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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Butters & Ors v BBC Worldwide Ltd & Ors [2009] EWHC 1954 (Ch) (20 August 2009) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2009/1954.html Cite as: [2009] EWHC 1954 (Ch), [2009] BPIR 1315 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
(1) Daniel Francis Butters (2) Neville Barry Kahn (3) Nicholas James Dargan (Joint Administrators of WW Realisation 8 Ltd (formerly named Woolworths Media Plc) and Woolworths Group Plc) |
Applicants |
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- and - |
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(1) BBC Worldwide Ltd (2) 2 Entertain Ltd (3) BBC Video Ltd |
Respondents |
____________________
Mr Howard QC, Mr Jowell & Mr Arnold (instructed by Olswang LLP) for BBC Worldwide Ltd
Mr Anderson QC & Mr Cullen for BBC Video Ltd (instructed by Wiggin LLP)
Hearing dates: 12th, 15th, 16th,30th June and 30th July 2009
____________________
Crown Copyright ©
Peter Smith J :
INTRODUCTION
CORPORATE STRUCTURES
THE DISPUTE AND PROCEDURAL MATTERS
INSOLVENCY/INSOLVENCY EVENT
INSOLVENCY EVENT
"1.5.1 that person fails generally to pay its debts when they become due, or is deemed unable to pay its debts within the meaning of section 123(1)(b), (e) or section 123(2) of the Insolvency Act 1986; or
1.5.2 any meeting is convened for the purpose of considering a resolution, or any application or petition is presented or any other step taken, for the purpose of making an administration order against, or for the appointment of an administrator in respect of, or for the winding –up or dissolution of that person (otherwise than in the course of a reorganisation or restructuring previously approved in writing by the holders of a majority of the B Shares and the holders of a majority of the V Shares), and such action or step is not withdrawn within fifteen (15) Business Days; or
1.5.3 any encumbrancer takes possession of, or any administrative or other receiver or trustee or similar officer is appointed over all or a substantial part of the undertaking or assets of that person or any steps are taken to do the same; or
1.5.4 any steps are taken by that person with a view to proposing or negotiating any kind of composition, compromise or arrangement involving that person and any of its creditors; or
1.5.5 that person suffers, or there occurs in relation to that person, any event which is reasonably analogous to any of the events mentioned in sub-clauses 1.5.1 to 1.5.4 in any part of the world."
BACKGROUND
SUBSEQUENT EVENTS AND NEW LICENCE EVIDENCE AT ADJOURNED HEARING
"We will take the continued exploitation by 2e after today's date of rights previously granted as your acceptance of these offers of new licences and new service level agreements unless we hear from you to the contrary"
"The directors of [Video] and [2e] have given the terms of the BBCW Offer very careful, but urgent, consideration.
We have today negotiated with BBCW a variation to the terms of the BBCW Offer as per the attached letter.
In line with the very serious consequence of the termination of the MLA for the [2e Group] the directors of [Video] and [2e] have concluded that it is appropriate to accept the BBCW Offer"
"p 262 F-G
The construction point
The first question to be considered is whether the guarantee was expressly made subject to a condition precedent that the four machines existed. The factual matrix, which is relevant to this question of construction, is that both parties - the creditors and the guarantors - were induced to commit themselves by information supplied by the lease brokers employed by Mr. Bennett. That information included the statement, which was made expressly or by necessary implication, that the four machines existed. And it matters not that the plaintiffs thought that Mr. Bennett owned the machines, while the defendants thought that the plaintiffs owned the machines. The fact is that both parties were informed, and believed, that the machines existed.
"p 263 E-264 A
If my conclusion about the construction of the guarantee is wrong, it remains to be considered whether there was an implied condition precedent that the lease related to four existing machines. In the present contract such a condition may only be held to be implied if one of two applicable tests is satisfied. The first is that such an implication is necessary to give business efficacy to the relevant contract, i.e. the guarantee. In other words, the criterion is whether the implication is necessary to render the contract (the guarantee) workable. That is usually described as the Moorcock test, being a reference to The Moorcock (1889) 14 PD 64. It may well be that this stringent test is not satisfied because the guarantee is workable in the sense that all that is required is that the guarantors who assumed accessory obligations must pay what is due under the lease. But there is another type of implication, which seems more appropriate in the present context. It is possible to imply a term if the court is satisfied that reasonable men, faced with the suggested term which was ex hypothesi not expressed in the contract, would without hesitation say: yes, of course, that is "so obvious that it goes without saying:" see Shirlaw v. Southern Foundries (1926) Ltd. [1939] 2 K.B. 206, 227, per MacKinnon L.J. Although broader in scope than the Moorcock test, it is nevertheless a stringent test, and it will only be permissible to hold that an implication has been established on this basis in comparatively rare cases, notably when one is dealing with a commercial instrument such as a guarantee for reward. Nevertheless, against the contextual background of the fact that both parties were informed that the machines existed, and the express terms of the guarantee, I have come to the firm conclusion that the guarantee contained an implied condition precedent that the lease related to existing machines. Again, if this conclusion is right, the plaintiffs' claim against the defendants as guarantors or as sole or principal debtors under clause 11 fails."
