Jersey Unreported Judgments

Loan - decision in respect of the plaintiff's application for summary judgment.

[2018]JRC204

Royal Court

(Samedi)

7 November 2018

Before     :

Advocate Matthew John Thompson, Master of the Royal Court.

 

Advocate J. D. Garrood for the First and Second Plaintiffs.

Advocate J. M. Dann for the Defendant.

CONTENTS OF THE JUDGMENT

		Paras
1.	Introduction	1
2.	Background	2-12
3.	The terms of the relevant agreements	13-17
4.	The parties' submissions	18-45
5.	Decision	46-83

judgment

the MASTER:

Introduction

1.        This judgment represents my decision in respect of the plaintiffs' application for summary judgment.  The grounds relied upon in the summons are as follows:-

"The Plaintiffs' security would be diminished by the value of the Invoice

(i)        The Invoice is a contrivance intended to elicit payment from BHRL without any lawful basis.

(ii)       If the invoice were to be accepted as a lawful and due debt of BHRL then the value of the Plaintiff's security would be diminished by not less than the value of the Invoice.

(iii)      Similarly, if a declaration is not made that the Invoice Is not due then the purchase price of BRHL will be diminished by not less than the value of the Invoice.

(iv)      Further, if the relief sought is not granted then the sale of BHRL will be jeopardised thereby diminishing the Plaintiffs' ability to realise its security.

The Invoice does not reflect any work done for which BHRL should pay

(vi)      The Invoice is not referable to any work done and/or and valuable work done by the Defendant for the benefit of BHRL.

There was no agreement for the provision of services and remuneration

{vi)      There was no agreement as between BHRL and the Defendant for the provision of the services purportedly forming the subject of the Invoice or for remuneration in respect of them."

Background

2.        The dispute arises out of various loans made on behalf of the Cheyne Capital Management LLP Group ("Cheyne") in connection with the ownership and development of high value real estate in London.  The first plaintiff is security trustee appointed under various finance agreements, in particular an agreement dated 17^th June, 2014, amended and reinstated on various dates in 2016 and 2017 (the "finance agreement").  The second plaintiff in the finance agreement was described as an arranger of the facility and is the lending arm of Cheyne.

3.        The borrower under the facilities was Bayswater Road Holdings Limited ("BRHL") a Jersey company.  BRHL owns various subsidiaries which, in turn, own various properties in London.  It is not necessary for this judgment to set out the detail of those properties.

4.        The defendant is the sole shareholder of BRHL.  On 17^th June, 2014 the defendant granted a security interest over the entire share capital of BRHL in favour of the first plaintiff (the "security agreement").  The security agreement was amended and restated on 3^rd March, 2016.  The relevant provisions of the security agreement set out below are those contained in the amended and restated security agreement in 2016.

5.        The first plaintiff gave notice of default to the defendant by a letter dated 18^th April, 2018. 

6.        On 25^th April, 2018 the defendant sent to BRHL an invoice in the sum of £1,675,486 covering the period March 2014 to February, 2018 (the "invoice").  The description of the invoice was that it covered "recharge of costs and expenses for services rendered including but not limited to administrative, management, advisory and legal and accounting services".

7.        It is the invoice that has led to the present proceedings.  Initially the plaintiffs threatened proceedings against the present defendant, BRHL and Ms. Sylvie Pierre and Mr. Andrew Williams.  Ms. Pierre and Mr. Williams are the sole directors of BRHL.  They are also two of the directors of the defendant.  I address the relevance of this later in this judgment.

8.        The purpose of the threatened proceedings was to prevent payment of the invoice. This led to an email dated 17^th August, 2018, from Mr. Williams to Advocate Garrood acting for the plaintiffs.  The email stated as follows:-

"The Directors of Bayswater Road (Holdings) Limited ("BRHL") acknowledge receipt of your two letters dated 13 August 2018 and 16 August 2018. We find the tone of the correspondence unnecessarily aggressive and the time limits which you seek unilaterally to impose to be unreasonable.  However, our view is that the dispute that you seek to set out should not properly involve BRHL nor its directors and that the better position is for BRHL to remain neutral.   Instead, BRHL's view is that the dispute should be dealt with as between Solutus Advisors Limited and Stornoway Finance SARL (together, "Lenders") and Aurium Real Estate London Ultra Prime Limited ("Aurium") alone and that BRHL and its directors should not be parties to the matter.  To that end, provided we receive confirmation that neither BRHL nor its directors will be made party to the action, both BRHL and its directors are prepared to undertake that no action will be taken in respect of the Aurium invoice dated 25 April 2018 issued to BRHL save that receipt of the said invoice is acknowledged and that it will be noted that it remains pending for the time being. 

 It should then be a matter for the Lenders and Aurium to address the issues in dispute between themselves.  We reserve the right to provide 48 hours' notice that we withdraw the undertaking.

