|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Hawksford Trustees Jersey Ltd v Stella Global UK Ltd & Anor  EWCA Civ 55 (01 February 2012)
Cite as:  EWCA Civ 55
[New search] [Context] [View without highlighting] [Printable RTF version] [Help]
ON APPEAL FROM THE HIGH COURT OF JUSTICE
MANCHESTER DISTRICT REGISTRY
His Honour Judge Stephen Davies
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE ETHERTON
LORD JUSTICE PATTEN
| HAWKSFORD TRUSTEES JERSEY LIMITED
as Trustee of the Bald Eagle Trust
|- and -
|STELLA GLOBAL UK LIMITED & ANOR
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Alan Gourgey QC (instructed by DLA Piper UK LLP) for the Respondent
Hearing date : 29th November 2011
Crown Copyright ©
Lord Justice Patten :
"4.1 The Earn Out Consideration shall be calculated as follows:
4.1.1 if no Exit has occurred before 31 December 2010, the Earn Out Consideration shall be six times the EBITDA shown in the Relevant 2010 Accounts less all sums paid by the Buyer pursuant to clause 3.1.2(c) provided always that if the product of such calculation is less than the Minimum Earn Out the amount payable to the Sellers in respect of the Earn Out Consideration shall be the Minimum Earn Out and for these purposes the provisions of this clause 4 shall apply mutatis mutandis with regard to the calculation of the 2007 EBITDA;
4.1.2 notwithstanding the provisions of clause 4.1.1, if the Company's EBITDA in the relevant 2010 Accounts is not at least 10% higher than EBITDA for the year ending 31 December 2009 there shall be deducted from the Earn Out Consideration calculated in accordance with clause 4.1.1 such sum as is equal to the aggregate of all sums paid by the Buyer pursuant to clause 3.1.2(c), the Worldchoice Consideration and the Initial Consideration, subject always to the Sellers being entitled to receive the Minimum Earn Out;
4.1.3 notwithstanding the provisions of clauses 4.1.1 and 4.1.2, if the Company's EBITDA in the relevant 2010 Accounts is greater than 10% higher but less than 15% higher than EBITDA for the year ending 31 December 2009, there shall be deducted from the Earn Out Consideration calculated in accordance with clause 4.1.1 such sum as equal to the aggregate of all sums paid by the Buyer pursuant to clause 3.1.2(c) and the Initial Consideration; subject always to the Sellers being entitled to receive their Minimum Earn Out;
4.1.4 notwithstanding the provisions of clauses 4.1.1, 4.1.2 and 4.1.3, if the Company's EBITDA in the relevant 2010 Accounts is equal to or greater than 15% higher than EBITDA for the year ending 31 December 2009 there shall be deducted from the Earn Out Consideration calculated in accordance with clause 4.1.1 such sum as is equal to the aggregate of all sums paid by the Buyer pursuant to clause 3.1.2(c) subject always to the Sellers being entitled to receive the Minimum Earn Out;
"such sum as is equal to seven times the 2007 EBITDA less the Initial Consideration and such sums as are paid to the Sellers pursuant to clause 3.1.2(c)."
"the EBITDA (as defined in clause 4.7 but specially excluding all costs incurred by the Company in connection with any of the two jet planes, the helicopter, catamaran or the two cars which were transferred out of the Company in accordance with clause 8.1.4) of the Company for the year ended 31 December 2007."
"32. There is very little in the way of documentary evidence as to the detail of the negotiations and drafting process from 21/11/07 through to execution of the original SPA on 27/11/07. This may be because the majority of the negotiation process appeared to have occurred at meetings held at Heatons' offices, rather than by way of exchanges of e-mails and, as I have said, neither of the respective solicitors' files has been disclosed. Specifically, I have seen no communication between the parties raising the question of the deduction of shareholder costs from 2007 EBITDA. There is a lengthy e-mail from Mr Bender to Mr Krecklenberg dated 24/11/07, recording proposals which Mr Begg was putting to him in relation to the consideration terms, including reference to the £1M pa to be paid to the Claimant / Mr Begg for the 3 years of the earn out period to be divided as to £900,000 advance earn out consideration and £100,000 through a consultancy agreement. There is a reference in that e-mail to consultancy payments having been 'always added back on for the purpose of calculating the earn out EBITDA', which appears to demonstrate Mr Bender's contemporaneous knowledge of the treatment of these consultancy payments historically.
33. The only explanation from Mr Begg about this is that, due to the pressure of time, he simply did not appreciate that these draft versions of the SPA did not deal with this matter at all. Accordingly, the original SPA as executed made no reference to any specific exclusions from 2007 EBITDA (which was defined in §1 simply by reference to §4.7, which contained a general definition of EBITDA), whether in respect of the 2007 consultancy costs or the 2007 asset costs. It is, as I have said, the Claimant's case that this was a pure omission, due to the pressures of drafting and completing the transaction in such a short space of time."