And 268B
It might be useful if I now summarised what appears to me to be a satisfactory way of approaching this subject. Logically, before one can turn to the rules as to mistake, whether at common law or in equity, one must first determine whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary. Only if the contract is silent on the point, is there scope for invoking mistake. That brings me to the relationship between common law mistake and mistake in equity. Where common law mistake has been pleaded, the court must first consider this plea. If the contract is held to be void, no question of mistake in equity arises. But, if the contract is held to be valid, a plea of mistake in equity may still have to be considered: see Grist v. Bailey [1967] Ch. 532 and the analysis in Anson's Law of Contract, 26th ed. (1984), p. 290."
"74 In considering whether performance of the contract is impossible, it is necessary to identify what it is that the parties agreed would be performed. This involves looking not only at the express terms, but at any implications that may arise out of the surrounding circumstances. In some cases it will be possible to identify details of the "contractual adventure" which go beyond the terms that are expressly spelt out, in others it will not.
75 Just as the doctrine of frustration only applies if the contract contains no provision that covers the situation, the same should be true of common mistake. If, on true construction of the contract, a party warrants that the subject matter of the contract exists, or that it will be possible to perform the contract, there will be no scope to hold the contract void on the ground of common mistake.
76 If one applies the passage from the judgment of Lord Alverstone CJ in Blakeley v Muller & Co 19 TLR 186, which we quoted above to a case of common mistake, it suggests that the following elements must be present if common mistake is to avoid a contract: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.
82 Thus, while we do not consider that the doctrine of common mistake can be satisfactorily explained by an implied term, an allegation that a contract is void for common mistake will often raise important issues of construction. Where it is possible to perform the letter of the contract, but it is alleged that there was a common mistake in relation to a fundamental assumption which renders performance of the essence of the obligation impossible, it will be necessary, by construing the contract in the light of all the material circumstances, to decide whether this is indeed the case."
TERMS OF THE JVA
"26.7 Insolvency of the holders of the V Shares
If a holder of V Shares or any parent undertaking of the holder of V Shares or (if the holder of V Shares is a member of Woolworths Group) Woolworths suffers an Insolvency Event the following provisions shall apply:
26.7.1 The holders of all (but not some only) of the B Shares may be by written notice delivered to the holder(s) of all of the V Shares require the holder(s) of the V Shares to sell all (but not some only) of the V Shares to them at Fair Value. If any notice is so given, the holder(s) of the V Shares shall be bound to sell, and the holder(s) of the B Shares shall be bound to buy, all of the V Shares. No notice under this clause 26.7 may be given after sixty (60) Business Days following the day on which a holder of V Shares notifies a holder of B Shares that it, any parent undertaking of it and/or Woolworths has suffered an Insolvency Event.
26.7.2 In determining Fair Value for the purpose of this clause 26.7, the Investment Bank shall be directed to take into account the continuation (on the same or on different terms) or the termination in accordance with their terms as a consequence of the Insolvency Event in question of the agreements referred to in this clause 26.7 and the consequences of any such continuation or termination.
26.7.3 The provisions of clause 16.2.5 of the Master Licence shall apply.
26.7.4 The BBCW SLAs shall (unless otherwise agreed) be deemed (for the purpose of determining Fair Value) to terminate in accordance with their terms.
26.7.5 The WWG SLAs shall (unless otherwise agreed) be deemed (for the purpose of determining Fair Value) to terminate in accordance with their terms.
26.7.6 The provisions of clause 25.1.1 of this Agreement shall cease to apply.
26.7.7 Subject to completion of the sale of the V Shares, neither Woolworths or VCI nor any of their Associates shall have any liability to any Group Company, to any Shareholder or to any other party to this Agreement in respect of the continuation (on the same or different terms) or the termination in accordance with the terms of any of the agreements or arrangements referred to in this clause 26.7 (and if any such person has already asserted any such claim against Woolworths, VCI or any of their Associates, it shall not be entitled to pursue such claim) but without prejudice to any accrued rights of any person at the time when the V Shares are sold under this clause."
