Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2017] CSIH 37

CA196/15

 

Lady Dorrian

Lord Bracadale

Lord Malcolm

OPINION OF THE COURT

delivered by LADY DORRIAN

in the cause

by

CHARLES ALEXANDER GREEN

Pursuer and reclaimer;

against

RANGERS INTERNATIONAL FOOTBALL CLUB PLC

Defenders and respondents:

Pursuer and reclaimer:  Dewar QC, Brown;  DAC Beachcroft Scotland LLP

Defenders and respondent:  Walker;  Anderson Strathern LLP

18 March 2016

[1]        The reclaimer and four others have been indicted in the High Court of Justiciary on charges, including conspiracy, to acquire control of the assets of The Rangers Football Club plc for a discounted consideration, favouring their own financial interests to the prejudice of the respondent’s creditors.  In this action he seeks declarator that, in terms of a compromise agreement between himself and the respondent dated 24 April 2013, the respondent is contractually bound to pay any reasonable professional costs and expenses incurred by the reclaimer in respect of his defence to these criminal proceedings.

[2]        The compromise agreement set out the terms upon which the reclaimer’s  employment with the defender was terminated. Clause 8.3 of the compromise agreement provided:

“8.3 The Company will pay any reasonable professional (including, without limitation, legal and accounting) costs and expenses properly incurred by the Employee after the date of this Agreement which arise from having to defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings by a third party as a result of his having been Chief Executive of The Rangers Football Club or the Company.”

 

Background
[3]        It is necessary to give some background relating both to the respondent and to the reclaimer’s connection with it and any other relevant entities.  The following summary is adapted from the Lord Ordinary’s opinion. 

 

The respondent
[4]        The Rangers Football Club plc (“Oldco”) was placed in administration on 14 February 2012.  In May 2012 Sevco 5088 Limited, a company of which the reclaimer was the only director, paid the joint administrators £200,000 for an “exclusivity” option to purchase the assets.  A proposed sale agreement was concluded subject to approval of a creditors voluntary arrangement (“CVA”), which was not forthcoming. 

[5]        On 14 June 2012 the administrators sold the business and assets of the company to Sevco Scotland Limited, incorporated on 29 May 2012 (“Newco”).  On 31 July 2012 Newco changed its name to The Rangers Football Club Limited.  Oldco went into liquidation.  It changed its name to RFC 2012 plc. 

[6]        On 19 November 2012 the respondent was incorporated.  As the result of a share exchange agreement Newco became a wholly owned subsidiary of the respondent.  That share exchange took place at the same time as an Initial Public Offering (“IPO”) of shares in the respondent which resulted in all of the ordinary shares in the respondent being admitted to trading on the AIM market. 

 

The reclaimer
[7]        In terms of a contract of employment dated 17 September 2012 it was agreed that Newco employed the pursuer who should act as its chief executive.  The agreement was deemed to have commenced on 1 June 2012.

[8]        In terms of a Director’s Service Agreement dated 7 December 2012 it was agreed that the respondent employed the reclaimer and that the reclaimer should act as its chief executive.  That employment commenced when the respondent’s ordinary shares were admitted to trading on the AIM market (clause 4.1) on 19 December 2012.  In terms of clause 4.4 the reclaimer’s “continuous period of employment” with the respondent began on 1 June 2012. 

[9]        The reclaimer avers that Sevco 5088 Limited was incorporated as a vehicle for the proposed acquisition, by means of the CVA referred to above, of the share capital of Oldco by a consortium led by him.  He was the only director.  When it became apparent that the CVA would not be approved, he incorporated Newco as the vehicle to be used.  He was its only director, shareholder and executive.  He avers that he negotiated the purchase of Oldco’s business and assets as chief executive of Newco.  

 

The issues
[10]      It is not in dispute that in clause  8.3 the “Company” is the respondent and the “Employee” is the reclaimer, or that the criminal proceedings which have been commenced are judicial proceedings  brought by a third party.

[11]      The parties are in dispute as to (a) the identity of “The Rangers Football Club” within that clause, and (b) whether the judicial proceedings are of such a character as to come within the scope of the indemnity – in particular whether the proceedings were brought as a result of the reclaimer having been chief executive of the respondent or “The Rangers Football Club”.  

The reclaimer avers that the reference to “The Rangers Football Club” is to be taken as referring to “The Rangers Football Club Limited”, in other words “Newco”.  The criminal proceedings arise as a result of his having been chief executive of the respondent and of Newco.  The criminal conduct is alleged to have been carried out in the execution of his duties as chief executive.  The respondent is therefore obliged to indemnify him under the compromise agreement.  