"1. Who is the new guarantor to be? CVC? Bank?
2. 2007 EBITDA still seems to include all my costs (about £1M), which should be excluded. (This is used to calculate the minimum earn out price, which is consequently £7M down.)
3. Actually, the EBITDA description in 4.7 doesn't deduct my costs at all, I think. Although £900k is already outside the global EBITDA, there is still £100k included. This should be excluded from EBITDA but the net cost to Stella (£100k plus any NI less any tax deduction) should be deducted from the earnout as well as the £2.7m already shown in 3.1.2(c)."
"I am satisfied that, consistent with what he reported to Mr Krecklenberg in his e-mail, Mr Bender agreed with Mr Begg that the contract would be amended so as to make clear that Mr Begg's costs, which as Mr Bender must have known from his involvement since November 2007 included both consultancy costs and asset costs, would be excluded when calculating 2007 EBITDA. It is clear in my judgment that Mr Bender must have known about both the consultancy and the asset costs together forming part of the c£1M 2007 shareholder costs, because he was present at the meetings of 12-13/11/07, where Mr Krecklenberg accepts he was made aware of both costs, and he was shown and presumably would have read the Deloittes' due diligence report, and noted what was said about 2007 EBITDA. It is clear from his subsequent involvement in events later in 2008 that he was fully aware of and did not disagree with the principle that both costs should be excluded from 2007 EBITDA."
"…..there is clear and compelling, or put another way convincing, proof that when the Claimant entered into the amended SPA Mr Begg as the relevant decision maker was, considered objectively, operating under a mistaken belief that the contract as executed accorded with his outwardly expressed continuing intention that his 2007 consultancy payments should be excluded when calculating 2007 EBITDA."
"143. For completeness I should state my conclusion if I had concluded that the only question was whether or not the Claimant itself, without any reference to Mr Begg's intentions, had the requisite intention?
144. On the evidence which is before me I would have had no hesitation in coming to the conclusion that the Claimant itself had no intention whatsoever, whether subjective or objectively expressed, in relation to the question of whether or not the 2007 consultancy payments should or should not be excluded when calculating 2007 EBITDA. There is no evidence that Mr Begg or anyone else drew this issue to their attention, whether orally or in writing, whether in the run-up to the execution of the original SPA or in the run-up to the execution of the amended SPA. There is no suggestion that anyone at the Claimant was aware of, let alone alert to, the amendments relating to EBITDA introduced into the amended SPA.
145. On that hypothesis, the position of the Claimant as trustee in this case would be similar to the position of the trustees as found by Rimer J (as he then was) in the case of Lansing Linde v Alber  PLR 15, referred to in §4-61 of Lewin (18th edition), where they were wholly ignorant of the point in issue and thus could not be said to have had any intention at all on the point, so that the claim to rectification failed."
"12. The remedy of rectification is one permitted by the Court not for the purpose of altering the terms of an agreement entered into between two or more parties, but for that of correcting a written instrument which, by mistake in verbal expression, does not reflect that agreement: see Chitty on Contracts, 30th edition, at para 5-107 citing The Nai Genova  1 LL Rep 353, 359.
13. The requirements for a claim in rectification are well settled:
(1) The parties had a common intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified.
(2) There was an outward expression of accord.
(3) The intention continued at the time of the execution of the instrument sought to be rectified.
(4) By mistake, the instrument did not reflect the common intention.
See Swainland Builders v Freehold Properties Limited  EGLR 71, per Gibson LJ at para. 33.
14. The process of ascertaining whether the written instrument reflects the prior consensus is an objective one. The court examines what passed between the parties. The court is not concerned with what the parties thought they had agreed or what they thought their agreement meant — a subjective inquiry. What it is concerned with is what the parties said and did, and what that would convey to a reasonable person in their position — an objective question: see PT Berlin Laju Tanker TBK v Nuse Shipping Ltd  EWHC 1330 at para 38."
"The company's primary rules of attribution will generally be found in its constitution, typically the articles of association, and will say things such as "for the purpose of appointing members of the board, a majority vote of the shareholders shall be a decision of the company" or "the decisions of the board in managing the company's business shall be the decisions of the company." There are also primary rules of attribution which are not expressly stated in the articles but implied by company law, such as "the unanimous decision of all the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company:" see Multinational Gas and Petrochemical Co. v. Multinational Gas and Petrochemical Services Ltd.  Ch. 258.
These primary rules of attribution are obviously not enough to enable a company to go out into the world and do business. Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability in tort.
It is worth pausing at this stage to make what may seem an obvious point. Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company "as such" cannot do anything; it must act by servants or agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company "as such" might suggest that there is something out there called the company of which one can meaningfully say that it can or cannot do something. There is in fact no such thing as the company as such, only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company."