"16.2.5 if a holder of V Shares or any parent undertaking of a holder of V Shares or (if the holder of V Shares is a member of the Woolworths Group, as defined in the Joint Venture Agreement) Woolworths, suffers an Insolvency Event and the holders of B Shares serve notice in accordance with the provisions of clause 26.7.1 of the Joint Venture Agreement (and become unconditionally bound to buy V Shares) this Agreement shall immediately terminate; and…"
ASCERTAINMENT OF FAIR VALUE
THE DEPRIVATION PRINCIPLE
"[T]he ower of property may, on alienation, qualify the interest of his alienee, by a condition to take effect on bankruptcy; but cannot, by contract or otherwise, qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the disappointment or delay of his creditors.
[A] person cannot make it a part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws.
[A] simple stipulation that, upon a man's becoming bankrupt, that which was his property up to the date of the bankruptcy should go over to someone else and be taken away from his creditors, is void as being a violation of the policy of the bankruptcy laws."
"65 In Borland's Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 290 Farwell J turned to "the question whether or not these provisions constitute a fraud on the bankruptcy law". He cited and adopted "the principle as stated by James LJ in Ex p Jay; In re Harrison
ELR
ELR
14 Ch D 19, 25" which I have quoted, and continued [1901] 1 Ch 279, 290-291:
"There is no idea of preferring any one person to another, except so far as is pointed out by article 47, under which by contract the original shareholders, at the time of the passing of the special resolution for the new articles, retained for themselves the right to refuse the compulsory sale of their shares until they should die, or voluntarily transfer the same, or should become bankrupt.
66 Farwell J rejected the contention that the references to becoming bankrupt in article 47 "constitute a fraud on the bankruptcy law, and are void", and he said, at p 291:
"If I once arrive at the conclusion that these provisions were inserted bona fide—and that is not contested—and if I also come to the conclusion that they constitute a fair agreement for the purpose of the business of the company, and are binding equally upon all persons who come in, so that there is no suggestion of fraudulent preference of one over another, there is nothing obnoxious to the bankruptcy law in a clause which provides that if a man becomes bankrupt he shall sell his shares.
67 Later on the same page, Farwell J said:
If I came to the conclusion that there was any provision in these articles compelling persons to sell their shares in the event of bankruptcy at something less than the price that they would otherwise obtain, such a provision would be repugnant to the bankruptcy law; but it is not so. They all stand on the same footing, and the proper value is to be ascertainable for all alike.
68 He then went on to consider in a little more detail the basis upon which Mr Borland's shares were to be paid for under article 53. He then said:
These shares can have no value ascertainable by any ordinary rules, because having held … that the restrictive clauses are good, it is impossible to find a market value. There is no quotation. It is impossible, therefore, for anyone to arrive at any actual figure, as to which it may be said it is clear that that is the value, or something within a few pounds of the value.
69 Towards the end of his judgment, Farwell J referred to Whitmore v Mason
ENR
ELR
2 J & H 204, and said [1901] 1 Ch 279, 292-293:
In that case Page Wood V-C had before him a partnership deed which contained an article under which, in case of bankruptcy, the partners were to forfeit the whole value of a certain lease. That was held to be bad, and if there had been anything of the sort here I should, of course, have held it bad too. But there was also a provision, which was held to be good, that there was to be a valuation of the share of the bankrupt partner …
I think I am following that case when I hold that there is no fraud on the bankruptcy law here".