[12]      The respondent asserts that the reference to “The Rangers Football Club” in clause 8.3 is not a reference to Newco but to “The Rangers Football Club, an association football club which is recognised to have a continuing existence regardless of the person which from time to time owns the Club”.  It avers that at the time of the agreement the parties were aware of the importance of distinguishing between the Club and the limited companies which owned it from time to time.  The criminal proceedings do not arise from the reclaimer having acted as chief executive of the respondent, The Rangers Football Club or The Rangers Football Club Limited.  Rather, they arise as a result of the criminal conspiracies which he and his co‑accused agreed and executed.  In these circumstances, to construe the agreement in favour of the reclaimer would be contrary to public policy.

 

Decision of the Lord Ordinary
[13]      The Lord Ordinary held that the phrase “The Rangers Football Club” not being free from ambiguity, he could not determine the correct interpretation without evidence as to the surrounding circumstances indicating what that phrase would have been understood to mean at the time when the agreement was signed.  However, even assuming the reclaimer’s construction to be correct, he would not be entitled to recover under clause 8.3. 

[14]      In accordance with the Court of Appeal’s construction of a very similar clause in Coulson v News Group Newspapers Ltd [2012] EWCA Civ 1547, which also accorded with the language of the clause and commercial sense, the Lord Ordinary proceeded on the hypothesis that clause 8.3 would entitle the reclaimer to be indemnified in respect of defending criminal proceedings arising from attempts (i) to perform his duties as chief executive of the respondent or of Newco, and (ii) to advance the interests of the relevant company.  The present criminal proceedings were not of such a character, distinguishing the case on the facts from Coulson.  The Lord Ordinary’s conclusion was: 

“[32] The essence of the charges is that the pursuer and his co-accused conspired from a date before any of the relevant appointments as chief executive to achieve the criminal ends libelled;  and that it is alleged that the acts subsequently carried out by all the conspirators were done in order to further the conspiracies.  In light of those allegations it is nothing to the point if some of the acts done in furtherance of a conspiracy were carried out by the pursuer while acting in his capacity as chief executive of Newco or of the defender.  Whether he was or was not so acting, the acts are still alleged to have been done in furtherance of the criminal purposes which the pursuer and his co‑conspirators are said to have agreed to.  The criminal proceedings are not proceedings which the pursuer has to defend as a result of his having been chief executive.”

 

[15]      The clause did not cover criminal proceedings with any connection, however slender or incidental, with the performance of his duties as chief executive irrespective of the nature of the charge or the primary object being furthered.  The Lord Ordinary concluded that sensible businessmen at the time of contracting could not have intended a meaning whereby the respondent required to indemnify where the criminality involved the pursuer and others acting to advance their own personal interests rather than those of the companies of which he had been chief executive.

 

Submissions
[16]      Counsel for each party lodged detailed written submissions in support of the positions referred to at paragraphs 11 and 12 above.

 

Reclaimer
[17]      The reference to “Chief Executive of The Rangers Football Club” was a reference to the reclaimer’s time as chief executive of Sevco Scotland Limited/The Rangers Football Club Limited (Newco), which had become a wholly owned subsidiary of the respondent thus extending the indemnity to  the pursuer’s duties as chief executive of that company as well.  In the context of clause 8.3, “the Rangers Football Club” could only reasonably mean Newco:

1. Newco is the entity of which the reclaimer was CEO prior to incorporation of the respondent;
2. Newco purchased the assets andcarried on the business of Oldco;
3. Newco styled itself “The Rangers Football Club” on its notepaper; and
4. Newco became a wholly owned subsidiary of the respondent.

[18]      It was the actings of Newco which were the obvious source of any anticipated litigation, specifically from the reclaimer’s dealing with Craig Whyte;  and from the perception that assets of Oldco had been acquired at an undervalue.  

[19]      Whyte’s claims had already been referred to the police.  That the reclaimer should have sought an all-encompassing indemnity against that background is not surprising.  It was freely given as part of a negotiated package to secure the reclaimer’s exit, which was perceived by the respondent to be commercially advantageous.  The entity referred to by the respondent as the “club” has no legal capacity and could not contract to employ a chief executive.  The so‑called “club” is nothing more than a bundle of rights and assets owned by the limited company which carried on the business of the club through its chief executive. 

