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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Vellacott v The Convergence Group Plc & Ors  EWHC 1774 (Ch) (31 July 2007)
Cite as:  EWHC 1774 (Ch)
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Strand, London, WC2A 2LL
B e f o r e :
| CHANTREY VELLACOTT
|- and -
|THE CONVERGENCE GROUP PLC
CONVERGENCE GROUP INTERNATIONAL SA
ALAN STUART MACDONALD ROBINSON
GAIL FARRIN ROBINSON
Mr Stephen Atherton QC (instructed by Brooke North LLP) for the Third Defendant, Mr Robinson
Mr Hugh Sims (instructed by Foot Anstey) for the Fourth Defendant, Mrs Robinson
The First and Second Defendants (both in administration) were not represented
Hearing dates: 8, 9, 13, 14, 29 and 30 March 2007
Crown Copyright ©
MR JUSTICE RIMER :
The present application
" there is no realistic prospect of [Convergence] being able to establish the necessary chain of causation at trial. He says that it is unclear that even by September 1998 [Convergence] had any project to sell, and that anyway no company had yet acquired any of the necessary licences for the proposed operations, and he says that the licences were necessary for the obtaining of finance."
PLC - background
The events of 1996
The events of 1997: part one
The Convergence projects in UK and Greece: the Silk Route project
The events of 1997: part two
Events from January to October 1998: the internet placing case
" we now need to move forward and make formal applications for Data and/or CATV [cable television] licences.
We have continued our development work on producing an 'end to end digital bi-directional MVDS (wireless) network' and are currently operating a trial/demonstration network in the UK. We now need to move on and acquiring [sic] licences as part of the plan.
I would be grateful if you could investigate the requirements of the above licences such that we can have a meaningful discussion when we return to Greece."
That records the importance Mr Robinson attached to licences. Without them there could be no project. Throughout his oral evidence, however, Mr Robinson played down their importance, often referring to them as a "process" and conveying the impression that their grant was a matter of formality and time. That was an oversimplification, and whatever Mr Robinson may have said at the trial, at the time he was saying and writing very different things.
"In light of your requirement for an early 'placing' we propose that all parties work towards preparing the prospectus to be issued by the Gibraltar Plc. This will serve to focus the opinions and advice of the various contributors: Gibraltar: Keith Lawrence (KL), Guy Stagnetto (AVS), myself (AJH) London/Paris: Ted Mercer (RM), Michael Llamas (MLL) and Convergence.
I note that you have a 'blueprint' of the 'Mems and Arts' which you would like to see incorporated into the Gibraltar Plc. Please forward as soon as possible."
"You will note that Andrew [Haynes] is suggesting that the MPIP be a foundation document around which usefully we can determine the relationship of all parties, and to this end, I would like to make a supreme effort to have a more comprehensive draft of the MPIP completed by the end of the week.
Following on from our conversation today, I know that you are very busy preparing the list of activities to be achieved by Silverstone and were also going to cast your mind to the positive arguments for moving the Project Oxygen management centre from Cadiz to Gibraltar. I appreciate, therefore, that you are already extensively committed in matters relating to Convergence (as well as to your other clients) and therefore, Job [Mr Maats], Gail [Mrs Robinson] and I will attempt to progress the MPIP at this stage.
Furthermore, as our legal activities are on the substantial increase, now would be a good time to review the matters relating to fees and future projected costs for this and other projects as we do not wish to fall out over such minor matters as money."
"1) Is it realistic, within the timetables and the framework set by Project Oxygen for a Gibraltar Plc to comply with the EU Second Investment Directive requirements and thereby being capable of offering the securities of the Gibraltar Plc to EU investors at large? How would Gibraltar's interpretation of the Second Investment Directive differ from the UK's interpretation of the Second Investment Directive i.e. the Public Offers of Securities Regulations 1995. (Statutory Instruments, 1995 1537, which was made on 14 June 1995). Is it realistic to issue a prospectus from Gibraltar which not only complies with the EU's SEC type requirements, but also with the Australian Securities Commission and the US Securities and Exchange Commission? (As Alan [Mr Robinson] will have explained, this is critical as we intend to offer securities beyond the EU to certain ethnic Greek diaspora communities. We can procure virtual travel into the EU should this be considered available!)