"The principles as derived from the authorities
Introduction
87 MMI relies on the principle that "there cannot be a valid contract that a man's property shall remain his until his bankruptcy, and on the happening of that eventual go over to someone else, and be taken away from his creditors", which as already mentioned I call "the principle". As a number of the cases to which I have referred show, there is no doubt that the principle exists, and has been applied to defeat provisions which have that purported effect. However, it is equally clear from the authorities that there are occasions where a provision which, at least on its face, appears to offend the principle has been upheld. I do not find it easy to discern any consistent approach in the authorities as to the application of the principle. In this, I do not appear to be alone. The difference of outcome in Ex p Jay; In re Harrison 14 Ch D 19 and Ex p Newitt; In re Garrud (1881) 16 Ch D 522 has been described as "rather surprising" by Dr Fidelis Oditah in "Assets and the Treatment of Claims in Insolvency" (1992) 108 LQR 459, 476. "The result in British Eagle v Air France has not been the subject of universal approbation" according to Gerard McCormack inProprietary Claims and Insolvency (1997), p 18. According to Professor Roy Goode in Principles of Corporate Insolvency Law , p 148:
"the distinction between a determinable interest and an interest forfeitable on a condition subsequent has rightly been characterised … as 'little short of disgraceful to our jurisprudence' when applied to 'a rule professedly founded on considerations of public policy', a view endorsed in In re Sharp's Settlement Trusts [1973] Ch 331, 340 …"
88 It is not, however, my function to criticise the law. I have to decide whether the principle applies to invalidate the purported exercise by the directors of LSE of their rights under article 8 of the LSE articles in relation to the disputed share, bearing in mind the facts of this case, the guidance given by the authorities as to the circumstances in which the principle applies, and, to the extent that it is relevant, the European Human Rights Convention. Having considered the authorities, it seems to me convenient to proceed to deal with the various ways to which the application of the principle has been analysed in the present case. This course has its dangers, because it may be that one has to look at the position "in the round", given that the principle is essentially one of public policy, and it, therefore, could be said to be inappropriate to compartmentalise features. However, to justify the applicability or non-applicability of a particular principle by reference to "public policy" without considering the specific ground or grounds upon which it is said that public policy requires a particular result is even more dangerous. Public policy has been famously described as "an unruly horse", and, therefore, at least to my mind, when considering an argument based on public policy, the court should analyse each of the arguments advanced to explain it. In the present, because it is accepted on behalf of LSE that the principle exists, and that it is based on public policy, it seems to me that this reasoning indicates that I should consider each of the arguments as to the proper approach to the principle in turn.
Established categories
89 Although I have already mentioned them, it is right to start with two established categories where the principle does not apply. It does appear well established that an interest granted on the basis that is inherently limited on insolvency is recognised by the court. In other words, a determinable interest, that is an interest with a limitation until insolvency, is valid: see the discussions in Snell's Equity, Underwood & Hayton and Professor Goode's book and the passage quoted above from Fry LJ in Ex p Barter 26 Ch D 510, 519-520. It must, I think, follow that an interest granted on the basis that it is inherently limited on some other event is effective, even if that event occurs on or after an insolvency.
90 Secondly, a lease can be validly forfeited—i e determined by the lessor in the event of the lessee or tenant becoming insolvent. As I have mentioned, that has never been challenged and appears to have been impliedly sanctioned by the legislature in section 146(9) of the Law of Property Act 1925. For some reason, a lease liable to forfeiture on grounds other than insolvency will be determinable on any of those grounds notwithstanding that the lessee is insolvent.
An inherent proviso
91 Mr Mann argues on behalf of LSE that, where, as the original part of the arrangement pursuant to which a right or property (an "asset") is granted, there is a provision under which the grantor can in some way confiscate the asset ("a deprivation provision"), on an insolvency or otherwise, it is enforceable even if the grantee is insolvent. Another way of putting the same point, possibly in a more limited way, is that, where it is an inherent feature of an asset from the inception of its grant that it can be taken away from the grantee (whether in the event of his insolvency or otherwise), the law will recognise and give effect to such a provision. A property or right subject to removal in the event of insolvency has been described by Oditah as a "flawed" asset: see 108 LQR 459, 474.
92 This has the merit of being a simple and readily comprehensible proposition, and one which is easy to apply. However, it does not seem to me to be correct. First, it would represent such an easy way of avoiding the application of the principle, that it would be left with little value. In other words, it seems to me that, if I accepted Mr Mann's simple proposition, the effect would be to emasculate the principle, which, at least according to Professor Goode, is one which should be more widely, rather than more narrowly, applied. In his book he not only described, at p 150, "The distinction between recapture of [an interest] transferred outright and termination of a limited interest" as "redolent of [a] highly artificial distinction". He went on to describe as "sound" section 541(c)(i) of the United States Bankruptcy Code which, he said, "roundly declares ipso facto termination clauses ineffective, however they are formulated". Professor Goode also suggested that this "is a sound rule and one which English courts could sensibly follow". I appreciate that there is a real argument to support the contrary view, namely that the principle should be abrogated on the basis that it is not for the courts but for the legislation to override contractual terms. This argument could be said to have particular force in light of the sophisticated and detailed legislative apparatus enshrined in the Insolvency Act 1986 and Insolvency Rules 1986. However, that is not an approach open to me in view of the authorities to which I have referred.