"78. The picture is similar to that which emerges in relation to the original SPA and the deed of variation, although the extent of the Claimant's involvement appears even less than for the draft deed of variation and significantly less than for the original SPA. Thus the time report records and the email from Mr Begg to Mr Carr of 25/02/08 suggest that no advance notice of the intention to amend the SPA was given to the Claimant until 25/2/08, with Mr Begg asking the Claimant to 'action it ASAP', and that following a review of only 15 minutes by Mr Carr the amended SPA was executed by the Claimant on receipt of an e-mail from Mr Begg stating:
'I confirm that the revised SPA [is] agreed by me and I have no objections to you signing them. Please let me know when this has been done.'
79. Before that, in his e-mail of 19/2/08 to Mr Krecklenberg, Mr Begg referring to his resolution of all but one point with Mr Bender, said 'as far as I am concerned if they are incorporated into the new agreement as discussed the trustees will sign straight away'. There is also a line in Mr Begg's e-mail of 22/2/08 to similar effect where, under item 5 point b) Mr Begg, referring to a commercial decision which was plainly taken by him as opposed to the Claimant, says 'Andrew has agreed that this decision is made by the trust and he will go along with it' (emphasis added).
80. The Claimant has been able to produce a draft resolution dated 26/02/08 which notes the reason for the amendment as being the introduction of a new guarantor, resolves that the amended SPA as prepared by Heatons be approved and authorises Mr Robinson and Mr Carr to execute the amended SPA. It appears that no signed resolution can be found at the Claimant's offices."
56. ….. It is clear that the sale needed to be proposed to and sanctioned by the elected members, by an appropriate organ or individual, and that the sanction, once given, would delegate to some officer the further conduct of the sale authorising that officer to conclude the sale. Mr Stephens' role was merely that of negotiator and preparer of the relevant proposal. Of the two procedures for obtaining the sanction of elected members, the delegated powers procedure was the one adopted and under that, whilst the proposal would be considered and commented on by senior officers and an elected member, with the agreement of the elected member the proposal would then be decided upon by a senior officer. Mr Stephens was not one of the senior officers, nor of course was the elected member concerned. Therefore, Mr Stephens' intention was immaterial, as the judge rightly found in para 129. That was the only case pleaded on behalf of the Borough and with its failure the case for rectification fails.
57. Of course if Mr Stephens' intention, as the person involved on behalf of the Borough in the accord, had been shared by the persons concerned in the delegated powers procedure to comment on and consent to and to give the sanction for the sale, then his intention might have been relevant in that indirect way. But the Borough would have had to show that that was the intention of those persons. It was never the pleaded case of the Borough that such persons' intentions were relevant. Nor did any of such persons give evidence, although there is nothing to suggest that they were not available to do so."
"Thus far I have proceeded on the footing that Wimpey made the relevant mistake. The second ground of appeal raises the question whether Wimpey at the time it entered into the contract did not intend to agree the formula without "+ E". In this context it is important to identify the person who is the decision-taker in the corporate body which entered the contract and to see whether he was making a mistake. Prima facie a person who enters a contract intends to be bound by all its terms. The fact that the contract has been negotiated by a person who is not the decision-taker and has made an error is irrelevant unless it can be shown that the decision-taker shared the intention of the negotiator; but that requires evidence. That elementary proposition is illustrated by the recent case of The London Borough of Barnet v Barnet Football Club Holdings Ltd  EWCA Civ 1191. The details of the circumstances of that case differ from those of the present case, as Mr Fetherstonhaugh pointed out, but the essential facts are the same, if Mr Wardell is right in his submission: there the negotiator for the Borough made an error in the drafting of the contract, but he was not the decision-taker; those who took the decision for the Borough were not called to give evidence and it could not be inferred that they intended the Borough to contract other than in the form of the contract which the Borough executed."
"121. In my judgment it is quite clear that Mr Begg was authorised by Mr Robinson of the Claimant to enter into negotiations with Stella with a view to selling the Claimant's shares in Global to Stella. I am also satisfied on the balance of probabilities that sometime in mid-November 2007, at a point when Mr Begg became satisfied that the terms being offered by Stella were acceptable to him, he reported this to Mr Robinson and was authorised to: (a) conclude an agreement in principle to sell the shares on the basis of the commercial terms which Mr Begg was willing to accept; (b) negotiate the terms of the SPA and, for that purpose, to instruct solicitors on behalf of the Claimant; (c) reach agreement in principle on the detailed terms of the SPA. Insofar as Mr Begg suggested that his authority went further than this, I do not accept that he was authorised to bind the Claimant in relation to any matter, whether as to the commercial terms of the transaction, or the detailed terms of the SPA, or otherwise. I am satisfied however that Mr Begg was authorised to negotiate and agree in principle the terms of the SPA on the clear understanding that the Claimant would accept the terms as negotiated and agreed by Mr Begg, specifically the commercial terms including the detailed payment provisions, so that so long as the Claimant was satisfied that its own interests would not be prejudiced by entering into the SPA on the terms negotiated and agreed by Mr Begg it would follow his recommendation.