2) Is it realistic in view of the early stages of Gibraltar's desire to assume a more substantial standing in the global offshore community to base a professional team for a project with global first-mover advantages out of Gibraltar? To what extent will it be required to use agents in other jurisdictions? How can control over the team and professional costs be maintained?
3) What is the current status of Gibraltar's compliance with the EU telecoms deregulation and the general implementation of the EU's directives in this arena? Are there any current impediments in the Gibraltar legislation and regulatory climate and or sovereign status, even prior to the regularization of the Gibraltar telecoms regulations, which would inhibit the landing of a submarine cable by Project Oxygen? Are there any impediments to the operation of one of the world's three control centres for Project Oxygen out of Gibraltar? (rather than Cadiz).
We are looking forward to exploring these issues and then moving forward with due speed, subject to satisfactory answers on the above. "
"Following the meeting at your [Mr Tzavellas's] office, I spent several hours with George Bairactaris and Christina Gennadopoulos going through in greater detail the background information that I discussed with you and have suggested that either George or Christina contact you directly.
Whilst the timetable of the 31st May is tight, I believe it is a realistic objective for the specific documentation required to be generated in Gibraltar, however, a certain number of material contracts will be required both out of the UK and out of Greece.
A considerable amount of the documentation associated with the UGS bid can be updated and will be applicable for this Marco Polo placing. However, consideration will now have to be given to transforming [CCGE] into a Societe Anonyme (SA) as previously envisaged and I have discussed this matter with George Bairactaris. It is also highly likely that a further SA will be required to be formed into which the licence applications can be made for the submarine cable to connect Athens with Crete.
A second major component is the purchase/formation from new/joint venture required to establish an Internet Service Provider (ISP) company. To this end, I am most keen to meet with the representatives of Singular as discussed with you at our last meeting."
"We believe that our meeting now positions us to focus all our efforts on a repetitive, tap like, structure for funding Marco Polo's financial and intellectual capital intensive commercial development at ever reducing systemic risk to thereby procure dilution suffered by the principals declines in line with the exponential growth in Marco Polo funding requirements over the next 12-18 months."
"In these circumstances I have not been able to give the level of attention to the substantial volume of documentation concerning 'Marco Polo' that I have received in the week, to enable me to make the critical judgements required to allow matters to proceed beyond this point.
In particular the nature of your various correspondence and dialogue, and that of Ian Gamse, with members of the management team of [PLC], have highlighted the need to now fully address and agree upon such basic fundamentals as proprietary information, confidentiality, references, protocols, objectives, ownership structure, management roles, areas of expertise, commitments, costs and cost controls in our proposed joint venture activities."
"We are all very keen to move on in an expeditious and cost effective fashion, but not to the detriment and risk of destabilising our established programme for the Burgess Hill Proof of Concept, the ITC trials, Wintranet and our other affairs to which you are not a party."
"As expressed at our meeting [on 23 June], I am not satisfied that the international group structure has been completed to best purpose, or properly checked against our commercial needs for Marco Polo, and that the expenditure on establishing a tax efficient auditable structure has been properly and sufficiently documented. We, therefore, propose as suggested and tentatively agreed at our meeting that:-
a) Dapo Ladimeji will validate the international group structure against the proposed Marco Polo placing and provide a written explanation and opinion as to its functionality and beneficial operation.
b) Colin Heath provide in conjunction with David Waterhouse, an explanation of how particular activities will be allocated to group companies and the reporting and accounting structure/procedures that will best facilitate the annual audit and tax computation.
We would expect the above to be completed within the next 6 weeks and be available for:-
a) Inclusion in our planned explanation of the International Group as required for the Marco Polo placing.
b) The 1996 tax filing and 1997 Audit completion.
We remain concerned that the international structure proposed and executed on our behalf by Dapo and Chantrey Vellacott has not yet been completed to reflect the identified requirements of the Group and yet further substantial charges could yet be incurred to reach a point of satisfactory conclusion."