93 Secondly, it would be inconsistent with the apparently well established principle referred to bySnell , Underwood & Hayton and Professor Goode. That principle, to quote from Professor Goode, p 147, is that "The transfer of … an asset … upon the condition that the asset is to revest [on] liquidation [of the transferee] is void". It is true that this rule can in some cases (especially relating to real property) be explained by reference to the provision being repugnant or offending the rule against perpetuities. However, such arguments do not apply to personal property: see, for instance, per Farwell J in Borland's Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 288-290.
94 Thirdly, it appears to me that an analysis of the authorities undermines the notion that the initial inclusion, and subsequent operation, of a deprivation provision in the event of insolvency is ipso facto effective in an insolvent situation. In Whitmore v Mason 2 J & H 204 there was a single contract pursuant to which Mr Mason had paid his share of capital into a partnership, had acquired his interest in the partnership assets, including the mining lease, and had agreed that, in the event of his bankruptcy, his interest in that lease would effectively be forfeited for no consideration to his partners. The deprivation provision was, thus, an inherent part of the bargain pursuant to which he obtained his interest in the lease; the beneficial interest which was accorded to him by the partner who acquired the lease contained, what amounted to, a provision for forfeiture in favour of the surviving partners in the event of the bankrupt's insolvency. In my judgment, if LSE's first argument is correct, Page Wood V-C ought to have concluded that the effective confiscation of the bankrupt's equitable interest was effective, and yet he did not.
95 I consider that the decision in Borland's case [1901] 1 Ch 279 is also difficult to reconcile with LSE's first argument. It was an inherent term of the contract between the members of the company inter se and with the company (by virtue of articles of association) that, from the moment the shares in question were issued to Mr Borland, they were subject to the directors of the company being entitled to require him to transfer them away. As Farwell J made clear in passages in his judgment, at pp 291-293, in so far as the articles entitled the directors to require the shares to be transferred away on the shareholder's insolvency, they would have offended against the principle, were it not for the fact that they provided for compensation. Apart from being, at least in some respects, pretty similar to the present case, there is force in the contention that Farwell J should have decided otherwise if LSE's first argument is correct.
96 However, Mr Borland originally had shares in the company which were not, it would appear from the report, subject to such a potential direction from the directors. Accordingly, Mr Mann contends that Borland's case was a case where the bankrupt had had shares which were not "flawed", but subsequently voluntarily agreed to their becoming flawed.
Properly understood, he therefore contends that the decision in Borland's case was really based on the well established proposition that, having acquired assets which were not subject to being confiscated in the event of bankruptcy, a provision which rendered the assets subject to such deprivation agreed to after they had been acquired would not be enforceable. I accept that principle is correct: see the passages I have quoted fromSnell and from Underwood & Hayton and the decision in Ex p Mackay LR 8 Ch App 643 may well be explicable on this basis. Although the argument has some force, it does not seem to me that it can be fairly said to have been the basis from which Farwell J reached his conclusion. It is true that, in at least two places in his judgment, he did make reference to the fact that the potentially offending provision was to be found only in the new articles, but it does not seem to me that that fact formed part, let alone an essential part, of his reasoning.
97 In what amounts to something of a refinement or narrowing of the proposition, Mr Mann suggests that the principle applies not only in those cases where a bankrupt agrees the deprivation provision subsequent to his acquisition of the property or right, but also where he acquires the property or right subject to a deprivation provision for consideration which was not subject to a deprivation provision. Thus, in Borland's case [1901] 1 Ch 279 the bankrupt acquired the shares which were subject to the deprivation provision in exchange for shares which were not subject to such a provision; in Whitmore v Mason 2 J & H 204 the acquisition of the interest in the lease subject to the deprivation provision was for a sum of money which, ex hypothesi, was itself not subject to any deprivation provision. That argument could be said to tie in the decisions in Whitmore v Mason and Borland's case with cases such as Ex p Mackay LR 8 Ch App 643. However, as I have mentioned, it does not seem to be the basis upon which Farwell J decided Borland's case; nor do I think that it was the basis upon which Page Wood V-C decided Whitmore v Mason .