 In addition to the above, we must record that we are more than disappointed at the nature of the correspondence and what we see as a step change in approach from the Lenders.  This structure can only continue with the complete support of the Lenders and that is the basis upon which the directors of BRHL have been content to continue rather than commence an insolvent liquidation process.  Unless we can be fully satisfied of that support then an insolvent liquidation appears inevitable.  Please provide that confirmation.

 Further, we are somewhat surprised at the threat to commence proceedings against BRHL at this time given that negotiations in respect of the sale of the entire issued share capital of BRHL are at an advanced stage and likely to be jeopardised by such a threat.  To-date all relevant documentation has been uploaded to a data room in connection with this sale and we would assume that your letters referred to above will now also need to be uploaded to be available for inspection by the buyer and its advisors."

9.        I refer to this email later in this judgment.

10.      In light of BRHL's email, proceedings were commenced against the defendant alone by an order of justice signed on 23^rd August, 2018 and no injunctions were sought.  In respect of the invoice, the plaintiffs' claim is set out at paragraphs 21 to 30 of the order of justice as follows:-

"21.     Further particulars of the invoice were demanded and what was described as a "List of Services (Non-Exhaustive) provided to the BRHL Group" was delivered. The particulars provided comprised general   descriptions   of classes   of   activity   but failed to   condescend   to   any   or   any   useful particularity.

22.      Clause 2.8 of the SIA provides:

"[Aurium] hereby agrees that [Solutus] may at any time and from time to time without the consent of [Aurium] take any such further action as [Solutus] may deem necessary or desirable in order to give the Security Trustee a continuing first priority security interest or interests in the Collateral under the Law that satisfies the requirements of the Law as to attachment and perfection."

23.      Cause 5.1 of the SIA provides:

"Grantor covenants with and undertakes to the Security Trustee to the intent that the same shall be continuing covenants and undertakings until the Security Trustee's security interest in the Collateral is wholly discharged:

 5.1.1  ...,

5.1.2   not to (and not to attempt to) sell, create any Encumbrance over, withdraw, disburse, pay, assign, transfer or otherwise dispose of or deal with the Collateral or any interest in  the  Collateral  (other  than  by  or  pursuant   to  this  Agreement)  other  than  in connection with a Permitted  Restructuring; ... ".

24.      Further, it is an implied term of the Facility Agreement and/or SIA that Aurium and/or BRHL shall be obliged and/or Solutus shall be entitled to take such steps as may be necessary to preserve the value of the Collateral which comprises the security under the SIA.

25.      Further, having regard to the proximity between Stornoway, Aurium and BRHL, Stornoway and Solutus are entitled to take such steps as may be necessary to preserve the value of the Collateral which comprises the security under the SIA.

26.      It is Solutus and Stornoway's case that:

(i)        the Invoice is not properly due on the grounds that;

(a)       it is not referable to any valuable work done by Aurium for the benefit of BHRL such as to entitle any remuneration by way of a quantum meruit or at all; and/or

(b)       such or any valuable work which was performed by Aurium for or for the benefit of BRHL  was not so performed by reference to any lawful or enforceable agreement between Aurium and BRHL for remuneration for any services; and/or

(ii)       the Invoice is a contrivance intended to elicit a payment in the course of the sale of the Property, when it is known to the Aurium that no payment is properly due .

27.      In the premises, were the Invoice to be accepted as a lawful and due debt of the BRHL, the value of Solutus and/or Stornoway's security would be unlawfully diminished by not less than £1,675,486, being the value of the Invoice.

28.      And further, it is expected that unless a declaration is made to declare that the Invoice is not due, the  sale  proceeds  to  be  paid  by the  prospective  purchaser  of  BRHL will  be  diminished  by £1,675,486.

29.      Further, there is a prospect that if the prospective purchaser is made aware of this new debt being asserted by Aurium, being the current sole shareholder in BRHL, it may jeopardise the sale, such that Solutus and Stornoway will suffer loss and damage.

30.      By reason of the foregoing, Solutus and Stornoway seek a declaration that the Invoice is not properly due and owing as tendered or at all."

11.      It was these paragraphs that formed the basis of the application for summary judgment.

12.      In view of the application for summary judgment no answer has been filed.

The terms of the relevant agreements

13.      The relevant terms of the security interest agreement are as follows:-

"''Affected Securities"    means the Securities which from time to time comprise or are Included in the Collateral;

 "Collateral"      means:

(a)       one share of £1.00 In the capital of the Company;

(b)       any other Securities in the Company that may from time to time be beneficially owned by the Grantor (being after-acquired  property);

(c)       all Derivative Assets;

(d)       (where the context allows) any proceeds (that are not Derivative Assets) of all such Securities and the Derivative Assets; and

(e)       all the Grantor's right, title and Interest from time to time to and in all such Securities and the Derivative Assets and proceeds,

Including any after-acquired property falling within any of the above paragraphs of this definition;