Did structural problems prevent the instruction of a financial adviser by March 1999?
Events of 1998: 1 October to 31 December
"Subsequent to the year end, the UK Group of companies completed the planned structural reorganisation to bring the European, non European and American Convergence companies under the ultimate ownership of [SA] to facilitate the international expansion of the Group post 1998."
" this will most likely be with one individual who will be able to provide additional facilitation of the project. At about the same time additional equity will be sought from financial investors such as Advent and DLJ [Donaldson Lufkin and Jenrette]. Subsequently intended that further substantial debt finance will be raised, perhaps by way of a bond issue."
"The group's most pressing objective is to get a finalised placing document into the market place for the Greek private investors.
To date this document has not be [sic] written in any form which would be acceptable to investors as it does not reflect the precise intentions of the group. We have to date a mismatch of intentions, a confusion of technologies and a highly dubious interpretation of regulatory law as it applied to the Greek market."
"Further to your conversation with Katy [Ms Barker] yesterday, I am writing to bring you up to speed on what has been a very protracted work of the professionals in determining the international corporate structure. I apologise for the considerable delay in writing to you, but I somewhat optimistically had believed that the finalisation of the structure was only a few days away that was in September.
The good news is that we finally gave up on relying on [CV] and at some considerable expense have employed the services of Ian Taplin, the Tax Partner at [PwC] and we are given to believe one of London's foremost experts in this field. As a result, in the space of less than three weeks, Ian and his team have reviewed the work previously carried out by Dapo Ladimeji at [CV] and have produced the enclosed draft structure which is now version 3, shortly to become version 4, to include VAT effects throughout the international Group.
I believe we have now reached a much clearer position on this structure with the help of Ian Taplin and all the professionals, both in the UK and Greece, feel reasonably comfortable that this is a workable and advantageous structure for the development of Pan-European connectivity, or what I would like to see as 'the McDonalds PTT of Europe'.
In conjunction with the structural work, we have now completed the Accountants Report for 1995, 1996 and 1997, a draft valuation of the Group and a series of financial models dealing with the Teleport in Athens, the global link including Project Oxygen, and the backhaul wireless IPLMDS system for Athens and other Teleports. This work has now been substantially brought together in a draft placing document and it is my intention to start initial discussions with the institutions that I have been in contact with in New York in about two weeks time. This is with a view to seeking institutional investment money in February/March of next year, and I anticipate that I will have settled out 'Political Greek VIP' investor(s) before Christmas. To this end, considerable work has been going on in Greece for the past three months and we are to have a final licence hearing on the applications for the Teleport before a plenary session of the National Telecommunications Commission (NTC) this Friday, 20th November.
As you will appreciate from the above, despite my lack of contact with you a considerable number of pieces of the jigsaw have now been put in place enabling us to now address the critical issue of management. This is something I am sure you would wish to have a face to face meeting in the near future to discuss your specific role. To this end, I will telephone you from Greece this weekend as I will be travelling to Athens to attend the pre-planning sessions and a full plenary meeting with the NTC on Friday. ...
I hope the above meets with your approval and gives you some comfort that you are not dealing with vague and undefined proposals for the Group, and that you will find the time and desire to actively participate when the full details are discussed with you."
"It is our intention to seek a further equity investment in the Convergence Group through the form of a new Luxembourg holding company as has been advised by [PwC] during the first quarter of next year. To this end, we are now completing the 1998 audit of the Group which will be completed by the third week of January for inclusion in the accounts report for the period 1996, 1997 and 1998. This accounting report was already prepared for the period 1995, 1996, 1997 and will be updated with respect to the 1998 audit.
As you will seek from the enclosed draft documentation (which of course is subject to completion and verification by the Directors) considerable work has been undertaken and major progress has been made since my last meeting, and I believe we are now in a position to speak seriously with potential sponsors of an Institutional Placing.
To this end, I believe a further conversation in early January is now appropriate as we are starting to assess the interest of a number of potential houses. It is my intention to complete certain contracts with Project Oxygen during the first week in January and, therefore, I will be in New York on the 6th, 7th and 8th of January. I understand that you will not be returning until the 4th of January and, therefore, perhaps we could schedule a meeting for the week of the 11th January."