[20]      The clause would not entitle the pursuer to recover the costs of a defence where the criminal conduct charged was separate from his duties as chief executive, but these charges arose from the manner of executing those duties and were thus within the scope of the clause.  If he had done anything criminal it had been in the course of attempting to carry out his duties in the interests of Newco and the defender.  On that basis, such a construction made commercial sense, since, in the event of conviction, the defender might anticipate the prospect of wronged parties seeking redress from them.  It was not contrary to public policy for one person to provide the funds for the defence of another.  The Lord Ordinary erred in failing to take into account the reclaimer’s defence that there was no conspiracy, that everything he did was done lawfully, and esto there was such a conspiracy he had no knowledge of it and took no part in it.  The purchase of distressed assets from administrators at a discount is not per se unlawful, far less criminal. 

 

Respondent
[21]      The respondent drew attention to documentation designed to show that “The Rangers Football Club” had an entity apart from that of the limited company which owned it from time to time, and that this distinction was important to all parties at the time of the agreement, to such a degree that there would not have been any confusion of identities.  Such a construction accorded with the terms of an agreed reference within the agreement, in terms of which the reclaimer was referred to as having been employed by “The Rangers Football Club” as “Chief Executive and office holder as Director”.  The dates of employment in that reference coincide not with the date upon which the reclaimer became a director or chief executive of Sevco, or when his employment with the respondent was deemed to have commenced, but with the date upon which Sevco acquired the assets of the club.  A description on the official website, of his being the “new Chief Executive of Rangers Football Club” meant in context the club, not the entity which had bought it.  The terms of the clause were ambiguous, and the words should be construed contra proferentem.

[22]      The clause was not apt to cover actings in which the reclaimer advanced his own interests against those of his employers, or which were embarked upon before he was a chief executive of the respondent, Newco, or the Club.  It would be against public policy to indemnify in respect of such deliberate and concerted criminal conduct.  On the hypothesis of fact advanced by the Crown the reclaimer’s actings were in furtherance of his own interests and those of third parties, not of the respondent or of The Rangers Football Club, and were in direct conflict with his duties as director and chief executive.  On the hypothesis advanced by the Crown, the reclaimer would be in material breach of various warranties, indemnities and undertakings elsewhere in the agreement, because he anticipated but did not disclose the possibility of the present claim;  and because he knew or ought to have known that he was in material breach of his duties as a director and chief executive.  Esto the phrase “the Rangers Football Club” in clause 8.3 should be construed as the reclaimer maintains, having regard to the principle of mutuality, the respondent should not be compelled to be compelled to perform its obligations thereunder.  Further, there would be grounds for reducing, ope exceptionis, both the compromise agreement and the services agreement.  

 

Analysis and decision
[23]      So far as the intended meaning of the words “the Rangers Football Club” is concerned, we find it difficult to agree with the Lord Ordinary that anything would be served by the leading of evidence.  The task of the court is to construe the clause according to the language used and, having regard to all the relevant surrounding circumstances, the reasonable understanding of commercial parties possessing the background knowledge of the parties to the contract.  We do so by examining the words used in their factual and documentary context and in the light of commercial sense.  Evidence would no doubt confirm what is obvious from the papers, that there was concern to perpetuate the continuation of Rangers Football Cub as an entity whose existence did not depend on the identification from time to time of its owners.  Other than trespassing into the territory of the subjective understanding of the parties it is difficult to see what could be gained by a proof.  It is clear from the material before us that all those concerned were anxious to preserve the history and record of the club, despite its owners having gone into administration.  The matter of the club’s identity was examined in the decision of Lord Nimmo Smith and others dated 12 September 2012 in connection with, amongst other things, the question whether the club remained subject to the jurisdiction of the Scottish Premier League (SPL) at a time when its owners had gone into administration and its assets had been sold.  It was noted in that decision that the club must have some entity, since it is the club which played in the SPL, which required to abide by the SPL rules, and upon which sanctions could be imposed by the SPL.  Equally, however, it was clear that any such sanctions would substantially “bite” in respect of the interests of the owner and operator of the club. As the decision noted (para 46):

“In common speech a Club is treated as a recognisable entity which is capable of being owned and operated, and which continues in existence despite its transfer to another owner and operator. In legal terms, it appears to us to be no different from any other undertaking which is capable of being carried on, bought and sold. This is not to say that a Club has legal personality, separate from and additional to the legal personality of its owner and operator. We are satisfied that it does not, and Mr McKenzie did not seek to argue otherwise. So a Club cannot, lacking legal personality, enter into a contract by itself.”