"Derivative Assets"       means all Securities, dividends, distributions, interest or other property (whether of a capital or income nature) accruing, deriving, offered or  issued at any time (including after­ acquired property) by way of dividend, bonus, redemption, exchange, substitution, conversion, consolidation, sub­division, preference, option or otherwise that are attributable to any Affected Securities or any Derivative Assets previously described and all rights from time to time thereto but not Including voting rights as separate from the  Affected Securities;

"Encumbrance" Includes any security Interest, mortgage, charge, pledge, assignment, title retention, lien, hypothec, trust arrangement, option or other third party interest or arrangement whatsoever which has the effect of creating  security  or another adverse right or Interest;

"Secured Obligations"   means all monies, obligations and liabilities which shall from time to time (and whether  on or at any  time  after  any demand or judgment) be due, owing or  incurred from the Borrower to any Finance Party under the Finance Documents whether actually or contingently and whether solely or jointly with any other person and in whatever style or name and whether as principal or surety including for the avoidance of doubt any obligations and liabilities in respect of any Further Advances;

2.1      The  Grantor  and  the  Security  Trustee   hereby  agree   that  the  Security  Trustee  shall   have continuing first priority security Interests in the Collateral as security for the Secured Obligations in accordance with the Law and that such security Is hereby created.

2.8      The Grantor hereby agrees that the Security Trustee may at any time and from time to time without the consent of the Grantor take any such further action as the Security Trustee may deem necessary or desirable in order to give the Security Trustee a continuing first priority security Interest or Interests In the Collateral under the Law that satisfies the, requirements of the Law as to attachment and perfection.

5.1      The Grantor covenants with and undertakes to the Security Trustee to the intent that the same shall be continuing covenants and undertakings until the Security Trustee's security Interest in the Collateral is wholly discharged:

5.1.2   not to (and not to attempt to) sell, create any Encumbrance over, withdraw, disburse, pay, assign, transfer or otherwise dispose of or deal with the Collateral or any interest ln the Collateral (other than by or pursuant to this Agreement) other than in connection with a Permitted Restructuring;

5.1.7   not to take or permit the taking of any action which may result in any rights, terms, conditions, agreements or arrangements in respect of or applicable  to  the  Collateral being breached, amended or replaced in any respect;

5.2      The Grantor acknowledges that the Security Trustee has entered into this Agreement in reliance on the covenants and undertakings set out in this Clause 5 and Clauses 20 and 21 of the Facility Agreement."

14.      The security interest agreement was governed by the law of Jersey with the Royal Court having exclusive jurisdiction to settle any disputes arising out of or in connection with the security interest agreement.

15.      In respect of the finance agreements, the material provisions are as follows:-

""Finance Document" means each of this Agreement, each Security Document, the Deed of Subordination, the Fees Letter, any Development Duty of Care Agreement, each Development Manager Letter of Confirmation, each Shareholder Letter of Confirmation, each Utilisation Request, each Transfer Certificate, each Amendment Document, the Further Amendment and Restatement Agreement and any other document so designated in writing by both the relevant Borrower Party and the Agent.

"Indebtedness" means any obligation (whether incurred as principal or surety) for the payment or repayment of money, whether present or future, actual or contingent, sole or joint."

"Permitted Indebtedness" means Indebtedness:-

under or permitted by the Finance Documents;

that arises as a normal trade credit in the ordinary course of the relevant person's business and which is not more than 30 days overdue; or

which has been subordinated to amounts owing to the Finance Parties by the terms of the Deed of Subordination and the benefit of which has been charged in favour of the Finance Parties in a manner satisfactory to the Agent."

"3.1     The Borrower shall apply all amounts borrowed under the Facility in or towards:

(d) Utilisations in respect of the Tranche D Facility shall be applied towards...:

general working capital purposes.

17.      Each Obligor makes the representations and warranties set out in this Clause 17 (Representations and warranties) to each Finance Party on the date of this Agreement.

17.18   It has not carried on any business or investment activities, and has not incurred any liabilities or undertaken any obligations, since its incorporation other than acquiring, owning and managing the Properties.

20.      Each Obligor gives the undertakings in this Clause 20 (General undertakings) which remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.

20.8.1              It shall not incur any Indebtedness (including any Financial Indebtedness) other than Permitted Indebtedness.

20.15.1            It shall not enter into any contract other than:

                       (a)        the Transaction Documents;

                       (b)        contracts required for the day to day management of the Property;

                       (c)        contracts expressly permitted or required by the Finance Documents; and

                       (d)        contracts required in relation to obtaining the Revised Planning Application approved by the Agent (acting reasonably) and complying with the terms of Clause 21.8.1.""

16.      The finance agreement is governed by English Law and contains an exclusive jurisdiction clause in favour of the Courts of England and Wales (Clause 38).  The defendant is not a party to the Finance Agreement.