98 Furthermore, if this alternative way of putting LSE's first point was correct, it would mean that a deprivation provision was unenforceable even in a case where it was an inherent part of the asset or a term pursuant to which the asset was originally acquired, unless the asset was obtained gratuitously or in return for another asset which was itself subject to a deprivation provision. That is not a test propounded in any textbook, article or case on the topic, save, possibly, Whitmore v Mason . In any event, if that was indeed the proper formulation of the principle, it would mean that a proviso for re-entry in the event of insolvency was unenforceable in the case of a lease granted for a premium. While I know of no authority where that point has been specifically considered, it would appear to be inconsistent with what has always been understood to be the law: see for instance Official Custodian for Charities v Parway Estates Developments Ltd [1985] Ch 151 (where the consideration for the grant of a lease was not a capital sum, but substantial building works). Quite apart from this, in Bombay Official Assignee v Shroff 48 TLR 443 it is clear that Mr Madhavji paid for his membership of the Bombay Broker's Hall, and for his membership card; yet, as I have mentioned, the Privy Council held cancellation of his membership and the forfeiture of his card subsequent to his bankruptcy was effective.
99 It also appears to me that, whether expressed in the broader or narrower way, LSE's contention is difficult to reconcile with the majority view of the House of Lords in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758. At the time that the plaintiff agreed to render the relevant services to the defendant, both of them were bound by the IATA clearing house arrangements and, accordingly, at the very moment they entered into their agreement, it was an inherent part of their contractually enforceable arrangement that, in due course, when the clearing house accounts came to be drawn up, there would be no debts as between the plaintiff and the defendant, merely debits or credits as between each of them and IATA. Mr Mann argues that the difference between the majority view expressed by Lord Cross and the minority view expressed by Lord Morris was attributable to the difference between their respective juridical analyses of the interrelationship between the agreement between the plaintiff and the defendant for the provision of specific services, and the overarching arrangement between various airlines, including the plaintiff and the defendant, and IATA. I am not persuaded that that is correct. The point is perhaps most graphically illustrated in the passage I have quoted from the judgment of Lord Morris, at p 768, where he expressly reached his conclusion on "either view".
100 Accordingly, convenient and simple though it may be, I do not consider that the suggestion that a deprivation provision on insolvency or otherwise is valid provided it is included as part of the initial bargain (or as an inherent part of the asset) is correct; nor do I consider that the more refined version of this analysis, involving a superadded requirement that the asset in question must have been acquired for no consideration or for consideration which was itself subject to a deprivation provision, can be supported. However, as is common ground, it seems that the converse proposition is correct: if a person has a specific asset which is not subject to a deprivation provision, then a deprivation provision to which he subsequently agrees to make it subject is unenforceable in the event of insolvency: see the passages quoted above from Snell and from Underwood & Hayton."
"No intention to prejudice
101 Mr Mann contends that an important validating feature of any deprivation provision is that it was not entered into with the intention of disadvantaging creditors on a bankruptcy. It may be that, at one time, the fact that there was no intention to interfere with, or to override, the pari passu rules on bankruptcy would have been a reason for holding a deprivation provision valid. However, in light of the observations of Lord Cross in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758, 780, I consider that that contention is no longer maintainable: he said that it was "irrelevant" that the parties to the arrangements in that case "had good business reasons for entering into them and did not direct their minds to the question how the arrangements might be affected [on] insolvency". To my mind, he was indicating that one must look at the effect of the deprivation provision, and whether, if it applies in the context of an insolvency, it is contrary to public policy in light of the bankruptcy laws.
102 Further, I would refer to the observations I have quoted of Farwell J in Borland's Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 290-291 and of Lord Blanesburgh in Bombay Official Assignee v Shroff 48 TLR 443, 446. In my judgment, they are difficult to marry up with the view that the absence of any intention to evade the insolvency rules is a factor—or at any rate a major factor—which assists the court in concluding that a deprivation provision should be effective on an insolvency. Certainly, the reasoning in those two cases is very hard to reconcile with the view that the absence of intention to evade would render a provision effective if it would otherwise have been held to have been unenforceable.
103 Once again, however, it seems to me that the converse of the proposition upon which LSE relies is correct. If a deprivation provision, which might otherwise be held to be valid, can be shown to have been entered into by the parties with the intention of depriving creditors of their rights on an insolvency, then that may be sufficient to justify holding invalid the provision when it would not otherwise have been held invalid. Support for that may be found in Borland's case [1901] 1 Ch 279, 290, where Farwell J referred to there being no question of the article in question "preferring any one person to another", and in the Bombay Official Assignee case 48 TLR 443, 446, where Lord Blanesburgh referred to the fact that the rules of the association were "entirely innocent of any design to evade the law of insolvency". Further, it seems to me that the judgment of Farwell J in Borland's case indicates that, if it is clear that there was no intention to evade the bankruptcy law, then the court will tend to lean in favour of upholding a deprivation provision (which otherwise be invalid) on the ground that it entitles the person so deprived to a reasonable sum in respect of the asset concerned."