122. These conclusions appear to me to be consistent with the evidence of Mr Begg and Mr Robinson both in the present and the earlier proceedings and also with the contemporaneous documentation. Thus I am satisfied that both Mr Begg and Mr Robinson knew that the final decision as to whether or not to execute the SPA, either at all or on the terms negotiated by Mr Begg, had to be a matter for the Claimant. Equally I am satisfied that they both knew that the Claimant had no wish to interfere in matters about which it did not have the same detailed knowledge or expertise as did Mr Begg, specifically the commercial terms including the terms on which Stella would be obliged to pay the consideration for the shares to the Claimant, and that it would follow his recommendations subject to receiving an assurance from him that he was happy for it to enter into the SPA on the terms which he had negotiated and agreed.
123. In particular, it is quite clear from the contemporaneous e-mails from November 2007 onwards that the Claimant and Mr Begg were both proceeding on the basis that it was the latter who was conducting all dealings with Stella and Halliwells. The e-mails of 26/11/07 and 27/11/07 are particularly significant in my view as they are entirely consistent with the evidence of Mr Begg to the effect that both he and the Claimant had agreed that it was for him to agree all of the contractual issues and for the Claimant simply to sign. The e-mail of 14:23 hrs on 27/11/07 from Mr Begg supports his evidence that the Claimant was content so long as it had his written assurance that he was satisfied with the terms of the SPA, and was happy for the Claimant to execute it. The resolution of 28/11/07 shows in my judgment that the Claimant's role in the negotiation and agreement of the sale and the terms of the SPA was essentially a passive one, limited to reviewing the SPA and receiving and accepting advice from their professional advisers and, importantly, 'the principals associated with the Trust' which it is agreed was a reference to Mr Begg. I do not consider that this conclusion is inconsistent with the fact that the representatives of the Claimant, including their in-house lawyer, spent some considerable time reviewing the draft SPA before executing it. That is entirely consistent with their wanting to ensure that its terms were not prejudicial to the Claimant's own interests. There is no evidence to suggest that in reviewing the terms of the SPA they were reviewing the commercial terms, including the terms as to payment. Insofar as it might be objected that the Claimant has failed to adduce evidence from those involved with this process, bearing in mind that Mr Robinson himself appears not to have been directly involved at this stage, I do not consider I should draw any adverse inference from that given the late stage at which this point was first raised by the Defendants.
124. I consider that on balance this division of roles is not inconsistent with the terms of the trust deed, because it seems to me that what was agreed and done was not inconsistent with §14. I consider that §7 of Schedule 1 authorised what was done in this case, which was the informal instruction of Mr Begg by the Claimant to provide advice as to the sale of the shares and the terms of such sale. In my judgment a power to invest extends to a power to sell investments (see Lewin §35-42), and 'investment policy' would include deciding when and on what terms to sell the shares. Even if I am wrong about this, however, and the extent of the delegation of responsibility to Mr Begg was contrary to §14, that does not seem to me to invalidate what was actually done.
125. Given those conclusions, in my judgment Mr Begg can fairly and properly be regarded as the relevant decision maker for the Claimant in relation to the agreement of the detailed terms of the SPA. I consider that this is not one of those cases where there is a clear demarcation line between the 'negotiator' and the 'decision maker'. It is a case where the Claimant can properly be said to have left the decision to Mr Begg, subject only to formal approval of the decision remaining with the Claimant. I do consider that there is a real difference between a case such as this, where although the Claimant remained the formal decision maker, in reality it delegated all but formal approval to Mr Begg as negotiator, and cases such as Barnet or Wimpey, where it was always the position - and known by the other party to be the position - that the decision-maker was separate from the negotiator and was the body who would be taking the decision, not just in name only. I do not consider that the crucial question in a case like this is whether or not the 'negotiator' does or does not have the authority to bind his principal to the contract; I consider that it is a question of identifying who in substance is – or is held out as being – the person who took the decision in relation to the contract.
126. Furthermore, when it comes to considering the position in relation to the amended SPA, which is of course the crucial document so far as the claim for rectification is concerned, the case is even stronger in my judgment that it was Mr Begg who was the decision maker. It is quite clear that the Claimant left everything to Mr Begg in relation to the amendments and that the review which was undertaken on 26/02/08 could only have been of the most cursory kind, given the time recorded for that exercise."
Lord Justice Etherton :
Lord Justice Rix :