17.      The plaintiffs' application was supported by an affidavit of Ravi Stickney a partner in Cheyne Capital Management (UK) LLP and dated 6^th September, 2018.  The defendant filed an affidavit in response dated 19^th September, 2018 from Joseph David Penna one of the directors and ultimate beneficial owners of the defendant.

The parties' submissions

18.      The main focus for Advocate Garrood's submissions on behalf of the plaintiffs was that there was no contractual obligation on the part of BRHL to pay the defendant for any services.  Secondly no services were provided by the defendant to BRHL.

19.      Whether or not BRHL was liable to pay the invoice mattered because the BRHL structure was now insolvent in that the value of the lending exceeded the value of the underlying properties.  Notwithstanding this insolvency the structure was being maintained to avoid a fire sale.  The intention was to proceed by way of a sale of the share capital of BRHL.  The defendant's invoice therefore had a significant effect on the value of BRHL.

20.      BRHL had also not made its position clear despite an invitation to do so.  The approach of BRHL to seek to remain neutral meant that the defendant had not discharged the burden of proving some real prospect of success or some other reason for a trial. 

21.      The provision of the services also placed BRHL in breach of Clause 20 of the facility agreement because this invoice was not permitted indebtedness and it was not permitted by any of the exceptions contained in Clause 20.15 as set out in paragraph 14 above.

22.      Raising the invoice also placed the defendant in breach of Clause 5.1.2 of the security interest agreement because the invoice affected the value of the shares.  The obligation not to deal with any interest in the collateral extended to an obligation not to take any steps to affect the value of the collateral including assets owned by BRHL or its subsidiaries.

23.      Alternatively, the invoice was contrary to an implied term that the defendant and BRHL were obliged to take such steps as were necessary to preserve the value of the collateral comprising the security under the security interest agreement.

24.       The third alternative was that there was sufficient power inherent in any security agreement for a secured party to take such steps as were necessary to preserve the value of its security.  This argument was by analogy with various English cases allowing a mortgagee to take various steps to preserve the value of security granted by a mortgagor.

25.      In respect of the prospectus upon which the defendant relied, referred to in the affidavit of Mr Penna, this prospectus was issued by a different company in 2012 when a different structure was contemplated, namely the creation of a fund which would raise monies through investors.  The present structure by contrast was a lending structure to a different company within the Aurium Group.  The prospectus was not a contract between the defendant and BRHL, and the other requirements under Jersey law necessary for a contract to exist i.e. consent, an object or cause were not present.

26.      When the parties entered into the finance and security agreements in 2014, what was contemplated was that the defendant would make a profit once the underlying assets were sold.  It was only because the defendant was not going to make any profit was an invoice issued in 2018.

27.      If the defendant wished to charge for its services for assisting BRHL, it should have put in place an investment management agreement.  The property manager, Fenton Whelan, by contrast was operating on the basis of such an agreement, albeit on the basis of a contingency fee.

28.      In the accounts prior to the invoice being issued there was no provision or note for the services being provided.  Given the fee was said to be payable on an annual basis, some form of provision or note should have been included in the accounts.  The lack of such a note supported the plaintiffs' application.. 

29.      There was no real particularisation of the services provided. 

30.      The steps taken by the defendant were for its own benefit not for the benefit of BRHL.

31.      Finally, there was no draft defence setting out exactly what the defence was.  The defendant's affidavit was not sufficiently clear.

32.      Advocate Dann in response pointed out there were disputes of law and disputes of fact.

33.      Firstly he argued that Clause 5.1.2 of the facility agreement did not as a matter of construction require his client to preserve the value of assets owned by BRHL.  This was at the very least a matter for trial.  He accepted that the Court, in extreme cases, could act such as in cases of fraud, conspiracy or a claim based on the tort of interfering with contractual relations.  The issue of the invoice was not such a case.  It was certainly at least arguable that the defendant was not in breach of Clause 5.1.2 by raising the invoice.

34.      In relation to the question of an implied term, the legal test as set out in Grove v Baker [2005] JLR 348 was not met.  At the very least there was a mixed question of fact and law in relation to whether or not any implied term should be included, which could not be resolved on a summary judgment application.  The absence of a term to preserve the value of assets owned by BRHL did not render either the facility agreement or the security agreement futile or inefficacious.  Such a term could have been expressly included in the security agreement.

35.      Even if such a term was implied the value of the collateral was not diminished.  The existence of a trade debt did not diminish the value of the collateral.

36.      There was also a legal dispute as to whether the proximity arguments relied on by the plaintiffs by reference to English cases should be applied to a Jersey law security interest agreement.  This was also a matter for trial.  The starting point was only the parties to a contract, not any third party, could bring claims based on breach of contract.

37.      The plaintiffs had a clear remedy for any breach of contract by BRHL which was to enforce their security.  They did not want to do so because they wished to avoid a fire sale.  The unwillingness on the part of the plaintiffs to pursue BRHL did not mean that the plaintiffs had a remedy against the defendant either at all and certainly not by way of a summary judgment application.

