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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 >> Standing v Power  EWHC 1173 (Ch) (15 May 2020)
Cite as:  EWHC 1173 (Ch)
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Rolls Building, Fetter Lane, London, EC4A 1NL
B e f o r e :
(sitting as Deputy Judge of the Chancery Division
| MICHAEL STANDING
- and -
TOM ASQUITH (instructed by Terrells LLP) for the Defendant
Hearing dates: 6 May 2020
Crown Copyright ©
MR MICHAEL GREEN QC:
(1) In these proceedings (the Standing proceedings), the application dated 18 March 2020 is by the Defendant, Mr Lee Power (Mr Power), for fortification of the Claimant's cross-undertaking in damages in respect of an injunction he obtained without notice on 22 November 2019 and continued on 6 December 2019 which prevents any dealings in 50% of the shares in the Club's ultimate holding company or any dealings in the Club's assets other than in the ordinary course of business without the consent of the Claimant (Mr Standing); Mr Standing claims that he beneficially owns 50% of the shares in that holding company but this is denied by Mr Power;
(2) In the other proceedings, which have title and case no: Axis Football Investments Limited v Power BL-2020-000527 (the Axis proceedings), the application dated 21 April 2020 is by the Claimant, Axis Football Investments Limited (Axis), which seeks a similar injunction to that of Mr Standing so as to protect Axis's claimed (and admitted) 15% interest in the Club, through the holding companies' shares.
Acquisition of the Club
(1) Mr Standing says that there was an oral agreement on or around 20 March 2013 between him and Mr Power whereby they would purchase the Club on a 50/50 basis on these terms:(a) Mr Standing would provide the initial £800,000 of the funding required for the acquisition. This was understood to be made up as to £300,000 for the cost of the shares in the Club to be acquired from the former owners and as to £500,000 for working capital by way of a loan to the Club.(b) Mr Power would be the legal owner of all the shares in Swinton, the ultimate holding company of the Club, but 50% of such shares would be held on trust for Mr Standing.(c) Mr Power would be a director of the Club and would run it on a day to day basis. However all important decisions including in particular in relation to any possible sale of the Club would be discussed with Mr Standing and would require his consent. On any sale of the Club, the proceeds would be split 50/50 between Mr Standing and Mr Power in accordance with the beneficial interests in the shares in Swinton.(d) The Club's working capital requirements from time to time would be met 50/50 by Mr Standing and Mr Power. Likewise, any "surpluses" arising from time to time would be shared 50/50 between Mr Standing and Mr Power and would go to repaying any outstanding loans they had made.(e) Mr Standing's beneficial interest in the Club would be kept confidential.
(2) Mr Power says that there was a meeting in March 2013 at Mr Barry's house attended by him and Mr Standing. At that meeting, Mr Power says he reached an oral agreement with Mr Barry in the following terms:(a) Mr Barry would be allowed to invest in the acquisition of the Club and to that end Mr Barry, through a corporate vehicle, would provide the initial £800,000 required with the same split of £300,000 for the shares and £500,000 as working capital.(b) Mr Barry would not own any shares in the Club whether directly or indirectly but he would be entitled to 50% of the profits arising from any increase in value of the Club, including 50% of net profits arising from sales of certain players.(c) Mr Barry and Mr Power would fund 50/50 any ongoing working capital requirements of the Club. They would also have equal responsibility for discharging a debenture over the Club's assets held by Mr Andrew Black, a former owner of the Club, in the sum of £2 million in the event of a sale of the Club.
The Andrew Black Incident
"…agreed a compromise under which he offered to give credit to Gareth Barry for half of the 'sell-on' fee in respect of Matt Richie when it came to discharging the debenture with Black/Arbib which Gareth Barry [sic] against the amount for which Gareth Barry would otherwise have been liable as set out in paragraph 11(ii) above."
The sale of 15% of the Club to Axis
The potential sale to Able Company Swindon LLC (Able)
(1) The "Acquiring Party" was a US company called Able Company Swindon, LLC. The "Selling Party" was said to be Mr Power.
(2) The Purchase Price was £7.5 million.