"The provision applies on an event other than insolvency
104 It is also argued on behalf of LSE that the fact that a deprivation provision falls to be operated on the happening of an event or events not being the insolvency of the transferee is at least a factor which is to be taken into account as a factor upholding the provision. That may be the ground for justifying the fact that the deprivation provision was effective in Ex p Newitt; In re Garrud 16 Ch D 522, in contrast with the striking down of the provision in Ex p Jay; In re Harrison 14 Ch D 19. As I see it, in Ex p Newitt the essential points were that the landowner's right to take possession of the builder's materials was not dependent on the builder being bankrupt, but being in default, and the materials were specifically to become the property of the landowner on the basis that they represented liquidated damages in respect of the builder's breach of contract.
105 In light of the reasoning of the majority of the House of Lords in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758, there must be real doubt as to whether that reasoning can now be sustained. First, it appears clear from the speech of Lord Cross that it is the effect of a deprivation provision in the event of insolvency with which one is ultimately concerned, and not so much whether or not the deprivation provision is expressed to apply on insolvency or not: see p 780. Further, it is clear from the facts of the British Eagle case itself: the deprivation provision, or its equivalent, was in no way concerned with insolvency, and was intended to apply automatically to what would otherwise be sums due under contracts between IATA members. Secondly, the effect of the arrangement in Ex p Newitt was to render the landowner a secured creditor (at least to the value of the builder's materials on the premises) so far as his claim for damages was concerned. In part of his reasoning, Lord Cross, at p 780, considered that this represented an objectionable feature of the arrangement from the point of view of bankruptcy principles.
106 None the less, it appears to me that, particularly when one bears in mind that a forfeiture clause in a lease is binding on a trustee in bankruptcy or liquidator, even if the forfeiture is triggered by the bankruptcy or liquidation itself, there is something to be said for the logic of the view expressed in Ex p Newitt 16 Ch D 522, namely that the forfeiture proviso in respect of the builders materials was enforceable against the builder, and therefore his trustee in bankruptcy could not avoid it. However, I find it hard to see how the reasoning in Ex p Newitt can stand in light of the reasoning of the majority of the House of Lords in the British Eagle case [1975] 1 WLR 758. It is not as if the forfeiture arrangement in Ex p Newitt was akin to a forfeiture provision in a lease, because, other than the right to forfeit, the landowner had no interest whatever in the materials: as between him and the builder, they were the builder's property and the builder encumbered them with a deprivation provision. On the other hand, at least with a forfeiture clause in a lease, it can be said that the landlord always retains the reversionary interest to the land the subject of the lease.
107 However, there are problems with applying the principle if Ex p Newitt is wrong. Would a purported forfeiture of the materials by the landowner after the builder had actually gone bankrupt have been ineffective if the principle had applied? Whether a purported forfeiture of the materials before the bankruptcy, and if so for how long before the bankruptcy, would have been valid, it is hard to say. After all, in the British Eagle case the clearing house arrangement would only have taken effect after the plaintiff had gone into liquidation, and there was no criticism of the effect of clearing house arrangements prior to the liquidation. It may be that, if the deprivation provision can be activated in an event other than bankruptcy or liquidation (irrespective of whether those events could also activate the provision) then, provided the right to implement the provision has arisen before the bankruptcy or liquidation, and provided that the deprivation has been completed by the date of the bankruptcy or liquidation, then it will not fall foul of the principle. Some support for this view is to be found in cases such as In re Detmold; Detmold v Detmold (1889) 40 Ch D 585 and In re Balfour's Settlement; Public Trustee v Official Receiver [1938] Ch 928. However, in Ex p Newitt; In re Garrud itself, James LJ said 16 Ch D 522, 531: "To my mind it is immaterial at what particular moment the seizure was made." Similarly, Lord Blanesburgh in Bombay Official Assignee v Shroff 48 TLR 443, 446 reached his conclusion whether or not the "expulsion [takes] place before the commencement of … insolvency".