38.      The allegation that the invoice was a contrivance was a serious one.  However, there was no evidence to support this allegation.  In addition, the order of justice did not contain any particulars as to why the invoice was a contrivance.

39.      The affidavit of Mr. Penna contained detailed descriptions of the services provided.  Only a trial could resolve these evidential issues.  It was not open to the Court to conclude in light of Mr. Penna's affidavit that the invoice was a contrivance.

40.      It was always contemplated that the defendant was going to invoice BRHL for its services by reference to the private placement memorandum.

41.      The Aurium Group was not in the practice of putting service agreements place between its holding companies and subsidiaries.  Despite the lack of any service agreement the costs and expenses charged to BRHL by third party suppliers were recharged to the various subsidiaries.  Any recharges were by accounting entries alone (see paragraph 21 of Mr. Penna's affidavit).  There were also documents in 2016 prior to the invoice, which made it clear that it was always intended that the defendant would charge BRHL for its services.

42.      The fact that there was nothing in the accounts to highlight the issue prior to 2018 did not mean that summary judgment should be granted.  The defendant through Mr. Penna's affidavit explained why the income was only referred to in the accounts once it was raised.

43.      The extent of the plaintiffs' knowledge of how Aurium were providing services to BRHL required cross-examination.  It was the defendant's position that there was constant close communication between the Cheyne Group and Fenton Whelan and so the plaintiffs were aware that Aurium was going to charge for its services.

44.      BRHL did not have any employees beyond employees of Crestbridge who provided trust and company administration services.  It was therefore always known that the Aurium Group would provide services to be BRHL for which it would charge.

45.      The plaintiffs should have let the defendant file its answer.  Instead it had brought an application which was rushed.

Decision

46.      I start by reference to the legal test applicable on a summary judgment application.  There was no disagreement between the parties on this test which was summarised in MacFirbhisigh & Ching v CI Trustees & Others [2017] JRC 130A and applied by McNeil J. A. sitting as a single judge in the Court of Appeal in Hard Rock Ltd & Hard Rock Café International STP Inc v HRCKY Ltd [2018] JCA 152.

47.      The Ching decision also referred to my judgment in Holmes v Lingard [2017] JRC 113 where Commissioner Hunt at paragraph 19 stated that the principles I had adduced from the Civil Procedure 2017 Volume 1 were entirely consistent with those in the Easyair Limited v Opal Telecom Limited [2009] EWHC 339 (Ch) decision he had referred to.  I refer to this because there are particular extracts from the White Book cited in Holmes v Lingard & Anor [2017] JRC 113 which are pertinent to the present application.  In particular I refer to paragraph 24.2.3 of the White Book set out at paragraph 163 of the Holmes v Lingard decision as follows:-

 "At a trial, the criterion to be applied by the court is probability; victory goes to the party whose case is the more probable (taking into account the burden of proof).  This is not true of a summary judgment application.  The criterion which the judge has to apply under CPR Pt 24 is not one of probability; it is absence of reality."

Paragraph 164 of Holmes v Lingard stated:-

"Paragraph 24.2.5, of the 2017 White Book also contains the following statement:-

"If the applicant for summary judgment adduces credible evidence in support of their application the respondent becomes subject to an evidential burden of proving some real prospect of success or some other reason for a trial.  The standard of proof required of the respondent is not high.  It suffices merely to rebut the applicant's statement of belief.  The language of r.24.2 ("no real prospect ... no other reason...") indicates that, in determining the question, the court must apply a negative test.  The respondent's case must carry some degree of conviction: the court is not required to accept without analysis everything said by a party in his statements before the court.  In evaluating the prospects of success of a claim or defence judges are not required to abandon their critical faculties.  However, the proper disposal of an issue Pt 24 does not involve the judge in conducting a mini-trial."

48.      These are the principles I have applied.

49.      The starting point for the application of these principles is the express terms of the security interest agreement itself which I have set out above.  In relation to Clause 5.1.2, I am unable to conclude that the defendant's arguments that Clause 5.1.2 does not place an obligation on the defendant to preserve the value of assets owned by BRHL is an argument that amounts to an absence of reality.  The primary focus of Clause 5.1.2 is to prevent dealings with the "collateral".  There is a real question of construction as to whether collateral means the shares of BRHL or assets deriving from those shares rather than assets owned by BRHL.

50.      The definitions of "collateral" "derivative" "assets" and "encumbrance" all have as their primary focus the shares of BRHL or anything received by the defendant as a result of owning the shares of BRHL or any replacement shares.  There is no express language in any of the definitions or Clause 5.1.2 that refers to the defendant having to preserve the value of shares or the value of assets owned by BRHL.  The word "value" does not appear.  I also do not know what negotiations led to the terms of the security interest agreement or what was intended by these Clauses.   I do not consider that I can resolve this question of construction on a summary judgment application without a full evidential picture.  I am therefore not in a position to give summary judgment on the basis of an alleged breach of Clause 5.1.2.  As noted at (vi) of the principles in Easyair, I should hesitate before making a final decision "where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case".  This is one of those cases.