(3) The "Assets to be Acquired" were "all of the assets (inclusive of cash, accounts receivable, cash equivalents, marketable securities and other current assets) and businesses of the Team…". It is odd that Mr Power is the selling party of the Club's assets; presumably if this had gone ahead the Club would have had to be a party.
(4) There was a "Due Diligence Period" of 60 days from the acceptance of this offer for Able to investigate and review; after the Due Diligence Period, there was a further period of 60 days for "a mutually agreeable Acquisition Agreement…to be executed";
(5) The offer in the Letter of Intent expired after 7 days; it had to be countersigned by the Club within that time to proceed on that basis;
(6) It was signed by a Mr William Keravuori of Able; there is no countersignature by Mr Power or anyone else on the copy I have seen.
"1. Until heard 6 December 2019, the Defendant must not, save with the express written consent of the Claimant:
(i) Sell or otherwise dispose of or deal with shares registered in his name in the company [Swinton], or exercise any rights attached to such shares, if any such sale, disposal, dealing or exercise would have the effect of reducing the Defendant's shareholding in such company below a 50% shareholding.
(ii) Cause [Swinton] to take any steps which would have the effect of reducing the shareholding of [Swinton] in the capital of [Seebeck] below its current level.
(iii) Cause [Seebeck] to take any steps which would have the effect of reducing the shareholding of [Seebeck] in the capital of [STFC] below its current level.
(iv) Take any steps which would have the effect of transferring any of the assets and business of [STFC] to a third party, save in the ordinary course of business."
Mr Standing gave a cross-undertaking in damages that was not limited to losses that may be suffered by Mr Power and was in the following terms:
"AND UPON the Claimant undertaking that, in the event that the Court finds that this Order has caused loss to any person, he will comply with any order the Court may make"
(1) His residential property which he owned jointly with his wife and was said to have a net value at that time of £900,000;
(2) His 23% shareholding in FTPM; he gave the following details of turnover, profit before tax and net assets on the balance sheet, but did not give a valuation of his shareholding:
|Turnover||Profit before tax||Balance Sheet|
(3) Cash of £50,000;
(4) His 50% shareholding in Swinton.
(1) On 3 January 2020, Mr Terrell wrote two letters: one enclosing a Request for Further Information (these were provided on 23 January 2020); and the other requesting fortification of the cross-undertaking on the basis that the offer from Able at £7.5 million was still ongoing and that therefore there was a shortfall in the assets securing the cross-undertaking.
(2) On 9 and 14 January 2020, Mr Terrell and Mr Parladorio spoke about timetabling issues and Mr Terrell also confirmed on each occasion that there were ongoing discussions with Able about its potential purchase of the Club.
(3) On 15 January 2020, when they spoke again, Mr Terrell said that realistically there would be no deal with Able until at least April 2020. Able had done some due diligence but had not issued any formal documentation for review or negotiation.
(4) On 16 January 2020, both apparently agreed that it would be sensible for the Able deal to be explored by both sides. There was recognition by Mr Terrell that the terms of the injunction required the consent of Mr Standing to any such deal going through and that it would therefore be sensible for Mr Power to be open and transparent about the deal so that Mr Standing could be in a position properly to assess and consider it.
(5) On 24 January 2020, Mr Parladorio emphasised that he had instructions from Mr Standing that he would keep an open mind at all times on any proposals to sell the Club and would consider them so long as he had full details of the transaction. When it was suggested to Mr Terrell that Mr Standing may have other third party potential purchasers, he responded that his client would certainly consider any such proposals.
(6) On 25 January 2020, Mr Terrell wrote to Mr Parladorio in which he said:
"There was a subsequent discussion between Mr Terrell and Mr Parladorio on 16th January and it was agreed in principle that the sale to Able could proceed subject to full transparency and approval of documentation on behalf of your client and for the injunction to be released / varied to enable this transaction to take place…
On reflection, now we have agreed subject to contract to proceed with the Able sale. The need to go to the time, trouble and expenses of filing and serving a statement, defence and applying for fortification should be avoided. Do you agree? Perhaps the present proceedings could be adjourned generally?"