108 There is attraction in the argument that a deprivation provision which engages on an event other than insolvency will be enforceable notwithstanding the insolvency of the owner of the asset concerned. There is also authority to support that view, namely Ex p Newitt 16 Ch D 522, as I have mentioned. However, I think the argument is difficult to reconcile not only with the view of Lord Cross in the British Eagle case [1975] 1 WLR 758, but also with the way Lord Blanesburgh expressed himself in the Bombay Official Assignee case 48 TLR 443, 446. The deprivation provision in that case was exercisable on default not on bankruptcy; if that alone had been enough to validate the provision even on a member's bankruptcy, it is hard to see why there was any necessity to justify the decision by reference to "the nature and character of the association". It also may be that this argument on behalf of LSE is difficult to reconcile with Borland's case [1901] 1 Ch 279.
109 The alternative approach is to analyse cases such as the Bombay Official Assignee case as involving a deprivation provision which is exercisable on an event which is so similar to insolvency, namely default, that it falls within the basic principle as described in the earlier cases. Such an approach could be said to be consistent with the last of the passages I quoted from the judgment in Whitmore v Mason 2 J & H 204, 215. If this alternative approach is correct then it would validate some deprivation provisions in the event of an insolvency (i e those triggered by events not akin to insolvency) but it would not assist LSE in the instant case".
"If a holder of [Media's shares] or any parent undertaking of a holder of [Media's shares] or if the holder of [Media's shares] is a member of the Woolworths Group as defined in the Joint Venture Agreement Woolworths suffers an Insolvency Event ……this Agreement should immediately terminate….."
He considered those in turn.
1) The first is that clause 16.2.5 is void so that the termination of the MLA is void and the MLA continues. BBCW would be entitled to buy the shares pursuant to the Notice it gave but on the basis that the MLA has not terminated.
2) The second option is that the deprivation principle applies such that clause 16.2.5 is rendered void and the MLA continues but the effect is to invalidate the entirety of the option procedure because otherwise it would require BBCW to acquire the shares on a different basis. That would lock the parties in the JVA despite the occurrence of the Insolvency Event and the insolvency of Media in particular.
3) The third possibility is that clause 16.2.5 is not void so that the MLA is terminated but clause 26.7.3 is void but requires BBCW to acquire the shares as if the MLA had not terminated.
AN ALTERNATIVE ARGUMENT
"39.2 If any provision of this Agreement becomes or is held by a Court of competent jurisdiction to be invalid or unenforceable then the parties shall enter into good faith negotiations to substitute a valid or enforceable clause which achieves so far as possible the objectives to the original clause"
"12.4 Brasoil agrees to negotiate in good faith with Petromec the extra costs referred to in clauses 12.1 and 12.2 above and the extra time referred to in clause 12.2 above…"
"ENFORCEABILITY?
[115] This brings me to the question whether an express obligation to negotiate in good faith is enforceable or not. Anything I say on this topic is not essential to the disposition of the appeal but in deference to the arguments presented, I would like to say a few words.
[116] The traditional objections to enforcing an obligation to negotiate in good faith are (1) that the obligation is an agreement to agree and thus too uncertain to enforce, (2) that it is difficult, if not impossible, to say whether, if negotiations are brought to an end, the termination is brought about in good or in bad faith, and (3) that, since it can never be known whether good faith negotiations would have produced an agreement at all or what the terms of any agreement would have been if it would have been reached, it is impossible to assess any loss caused by breach of the obligation. I doubt, however, if any of these objectives would be good reasons for saying that the obligation to negotiate in good faith contained in cl 12.4 is unenforceable in this particular case.
[117] The first objection, that the obligation is an agreement to agree, carries little weight in the present case. It is contained in the Supervision Agreement which is itself legally enforceable. (No one suggested that, if the obligation to negotiate the cost of the upgrade is unenforceable, that affects the rest of the agreement.) The obligation only relates to the cost to Petromec of the Roncador upgrade over and above the South Marlim upgrade and the cost of any variation orders. The "cost to Petromec" is comparatively easy to ascertain (especially if no element for profit is to be included). If agreement is not reached, the court will itself have to ascertain what the reasonable cost of such upgrade should be. If there are any ascertainable losses which arise from a failure to negotiate in good faith, they will likewise to ascertainable with comparative ease".
ALTERNATIVE DECLARATIONS
"(v) the fact that the V Shares are to be sold by Media and purchased by BBCW; and
(vi) the fact that BBCW is contractually obliged to purchase the V Shares".
"The function of the expert is to make the decision and that is not the function of the Court where the decision has been entrusted to the expert. It is otherwise if both parties agree – as they often do- to get a ruling from the Court to determine the base upon which an expert is to proceed, and if it is practicable to assist the Court will do… "