51.      I observe that Clause 5.1.7 may be of assistance to the plaintiffs because it might be said that the defendant, by issuing the invoice has taken action which might result in BRHL breaching the finance agreements.  However, this is not the basis on which the plaintiffs have brought their summary judgment application or pleaded their case.  I also observe there is no express guarantee given by the defendant that it will procure that BRHL will discharge its obligations under the finance agreements.  Such a provision as a matter of drafting could have been included in the financing agreement or in the security interest agreement.  Why such a guarantee was not included is not addressed in the evidence filed and so is a question that is for a trial court.

52.      In relation to the argument that a breach of an implied term had occurred, the classic formulation of when an implied term will be incorporated into a contract was determined by Grove and Briscoe v Baker where the Court stated at paragraph 17 as follows:-

"17  This then is the hurdle to be overcome by a contracting party who seeks to persuade the court that a term should be implied into a contract. It must be shown either that the term is customarily included in contracts of the kind in question, or that it is necessary to imply the term in order to ensure that the contract is not futile, inefficacious or absurd."

53.      Advocate Garrood suggested that this test had been broadened by the judgment of Deputy Bailiff Le Cocq reported on 1st February, 2018 in the matter of Hard Rock Limited v HRCKY [2018] JRC 026 as to when a term could be implied where it was necessary to give business efficacy to a contract (see paragraph 16).  I do not construe the Hard Rock decision to this effect.  The context of paragraph 16 was a discussion about whether or not an implied term of good faith should form part of the understanding of the parties to contracts governed by Jersey Law.  The conclusion of the Deputy Bailiff at paragraph 24 was that the question of whether or not every Jersey contract should be seen as containing an implied term of good faith had not been decided definitively.  The Court then went on to decide the Hard Rock decision on the assumption that an implied term of good faith did form part of the contract but on the evidence no loss flowing from a breach of any such arguable implied term could be established.

54.      In respect of any alleged breach of an implied term, whether one should be implied again is a matter for trial both as a question of law as to the extent of the doctrine and on the facts whether or not such an implied term should form part of the security agreement.  It is not fanciful for the defendant to argue, absent cases of fraud, conspiracy or deliberately interfering with contractual relations, that the security agreement without any implied term as claimed for is not futile, inefficacious or absurd.  It is therefore a matter for trial whether the lack of any provision requiring the defendant to guarantee performance by BRHL of the latter's obligations under the financing agreement or to preserve the value of BRHL requires an implied term or whether the lack of any provision merely reflects the bargain that the parties reached.  In that regard I note that both parties appear to be sophisticated businesses who have entered into complex arrangements with the benefit of extensive legal advice.  Therefore I cannot grant summary judgment on the basis of an implied term. In reaching this view I accept that the invoice, if accepted by BRHL, may reduce the value of BRHL to a buyer on a share sale because it is a liability BRHL will have to meet absent any other terms being agreed.  This does not mean however that I can conclude that breach of any express or implied term has occurred for the reasons I have given.

55.      In relation to whether the plaintiffs have sufficient proximity to obtain the declaration sought, in my judgment this is a matter for trial.  There is also an issue that goes to the locus of the plaintiffs to seek relief in respect of invoice sent by the defendant to BRHL.  Clearly, the plaintiffs have locus to allege a breach of the security agreement to which it is a party.  The question whether the Court can make a declaration affecting an invoice sent from the defendant to BRHL at the request of the plaintiffs however is not something I can resolve on a summary judgment application.  In reaching this view I accept that if BRHL had sought to pay the invoice the plaintiffs have sufficient interest to have obtained injunctive relief to prevent payment and so an injunction may well have been granted. The ability to obtain injunctive relief does not require the same threshold as that applicable to a summary judgment application where a much higher test is required.  That higher test is not met on this application.

56.      The proximity question is firstly a complex area of law because what is argued for by Advocate Garrood is the application of principles of English Law to a Jersey security interest agreement. 

57.      Secondly, the complexity of this transaction in my judgment is one which requires the full factual matrix to be before the Court.  The wording of the Easyair principle is again apposite:-

"Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case."

58.      I next address the detailed criticisms of both counsel of the evidence filed.

59.      Firstly there is force to Advocate Garrood's criticisms of the private placement memorandum which was produced in 2012 and which was in respect of a different fund raising structure by a different Aurium entity.  It is not a contract between the defendant and BRHL.  There are no minutes of either the defendant or BRHL recording that Aurium was going to charge for its services.  Nor is there any direct evidence to show that either the Cheyne Group or BRHL were aware of the intention to charge a fee.

60.      In respect of the Cheyne Group, the explanation at paragraph 51 of Mr. Penna's affidavit goes to Cheyne's knowledge of the terms and status of the sale of the shares of BRHL.  The paragraph does not state expressly that Cheyne had knowledge of the terms of the prospectus or that the plaintiffs/Cheyne knew or were aware that Aurium intended to charge BRHL for services it asserts it provided. 

