment, to the extent of the Court being able to hold that the suggested defence in this case was fanciful.
Inadmissibility of evidence as to the alleged oral agreement
"Exceptions to the parol evidence rule. There are a number of exceptions to the parol evidence rule, or, more accurately, situations where the parol evidence rule will not be applied. The dividing line between the rule and the "exceptions" is often subtle, and it is not particularly useful to try to reconcile apparently conflicting decisions. In the result, the scope of application of the rule is an area of difficulty and uncertainty for the practitioner. That difficulty and uncertainty is exacerbated by the fact that, in relation to bills and notes, the majority of the decisions on the application or non-application of the rule date from the nineteenth century and do not necessarily reflect the somewhat more relaxed approach which is adopted by the courts in respect of contracts generally.
Where the exceptions apply, even oral evidence may be admitted to qualify the ostensible contract of a party on the instrument. However, a person to whom a bill or note is negotiated or delivered is entitled to assume that each party's promise is absolute and unqualified unless it is otherwise indicated on the instrument itself. In most cases, therefore, extrinsic evidence will be admissible only as between immediate parties, or as regard a remote party who took the instrument with knowledge of the qualification."
Alternative basis of claim
Other defences
The appropriate order
"What is important is that if a claimant is seeking a conditional order that is out of the ordinary if a summary judgment application fails – and an order that a defendant should pay £1 million into court falls into that category – the judge should not allow any order of that kind to be perfected immediately if the defendant seeks an opportunity to place evidence before him to the effect that the order will stifle its defence completely because it does not have the means to pay."