 

[24]      It is not the club but its owner, currently the Rangers Football Club Limited, which is a member of the Scottish Football Association (SFA).  It is not the club but its owner which transacts the undertaking or business which is the club, and which is able to employ staff and enter into contracts.  Despite the occasional loose use of the term as applied to the club, it is not the club which has a chief executive, but the owner of the club.  The description of the pursuer as chief executive of “the club”, and the comments on the club website, are all part of the preservation of “the club” in the sense discussed, however it can only operate through its owner and operator.  Accepting for present purposes that it exists in some amorphous and limited way, it nevertheless has no legal entity apart from that of its owners from time to time.  The indemnity clause with which this case is concerned, indemnifies the pursuer of certain costs arising from proceedings “by a third party as a result of his having been chief executive of the Rangers Football Club or of the Company”.  It is accepted that he had been chief executive of “the Company”.  He had not been, and in our view, could not be, chief executive of the Rangers Football Club.  He had however, been chief executive of the Rangers Football Club Limited.  All the parties concerned will have understood that.  In our view the arguments of the respondents in this case would rob the wording of the clause in relation to the Rangers Football Club of any meaning, and it cannot have been the intention of parties to do so.  The Rangers Football Club Limited is not an entity entirely unconnected with the respondent:  on the contrary it is a wholly owned subsidiary thereof, of which the pursuer was chief executive in the same way as he was chief executive of the respondent.  In our view an interpretation of the clause to mean “the Rangers Football Club Limited” (formerly known as Sevco Scotland Limited) is the correct one. 

[25]      However, on the critical question, namely whether the pursuer is entitled to be indemnified by the defender in respect of the cost of defending the criminal proceedings against him, we are in complete agreement with the approach of the Lord Ordinary.  We consider that the Lord Ordinary was correct to proceed on the basis that the agreement entitles the pursuer to indemnity while attempting (i) to perform his duties as chief executive of the defender or of Newco, and (ii) to advance the interests of the relevant company.  We agree with the Lord Ordinary that this is a construction which accords with the language of the clause and with business common sense.  It also accords with the approach of the Court of Appeal in relation to the very similar clause in Coulson.  In respect of that clause McCombe LJ noted that (para 45): 

“…the limit has to be bounded by the question whether the criminal allegations arise out of how the employee went about the performance of his job or whether they arise out of some act having nothing whatever to do with performing the job.”

 

On such an approach, as the court pointed out, a fraudulent claim for expenses, for example; 

“..would have nothing whatever to do with the performance or attempted performance of his job: it would surely be a fraud.”

 

[26]      Dishonest extortion of money, for expenses not genuinely incurred or incurred for a purpose not related to the employment, is not an attempt to do the job at all.  That is not to say that only lawful activities would come within the scope of the indemnity.  The Lord Ordinary properly held otherwise, and as the Court of Appeal pointed out in Coulson, to say otherwise would deprive the indemnity of much of its practical use.  However, as in Coulson, the indemnity would extend only to the manner in which he carried out his duties as chief executive.  In Coulson the offences were described as suggesting a complicity in telephone hacking in a misguided attempt to fulfil his duty to “obtain accurate and authentic information upon all matters and questions dealt with by the News of the World.”

[27]      In paragraphs 28-30 of his opinion the Lord Ordinary analysed the nature of the charges faced by the reclaimer.  A second indictment has since been served and the charges 6,7 and 8 referred to by the Lord Ordinary are reflected in charges 12,13 and 14 of the new indictment.  

[28]      Charge 12 alleges that the reclaimer was part of a conspiracy, using Newco and Sevco 5088 Limited as vehicles to acquire the business and assets of Oldco at a discounted value, and thus to defraud the creditors of Oldco of funds and assets lawfully available to them, all in furtherance of the personal interests of the accused, culminating in an allegation that by these means a completed fraud was carried out. 

[29]      Charge 13 alleges a contravention of section 28 of the Criminal Justice and Licensing (Scotland) Act 2010 in that the accused agreed to, and participated in, a conspiracy, the purpose of which was to purchase the business and assets of Oldco from the administrators for a sum considerably below the market value and thereby depriving the creditors of Oldco of the rightful sums due to them, all to the material benefit of the pursuer and his co-accused.  

[30]      Charge 14 alleges that the pursuer and another conspired to, and did defraud, investors in Sevco 5088 Limited and of the respondent, for their own personal gain. 