The Board Meeting of 30 December 1998
"It was noted that valuations had been received from [CV] in relation to the share transactions which took place on 16 March 1998 and that these transactions could be formally recorded. It was noted that the shareholdings of the company [SA] was now 77.49% owned by Corsaire Limited [Mr Robinson's company] and 22.51% owned by [New World] as Trustee of the Robinson Settlement. Stefan Arts mentioned that he had not received a copy of the [CV] fax detailing how the share holding was calculated and it was agreed that a copy would be sent to him."
The events of 1999
"If you have not already done so you should update Hocepied [a European Union official] (by fax if necessary) of the recent actions of the NTC [the Greek licensing authority] and the last two faxes from MS, indicating the earliest we can expect an 'advice on the principle' is in February, some two months after the date given for a response by the Chairman of the NTC, Mr Lambrinopoulos, in open session on 20th November 1998, and almost six months after the submission of the first TLS/Oxygen [TLS stands for Terminal Landing Station] application. If DGIV [Directorate General IV] could be encouraged to say that Convergence has kept the commission appraised of its activities and aspirations for Greece since the UGS bid in 1995 [sic: it was in December 1996] and specifically with regard to Oxygen since February 1998 (when we met in Brussels with Peter Scott, Augusto De Albuquerque, Leon van Noorden, and Arqylis). That we have not yet filed a formal complaint to DGIV, but for reasons of commercial pressures will have to do so by the end of January if positive resolution cannot be reached.
The reality, which is now accepted by Andreas [Mr Mitsis: a member of the Greek Government who was supporting the project], is that we must gain a clear indication as to the Greek Government position and be able to act upon it or move on to other opportunities/Countries in the region which are more favourably dispossed [sic] to our specific proposals. This opportunity that we/DGIV are being presented with on Friday may be the only way, in the time frame, to send a strong 'informed' message from Brussels, before formal action is taken. Inclusion in the briefing notes for the Director-General is therefore most advisable."
"Q. Could I ask the question again and maybe you could answer more directly to the question. I said to you that there were an awful lot of problems with this project at the time, in particular the lack of licences, which was a matter that you were focused on at the time. That is right, is it not?
A. Licences are a process. They go on continually. Even after you have been awarded licences, you go through modifications, as you saw with or you will have seen, if you have read into the documents, we re-license the LDOs. It is a continuous process.
Q. The licences at this point in time, Mr Robinson, were a matter of very considerable importance to you and the problems which you were having in Greece were matters which were foremost in your mind at the time.
A. I do not believe that licences were the foremost issue on my mind at the time.
Q. They were a major problem which at that time in early January  for your project and you recognised that, did you not?
A. We recognised from the outset, as with many projects, that this would be a process So parts of the project, the submarine cable, needed a licence process which we knew we would get and we had an entitlement to, but it was a process and it did require going through a process. The other licences at different stages required a process and there were a number of licences, as you know."
"[Mr Tzavellas], whom [Mrs Robinson] and I know very well, both on a professional and social basis is fully aware of the corporate structure as now agreed with [PwC] and in fact contributed directly on a number of the issues concerning the EEIG and its treatment by the Greek authorities. In order that the transfer of shares of Kentavros Trading (Overseas) Ltd, or the formation of a new Cyprus Holding company, be carried out in a proper order and to meet the requirements of the overall structure, I have asked [Mr Tzavellas] to contact you directly to liaise on the finalisation of the Cyprus company.
Once you have had an opportunity to speak with him, it would be helpful if we could circulate an action list and schedule for the completion of the component parts of the new structure."
"We also suggest to refrain from charging a management fee of GBP 5.2 million by [SA] to [PLC]. This could indeed be a neutral item in [SA's] books from a cash flow point of view (as the proceeds will be used by [SA] to redeem its debts), but the situation from a tax point of view is completely different: the management fee will have to be recorded as income in [SA's] profit and loss account whereas the redemption is a balance sheet item: the taxable management fee income will not be reduced by corresponding expenses and [will] thus create a tax liability with [SA] of approximately GBP 2 million! One could also put question marks at the volume of this management fee income with [SA] and with [PLC]. It could also jeopardise [SA's] status as a holding company ('Soparfi')."