61.      However, the affidavit of Mr. Stickney also does not state that he did not know that the defendant was going to charge BRHL for its services.  At best it states at paragraph 25 that the invoice was not foreshadowed at any time prior to delivery.  Mr. Stickney's other criticisms go to the detail of the invoice and the fact that it was not referred to in any accounts rather than stating that the plaintiffs had no knowledge that the defendant intended to charge for its services.  Mr. Stickney or anyone else with knowledge on behalf of the plaintiffs could also have filed an affidavit in response rebutting the affidavit of Mr. Penna which they chose not to do.  The factual background on both sides is therefore far from clear or complete.

62.      As far as BRHL is concerned, the position of the directors is not satisfactory.  Firstly, the current directors of BRHL are two of the directors of the defendant.  This means that a conflict of interest arises because the two individuals are two of the four directors of the defendant.  No evidence was adduced from the defendant about what discussions took place before the Aurium Group raised its fee to the defendant on 29^th March, 2018 or before the defendant recharged this fee to BRHL and sent the invoice.

63.      Paragraph 39 of Mr. Penna's affidavit does state:-

"Prior to the issue of the Aurium Group Bayswater Invoices to the Defendant, tax advice was obtained and a confirmatory agreement was put in place between the Defendant, its stakeholders, MAIL and CPL in respect of the invoicing arrangements."

64.      Again no evidence has been produced by the defendant about who was privy to this tax advice, what was the confirmatory agreement, who was party to this agreement and whether it included the directors of BRHL.

65.      In addition I am particularly concerned about the response from Mr. Williams in his email of 17^th August, 2018 where he states:

"However, our view is that the dispute that you seek to set out should not properly involve BRHL nor its directors and that the better position is for BRHL to remain neutral."

66.      I do not see how this is possible.  The duty of the directors of BRHL on receiving the invoice was to make a decision about whether or not they accept the invoice was due.  I do not therefore see how they can be neutral.  In this case, there is the added complication in that the same directors are also two of the four directors of the defendant who sent the invoice to BRHL.  This creates a clear conflict of interest without any explanation as to how this conflict was or is going to be addressed. 

67.      I am also concerned by the suggestion in Mr. William's email that, if BRHL is made a party, it would withdraw its undertaking.  That implies that the directors would then agree to pay the invoice.  I do not see how they could agree to pay the invoice without forming a view as to whether or not it was due.  The conflict of interest I have identified will also need to be addressed as part of any decision to pay the invoice.

68.      During the course of argument I was referred to an email from a Mr. Manners of Aurium Partners to a Mr. Mark Baldwin of MacFarlanes, English solicitors, copied to other employees of Aurium and MacFarlanes.  Paragraph 6 of this email states as follows:-

"Management services entity - we proposed to charge the structure for management services. Batanayi's team will help us with the transfer pricing aspect.  We are going to set up a new entity in order to charge for our services.  The intention is to set up a Cayman private limited company for this purpose, unless you suggest an alternative corporate vehicle and jurisdiction."

69.      This is an email sent in 2016.   It is not clear whether it is referring to previous proposals to charge the structure or whether the concept of charging for management services was only discussed in 2016.  If the defendant was only discussing in 2016 charging for services, this may raise an issue whether the defendant can charge for its services back to 2014.

70.      I was also referred to correspondence in 2017.  The correspondence was at page 69 of exhibit JP1 of Mr. Penna's affidavit and refers to certain calculations produced by Mr Khimjee of Aurium Partners in relation to an exit date of 30^th June, (presumably 2017) which states "Note that it does not include a provision for FW invoices or Aurium chargebacks, which we still need to finalise".  This email might be consistent with the defendant's argument that it was contemplated that it was going to charge for its support it provided to BRHL but it is not clear between whom that understanding existed.

71.      I was also referred to exchanges between an employee and another employee of the Aurium Group, Bella Weston-Baker and Mr Khimjee in respect of withholding tax at page 142 of exhibit JP1.  The plaintiffs argued that this email was for the benefit of Aurium only because it went to the value of BRHL.  Advocate Dann argued that the advice being obtained was for the benefit of BRHL.  In my judgment both of these are possible scenarios that cannot be resolved on a summary judgment application without a much clearer evidential picture than has been provided.

72.      Likewise, the descriptions in Mr. Penna's affidavit of the support provided at paragraphs 29 to 32 also cannot be resolved without a trial.  It is not fanciful to contend that the Aurium Group was providing these services because Crestbridge's role was that of providing two directors and maintaining statutory books and records of BRHL and that otherwise BRHL had no employees of its own in order to manage and look after the properties it owned (through subsidiaries).