(7) On 28 January 2020, Mr Parladorio responded to the letter by email in which he said:
"Separately, you were going to arrange for full transparency for us in relation to all ongoing discussions with Able so that we are able to see the product of those discussions and you of course already know that, unless you manage to discharge the injunction, the sale of our client's 50% shares cannot take place without our client first agreeing to that. I think the easiest way to achieve this will be to have me copied in to any email communications in that regard. Let me know when this can be initiated.
We have also agreed that if any better sale opportunity becomes available then both our clients will be content in principle to explore that."
(8) On 5 February 2020, Mr Parladorio emailed Mr Terrell following discussions about timetabling and in which he said:
"2. The above is part of a process where our client is given online access to the bank accounts so that an element of visibility is restored while (3) below is pursued.
3. We also agreed to continue to discuss and explore matters to see if a sensible and agreed mechanism can be found to pause the litigation generally while the parties pursue the potential sale to ABLE or any third party on the basis that upon such sale our client will receive 50% of the proceeds assuming that, per the existing injunction order, he has agreed to the sale in writing (something which he can of course only sensibly consider at his absolute discretion when the terms of such sale have been presented to him – in this latter regards we look forward to being copied in on communications with ABLE or their lawyers as previously discussed and agreed)."
(9) In a discussion on 21 February 2020, Mr Terrell confirmed that the Able deal was going ahead but that the likely date for any conclusion was now the end of April 2020. Mr Terrell said that some documentation had been prepared by Able and that it contemplated an asset rather than share sale but that he was still taking instructions on whether the documentation could be provided to Mr Standing.
(10) In a further discussion before 28 February 2020, Mr Terrell indicated that he had a draft Share Sale Agreement (contrary to what he had said on 21 February about it being an asset sale) from Able's lawyers which ran to some 120 pages. Mr Terrell was encouraging Mr Parladorio to pursue other third party purchasers, which Mr Parladorio took as an indication that there was not much confidence in the Able deal progressing. Mr Parladorio said that his client was open minded and would give serious consideration to the Able deal if he was provided with the documentation.
(11) On 28 February 2020, Mr Terrell wrote a sharply contrasting letter to Mr Parladorio in the following terms:
"We refer to our letter date 03 January a copy of which is enclosed and to which we have received no reply of acknowledgment.
As a result, our client has no alternative due to imminent loss of the Sale of Able [sic] due to the injunction remaining in place to issue the application for fortification for costs. Please confirm by return whether or not your client will lift the injunction to enable the sale to proceed and avoid the application for fortification."
The Fortification Application
"16. Since Able's Letter of Intent, which was produced by the Claimant, the proposed sale to Able has progressed. Able has carried out their due diligence and on 6 February 2020 they issued a Share Sale Agreement to my solicitors, Terrells LLP.
17. Able's offer to buy the Club is in the sum of £7.5m, as referred to in the Letter of Intent exhibited by the Claimant.
18. At present, due to the Order dated 6 December 2019, I am unable to sell my shares in [Swinton] to Able and believe there is a real and serious risk that unless matters are resolved quickly, Able may withdraw and the transaction will fall through.
19. If Able does withdraw, there is a very strong possibility that I will not be able to continue funding the ongoing losses the Club is incurring as set out in paragraph 28 of my first witness statement."
(1) Whether the liability to Mr Barry was for 50% of the total proceeds of sale of £7.5 million or whether it was of the "increase in value" from the £800,000 acquisition cost, that is £6.7 million (the £800,000 point)
(2) Whether account should be taken of Mr Barry's alleged failure to contribute to the Club's working capital needs from 1 September 2019 onwards; in that time, Mr Asquith asserted, that Mr Power had contributed £1.035 million (of which there was some evidence in relation to £735,000 but the balance was merely asserted on instructions) and Mr Barry should have contributed half of that in accordance with the alleged contract between them (the working capital point).
"17. …The first is that where fortification is sought, then although the loss itself, and certainly the quantification of the loss will lie in the future, the court is nonetheless required to make an intelligent estimate of the likely amount of the loss…
18. Secondly, it is for the applicant for fortification to show a sufficient level of risk of loss to require fortification…
19. The Third principle is that loss will not qualify for compensation under the cross-undertaking unless it has been caused by the grant of the injunction. Though normally that is an issue decided on an enquiry as to damages at the end of the day, the causation issue must also be examined in forming an intelligent estimate of likely loss at the fortification stage."