"THE KEY ITEM IS ITEM 10 of his letter: it implies that the £5.2 million management fee suggested by R O'B (Dapo?) as part of the mechanism for the reorganisation will result in a £2 million tax charge in Luxembourg, and could jeopardise [SA's] status as a Soparfi holding company. I will discuss this with [Mr O'Beirne] and [Mr Arts] early this afternoon (UK time) unless I hear from you. (A copy of [Mr O'Beirne's] note, with my pencil notes, is attached for ease of reference)."
"[Mr O'Beirne] does NOT see the management charge issue as a major problem and it is certainly not a deal-breaker if the £5.2 million charge cannot be made. He believes there are other ways to approach this last aspect of the reorganisation and will continue discussions with [Mr Ladimeji] to clarify the best approach.
He also questioned whether Fergana is currently formally owned by [SA]: and if it is not, maybe it would be better to reconsider the sequence of steps to get from where we are, to where we want to be. He will comment further when he and [Mr Ladimeji] have had further discussions.
He was anxious that I reassure you that there are various ways forward and that the serious concern I expressed this morning is unnecessary."
"The meeting resolved to instruct David Waterhouse to clarify [PLC's] position in the group, to provide the directors with an update of the present group structure and to investigate its share ownership and to instruct [TJG] to provide the Company with a legal opinion in this respect."
"As regards matters generally because of the points raised by [Mr Arts] concerning what I would describe as the 'March reorganisation of the Convergence Group' and the final stages needed to finish that off and in particular the proposed payment of the management fee of £5.2 million by [SA] to [PLC], there needs to be a brief period while we examine the consequences of the previous reorganisation, its consequences and precise implementation. I should warn you that as a consequence of that review, it may turn out that some aspects of the precise detail of inter-company relationships may turn out to be different from those you are presently assuming and in the circumstances I think it would be prudent if before taking or settling any proposed implementation steps, all relevant parties consulted with me prior to their taking place for the time being."
"The scale of the possible difficulty requires our clients immediately to ascertain the full extent of all steps taken by [CV] so far as concerns implementation of the structure so that they can receive advice from us and independent accountants about how best to proceed to mitigate their possible exposure to this liability.
Could you please let us know whether the original of all documents in your possession relating to this matter will be made available to us to inspect or whether it would be more convenient to you if copies of all such documents were provided and if so the likely timescale of that exercise.
Based on your own knowledge, we would welcome your thoughts at this stage about how the various problems can best be remedied but we should make clear that, so there is no confusion, your authority to take steps for and on behalf of our clients regarding international tax matters is suspended with immediate effect in order that a collective view, possibly with the benefit of Chancery tax advice, can be obtained."
" now very confident of our ability to fund the purchase of the building and our intended telecommunications activities, if we are granted the license for the Teleport from the NTC. This transaction can and will proceed with some speed once that position is attained and I was told this week by Andreas Mitsis and Professor John Koukadis that the decision to allow Lambrinopoulos and the NTC to finish processing the license has now been approved by Maridellis. We shall see where we get before Easter, but I fear that Maria Stamouli is out of her depth and the drive to get completion will have to be by my/our innovation not hers."
" at which it was anticipated that Lux2 and Austria Co as well as other housekeeping matters could have finally been completed. This meeting is a direct result of the Board's inability to progress structural matters at its last meeting on Tuesday the 31st [sic: should be 30th] of March 1999. As you will appreciate the costs both in time and travel of repeated board meetings is quite considerable and despite the almost continual employment of [TJG] in trying to resolve the historic actions taken to implement the structure, we still appear to be some way from the clarity necessary to enable finalisation.
I thought you should be aware that these problems are still continuing despite the best efforts of all concerned."
"It is also unfortunate that despite my description of the very pressing International deadlines on this project, that you were not able or willing to indicate a date by which we might receive a positive confirmation that the licence to land submarine cable will be issued. In the absence of securing such a date we are presently unable to proceed with the purchase of the 11,000m2 building in Neo Faliro [the Marine Plaza building] and with the placing of the necessary orders for cable with the manufacturers, which, if the project is to proceed, will become critical by late May 1999."