73.      The argument at paragraph 21 of Mr. Penna's affidavit that there were no service agreements because the Aurium Group was not in the practice of putting these in place between holding companies and subsidiaries is also only an argument that can be resolved at trial. I cannot therefore conclude, as alleged at paragraph 26(i)(a) of the order of justice, that the description of the services provided contained in the affidavit of Mr. Penna was not referable to any valuable work done by Aurium for the benefit of BRHL.  The concerns I have expressed about Mr. Penna's evidence and the position of the directors of BRHL are not enough to meet the summary judgment test to grant the plaintiffs' application.

74.      Similarly while there was no express agreement in place between Aurium and BRHL, I do not have the full picture at this stage to be able to conclude that BRHL did not expect ultimately to pay for services provided to it by the Aurium Group.   While the lack of any evidence from the directors of BRHL is troubling for the reasons set out above, this position can only be resolved after a full investigation.

75.      In relation to the allegation at paragraph 26(ii) of the order of justice that the invoice is a contrivance, this allegation lacks any particulars.  An allegation that something is a contrivance is tantamount to an allegation of dishonesty and therefore should be pleaded by setting out all material facts relied upon in support of the allegation.  The pleading does not do so.  Nor does the affidavit of Mr. Stickney.  At best I am invited to draw inferences based on Advocate Garrood's criticisms of the defendant's evidence.  However, as Advocate Dann argued these criticisms ultimately can only be tested on cross-examination and at trial.

76.      I am not therefore persuaded that this is a case where I can grant summary judgment as requested by the plaintiffs.  For the reasons set out above all of the grounds relied upon are matters that can only be resolved at trial.

77.      However, Rule 7 of the Royal Court Rules 2004, as amended, permits me to make a conditional order; Rule 7/4(2) describes a conditional order as follows:-

"7/4     Orders the Court may make

(1)     The orders the Court may make under this Part include -

(a)     judgment on the claim, answer or issue;

(b)     the dismissal of the claim, answer or issue;

(c)     the dismissal of the application;

(d)     a conditional order.

(2)     A conditional order for the purpose of paragraph (1) is an order which requires a party -

(a)     to pay a sum of money into court; or

(b)     to take a specified step in relation to his or her claim or answer, as the case may be, and provides that that party's claim will be dismissed or that any pleading of that party will be struck out if that party does not comply."

78.      While I consider that I should not grant summary judgment, this is on the basis of the following conditions.  I am imposing these conditions for the following reasons:-

(i)        Advocate Garrood's criticisms of the private placement argument;

(ii)       The lack of any clear affidavit evidence from the defendant that the plaintiffs knew of the terms of the prospectus or that the plaintiffs knew that the defendant intended to charge BRHL for its services;

(iii)      The unsatisfactory position of the directors of BRHL including the conflict of interest; and

(iv)      The lack of detail about who for the defendant decided to charge BRHL for services and when.

79.      In relation to whether the defendant should pay money into Court, I consider that the defendant should pay the sum of £100,000 into Court by way of security for the plaintiffs' costs.  I consider that the costs of any trial will exceed this figure significantly. This possibility is permitted by the guidance at paragraph 24.6.6 of the While Book 2018 Edition Volume 1 which recognises the power of the Court to make orders for security for costs against a defendant when refusing summary judgment provided the order would not stifle a defendant's access to the Court as long as some other factor is present beyond a case being weak.

80.      In this case I consider that the amount of security asked would not stifle the claim given the extent of the borrowing and the value of the assets.  The Aurium Group is quite clearly a significant entity of which the present transaction is only part.  However on this point there is liberty to the defendant to apply to set aside this condition. The matters listed at paragraph 78 are why security for costs is justified.

81.      Secondly, I consider that BRHL should be joined as a defendant to these proceedings.  Once the defendant has filed an answer, BRHL, within an appropriate timeframe, should file a pleading setting out its position in response to the defendant's answer as to whether or not it disputes that an agreement was reached between the defendant and BRHL and, if the invoice is disputed, setting out all the grounds relied upon and all material facts.

82.      In addition, in view of the unsatisfactory response of Mr. Williams, any answer of BRHL must be accompanied by an affidavit verifying BRHL's answer.

83.      Argument will be heard on the timeframe for the defendant to file an answer and for BRHL filing a pleading in response and its affidavit as well as on costs when this judgment is handed down. I will also want to hear from the plaintiffs as to whether they should provide particulars of the allegation that the invoice is a contrivance.

Authorities

Grove v Baker [2005] JLR 348. 

MacFirbhisigh & Ching v CI Trustees & Others [2017] JRC 130A. 

Hard Rock Ltd & Hard Rock Café International STP Inc v HRCKY Ltd [2018] JCA 152. 

Holmes v Lingard [2017] JRC 113. 

Civil Procedure 2017 Volume 1. 

Easyair Limited v Opal Telecom Limited [2009] EWHC 339 (Ch). 

Hard Rock Limited v HRCKY [2018] JRC 026. 

Royal Court Rules 2004. 

While Book 2018 Edition Volume 1