"The three requirements are of course inextricably linked. The principles could equally be summarised, as Hamblen J did at para 31 of his judgment, as a requirement that the applicant for fortification show a good arguable case for it. In this interlocutory context, showing a sufficient level of risk of loss to require fortification is synonymous with showing a good arguable case to that effect. In some cases the assessment of loss may at the interlocutory stage be difficult. It is in such cases that an intelligent estimate is required. An intelligent estimate will be informed and realistic although it may not be entirely scientific."
The loss of a sale to Able
"We refer to our recent communications regarding our continued interest in purchasing your football club.
As you know the worldwide pandemic has had an impact on transacting business. However, we remain determined to conclude negotiated terms with you to purchase the club as soon as conditions allow it.
We look forward to continuing discussions with you on this purchase."
Whilst there is recognition of the impact of the pandemic, there is no mention of an existing agreement or the figure of £7.5 million. The letter really says nothing at all to indicate that the sale has got anywhere and I got the impression from it that, if anything, they would be biding their time until they could negotiate further and in particular to pick up the Club as cheaply as possible in the difficult circumstances of the pandemic affecting the value of football clubs.
"Clem, don't know why every1 is getting involved in this…it's finished had no offer nor have I put club on market…no need for any1 to get involved it feels like it's a set up. Mate…like people r trying 2 create something…I asked 2 see document b4 and they said they not allowed to send it."
So Mr Power himself was denying that there were discussions going on with Able in September 2019 after the Letter of Intent had been issued.
"5. Copy of the Share Sale Agreement
You have requested this information in your RFI. The solicitors for the potential purchasers have informed us that they intend to supply the following:-
(1) An option agreement;
(2) A warranty deed;
(3) A deed of guarantee; and
(4) A SPA.
Only document (4) has been provided to date. The Claimant is not a shareholder and in any event the Defendant is subject to the terms of a Non-Disclosure Agreement and not able to disclose the documents or copies."
This was the first time that there had been mention that the documentation was subject to a non-disclosure agreement and that such documentation included an option, warranty deed and a guarantee. Mr Terrell had not said this in any of his communications with Mr Parladorio during February 2020. It should also be pointed out that the Letter of Intent contemplated an asset sale whereas these documents suggest that it was then a share sale. I have no idea if the sale is at a price of £7.5 million and Mr Asquith was unable to tell me if that was so. None of the above documents have been disclosed.
(1) If there is no real likelihood on the evidence before me that a sale to Able at a price of £7.5 million is possible, then I do not see that I can make an "intelligent estimate of the likely amount of the loss".
(2) Mr Power has not proved that he has an arguable case of a sufficient risk of loss, whether that is from the loss of the sale to Able or from a possible insolvency, such that there must be an order for fortification; and
(3) In any event, because of the possibility of obtaining Mr Standing's consent to any such sale and of the lack of evidence as to the real possibility of insolvency if the deal does not go ahead, I do not consider that Mr Power has established the requisite causative link to the injunction. Of relevance to causation is also the necessary involvement and consent of Axis to any sale of the Club, and Mr Power's failure to provide financial information to and seek the consent of Axis which could also break the chain of causation from the injunction.
The £800,000 point
"Gareth Barry would provide funds, through Lindene Ltd or FTPM (each being a "corporate vehicle"), none of which would be repayable by the Club until the Defendant sold his shares of which:
(a) £800,000 of such funding would be provided through Lindene Ltd;
(b) £300,000 would be used to pay the existing owners of the Club and £500,000 would be used to fund the Club which was loss making;"
In paragraph 11(iii) of Mr Power's first witness statement dated 26 February 2020 (the same time as the Defence had a statement of truth signed by Mr Terrell) he said exactly the same except the underlined words were omitted.
The working capital point
Valuation of FTPM
Note 1 In fact, it appears that Swinton might have owned 99% of Seebeck but nothing turns on this. [Back] Note 2 Sir Martin Arbib who was a party to the debenture and a previous owner of the Club. [Back]
Note 1 In fact, it appears that Swinton might have owned 99% of Seebeck but nothing turns on this. [Back]
Note 2 Sir Martin Arbib who was a party to the debenture and a previous owner of the Club. [Back]