"Unfortunately it was not as positive as Mr Loucas Valetopoulos and I would have hoped for and I attach for your information a copy of the response that I have sent to the Chairman of the EET/NTC. As you will see from this very little was achieved other that [sic] to identify yet a further series of documents or amended documents that we require before even an indication of the timing for the issue of a licence will be given.
I do have to say that I went to very great lengths to explain to Mr Lambrinopoulos the degree of the progress we have made on the project since our last meeting, even in the absence of positive support from the EET/NTC and the nature of the deadlines we [are] now facing on the international front.
Despite the statement from Mr Lambrinopoulos that the EET/NTC has a policy of positive encouragement of investment in Greek telecommunications by companies external to Greece, I see little evidence in reality that this is the case and the level of frustration is very high.
Other than providing yet more documentation to the EET/NTC and attempting to create a wider understanding in government of the importance to the economy of such infrastructure projects as these, there seems to be a limited amount that we can do, but just watch deadlines pass with attendant consequences to all. "
"Timing is critical. A number of key elements of The Convergence Group's proposal depend on the grant of access to satellite capacity. Without access to capacity, the NTC will not grant a licence. Without a licence, The Convergence Group is unable to enter into a contract for the Teleport, because it relies on the cash flow from the VSAT services to fund the building. Without a definite address for the Teleport, it cannot finalise the Oxygen arrangements, because the costing is dependent on the location of the cable landing site. OTE's failure to provide INTELSAT access has already lost The Convergence Group one potential site."
The collapse of the trial
" the merits of Convergence's position on causation are very weak indeed. Whilst CV (and Mr Ladimeji in particular) clearly did a very poor job, it is difficult to see the Court concluding that Mr Robinson was really minded to engage a financial adviser, and that the project was otherwise ready to raise finance, in light of various problems apart from structure. We consider that the counterclaim is very likely indeed to fail on causation grounds"
The present application
Indemnity or standard costs?
" The leading authorities make clear that, while the court has a wide discretion as to whether to order costs on the standard or indemnity basis, there must be something in the conduct of the proceedings or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs. Where, as in the present case, it is the conduct of the paying party which is relied on, there must be some element in his conduct of the case which deserves some mark of disapproval: unreasonableness to a high degree may be sufficient. (See Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson (a firm)  EWCA Civ 879,  All ER (D) 39 (Jun).)"
Should the costs include the costs of the failed mediation held on 5 December 2003?
The application for non-party costs orders against Mr and Mrs Robinson
The structure of the Convergence group
PLC's board minutes
"3.4 It was noted that until the latest set of charges from DAC, [PLC] had been able to fund the on-going cost of the Litigation entirely from its own group resources and cashflow.
3.5 Advice from the legal team remained positive: [CV's] negligence would be proven and damages and costs were likely to be recovered.
3. 6 It was resolved that [PLC] would continue the litigation at least until the court break scheduled for a week in early November.
3.7 DAC would be authorised to initiate settlement discussions with [CV] at the earliest opportunity."
The hearing on 20 December 2006
The advice given to PLC and SA
"The suggestion on the face of these documents is that Mr Robinson accepted Chart's advice and regarded the obtaining of at least a formal assurance re licences as a trigger for the investment process, and that Mrs Robinson subsequently analysed that the raising of funds for the Group had been delayed by the licensing process in Greece."
The case against Mr Robinson
The case against Mrs Robinson
"It was a huge cost and gradually the group structure became a separate project in its own right that had to be managed. It should never have come to this and it was a huge diversion of time and resources. It meant that all other elements of planning were held back."
"We lost this Greek project because we simply ran out of time to get the network constructed before the Olympic Games and could not hold all the ends together without substantial finance. The lack of finance was owing to the absence of a structure that could be valued and sold to investors in 1998 and 1999. This was entirely due to Chantrey Vellacott and the monolith they produced and the delays associated with understanding and sorting out the structure they had part implemented, and, at the time and later, in getting them to produce related valuation."