[31]      The Lord Ordinary noted that much of the reclaimer’s involvement is said to pre-date his taking up office as chief executive of either Newco or the respondent.  More significantly, the charges could not be characterised as a breach of the law whilst attempting to carry out his duties in either of those offices.  As the Lord Ordinary expressed it (para 33): 

“The essence of the charges is that the pursuer and his co-accused conspired from a date before any of the relevant appointments as chief executive to achieve the criminal ends libelled;  and that it is alleged that the acts subsequently carried out by all the conspirators were done in order to further the conspiracies.  In light of those allegations it is nothing to the point if some of the acts done in furtherance of a conspiracy were carried out by the pursuer while acting in his capacity as chief executive of Newco or of the defender.  Whether he was or was not so acting, the acts are still alleged to have been done in furtherance of the criminal purposes which the pursuer and his co‑conspirators are said to have agreed to.  The criminal proceedings are not proceedings which the pursuer has to defend as a result of his having been chief executive. “

 

[32]      In the Coulson case there was no suggestion of a fraud being carried out on the News of the World, its owners or shareholders.  By contrast, as the Lord Ordinary has pointed out, a fraud on the entities in respect of which he held the office of chief executive is at the heart of the charges against the reclaimer.  Charge 14 in particular avers a distinct fraud on the investors of the respondents.  If the indemnity were to cover such matters, in our opinion clear and unequivocal wording would have been required.  Against that background, we agree with the Lord Ordinary (para 26) that:

“Sensible businessmen in the position of the parties at the time of contracting could not have intended that the clause should have such a meaning.  Such businessmen would not have contemplated the defender being required to indemnify the pursuer in respect of the costs and expenses of defending criminal proceedings where the criminality alleged involved the pursuer and co-conspirators having acted to advance their personal interests rather than the interests of the companies of which the pursuer had been chief executive.  Such a construction would flout business common sense.”

 

The acts of persuading investors to invest £5.5 million in Sevco 5088 Limited, appropriating that sum for the use of Sevco Scotland Limited, changing the name of that company to The Rangers Football Club Limited, and resolving that the shareholding in The Rangers Football Club Limited would be transferred to the respondent, then placed on the AIM to attract further investment in the respondent, are all acts which are said to have been committed as part of the intention to defraud, and the act of defrauding, the investors in the respondent, for personal gain.  They do not in our view come within the legitimate pursuit of the appellant’s activities as CEO, and cannot be categorised as a misguided attempt to carry out his duties as CEO or to further the interests of the respondent.

[33]      In distinction to the position in Coulson, we are unable to characterise the alleged actings of the reclaimer as constituting misguided efforts to pursue his duties as chief executive of either Newco or the respondent.  As illustrated at para 14 of the Note of Argument the reclaimer extends the scope of the indemnity to cover any judicial processing “arising from his involvement with Rangers.”  We are satisfied that such a broad construction of the terms of clause 8.3 falls to be rejected. 

[34]      We will therefore adhere to the interlocutor of the Lord Ordinary and refuse the reclaiming motion. 

 

Postscript
[35]      As the court was about to issue this opinion, parties intimated that there had been a further indictment served and that they wished to submit additional short submissions in writing, which the court allowed.  At a preliminary hearing on 5^th February, the Crown intimated that what had become charge 12 was not be proceeded with against the appellant, and charge 13 was not to be proceeded with at all.  It remained the crown intention to proceed against the appellant on what is now charge 8 in the indictment, the terms of which are virtually identical to what was charge 14 on the indictment before us.  

[36]      On 22 February, at a continued Preliminary Hearing, the Crown intimated an intention to desert the indictment against the appellant, pro loco et tempore.  That action does not preclude a further prosecution being brought against the appellant, libelling charge 8.  In those circumstances the additional representations for the appellant asked that the court should nevertheless proceed to issue its decision since there remains a likelihood of that charge being proceeded with, and in any event the issue of liability for the significant costs so far incurred remains a live one.

[37]      As to the effect of the withdrawal of charges 12 and 13, the appellant’s supplementary submissions argued that charge 8, if it were proceeded with, would be covered by what the Lord Ordinary considered to be the scope of the protection under clause 8.3, as we have reflected it in paragraphs 14 and 25 above.  This argument however, simply re-iterates the submission originally made to us, particularly that in paragraph 32 of the NOA, given that charge 8 was in terms no materially different from the earlier charge 14. For the reasons we have already given, we  do not accept the contention advanced on behalf of the appellant.