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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 84
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CA70/05
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OPINION OF LORD
CLARKE
in the cause
MILLER (BUIDHEANN)
LIMITED
Pursuers;
against
(FIRST) WALTER BAU-AG
(SECOND) DYWIDAG
SYSTEMS INTERNATIONAL LIMITED
Defenders:
ญญญญญญญญญญญญญญญญญ________________
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Pursuers: Cormack, Solicitor-advocate; McGrigors
Defenders: Campbell, Q.C.; Russel & Aitken
31 May 2006
Introduction
[1] This
commercial action is concerned with the construction and effect of the contractual
arrangements which governed the operation of the toll bridge between mainland Scotland
and the Isle of Skye until January 2005 and, in turn,
the effect of subsequent contractual arrangements which resulted in their
termination at that time.
[2] The
company known formerly as Skye Bridge Tolls Limited, and latterly as Skye
Bridge Limited, was set up as a special purpose corporate vehicle, which would
be responsible for the design, construction, financing, completion, operation
and maintenance of the toll bridge. The
shareholders in that company entered into a Shareholders Agreement dated 23 January 1992. It is number 6/1 of process. The Shareholders Agreement was entered into
among Miller Civil Engineering Limited, Dyckerhoff & Widmann AG (the
predecessors of the first defenders), the second defenders, (under its former
name Dywidag Systems (UK) Limited), BankAmerica International Financial
Corporation, Skye Bridge Limited under its former name of Skye Bridge Tolls
Limited and The Miller Group Limited.
The Shareholders Agreement was amended, and novated, by a novation
agreement dated 28 May, 22 July, 2 August, 5 August and 28 September 2002 and 24 January and 9 April 2003. The novation agreement is 6/3 of
process. The parties to the novation
agreement were Miller Civil Engineering Limited, the pursuers, The Miller Group
Limited, The Scottish Ministers, Skye Bridge Limited, the first defenders,
Dywidag International GmbH ("DIG"), Banc of America Securities Limited,
the second defenders, BankAmerica International Financial Corporation, European
Investment Bank and The Prudential Assurance Company Limited. The Articles of Association of Skye Bridge Tolls
Limited are 6/2 of process.
[3] The
actual construction, operation and maintenance of the bridge were originally
undertaken under a contract with Skye Bridge Limited, by an unincorporated
joint venture between Miller Civil Engineering Limited and the first defenders'
predecessor, Dyckerhoff & Widmann AG.
As a result of the novation agreement the pursuers were substituted for
Miller Civil Engineering Limited both as shareholder in Skye Bridge Limited and
as party to the unincorporated joint venture.
The first defenders became the successor body to Dyckerhoff &
Widmann AG, pursuant to a merger transaction.
Pursuant to the novation agreement, the first defenders were substituted
for Dyckerhoff & Widmann AG in terms of the Shareholders Agreement and "DIG"
was substituted as the party to the unincorporated joint venture.
[4] The
right of Skye Bridge Limited to collect tolls in respect of the crossing of the
bridge, which was conferred in terms of a concession agreement and a development
agreement, (which, in redacted form, are respectively 6/19 and 6/20 of process)
was, subject to certain accrued rights and liabilities, terminated with effect
from January 2005, pursuant to an agreement with the Scottish Executive. This termination agreement which in redacted form
is 6/16 of process, provided inter alia
for (a) the calculation and payment of what is described as "Agreed
Compensation" by the Scottish Executive to Skye Bridge Limited, (b) the
assignation by Skye Bridge Limited to the Scottish Executive of its accrued
rights, as at 31 December 2004, under, principally the contract for the
construction, operation and maintenance of the bridge made between Skye Bridge
Limited and the unincorporated joint venture, (c) the carrying out by
Skye Bridge Limited of demobilisation works and the carrying out by Skye Bridge
Limited of outstanding maintenance works to the bridge.
[5] The
share capital of the second defenders is owned by Dywidag Systems International
GmbH, the share capital of which, in turn, is owned by the first
defenders.
[6] At
the heart of the present proceedings is the question as to whether or not the
second defenders as shareholders in Skye Bridge Limited, have any right to
participate in the compensation provided for under the termination
agreement. The pursuers seek three
declarators which, taken together, would, if granted, mean that the second
defenders have no such right. These
declarators are focussed on the purpose and effect of Clause 13 of the Shareholders
Agreement. It is in the following terms.
"Insolvency
(A)
If an Insolvency Event occurs in relation to any
Shareholder (being hereinafter call (sic) an "Affected Shareholder")
then (unless all the other parties to this Agreement shall agree to the
contrary) the Affected Shareholder shall cease to have any rights under
this Agreement on (and no consent or approval shall be required from the
Affected Shareholder under this Agreement after) the date on which the relevant
Insolvency Event shall occur, and this Agreement shall thereafter continue in
full force and effect as between the other parties thereto.
(B)
If an Insolvency Event occurs in relation to any
Shareholder, then (unless all the members of the Company agree to the contrary
and notwithstanding any provision of the Articles) with effect from the date of
occurrence of the relevant Insolvency Event (in the case of shares which are
attributable to that Shareholder at that) or the time at which the shares
become attributable to that Shareholder (in the case of shares which
subsequently become attributable to it):-
(i)
the shares attributable to that Shareholder shall cease
to have any rights to dividend or other participation in profits of the
Company, any rights to participate in a return of capital or assets on a
winding-up or otherwise (save to the extent specified in (C) below), any rights
to appoint (or to participate in any decision regarding the appointment of)
directors of the Company, any rights to receive notice of or to attend (either
in person or by proxy) general meetings of the Company or any class of members
of the Company or to speak or vote thereat (either personally or by proxy),
(ii)
The matters referred to in Article A7(C) of the
Articles shall cease to count as rights attaching to the shares attributable to
that Shareholder or (as the case may be) as variations of the rights attaching
to such shares.
(C) The provisions of (B)
above shall not affect the right attaching to the shares attributable to a
Shareholder in relation to whom an Insolvency Event occurs to a return of
the capital paid up on the shares in the winding-up of the Company.
(D) In (A), (B) and (C)
above:-
(i) "Insolvency Event"
shall mean, in relation to any Shareholder, the passing by that Shareholder or
any holding company (within the meaning of section 736 of the Companies Act 1985,
as amended or re-enacted from time to time) of that Shareholder of any
resolution for winding-up, the making of a winding-up order in relation to that
Shareholder or any such holding company by any court of competent jurisdiction,
the appointment of an administrator or similar officer to that Shareholder or
such holding company or the appointment of a receiver, administrative receiver,
trustee, custodian or similar officer of all or a material part of the assets
or revenues of that Shareholder or such holding company and the expression "winding-up"
shall include any equivalent or analogous event or proceeding under the law of
the jurisdiction in which the relevant Shareholder or holding company is
incorporated or of any jurisdiction in which it carries on business;
(ii) "Shares attributable
to a Shareholder" shall mean, in relation to any Shareholder, all shares in
the capital of the Company of which that Shareholder is the beneficial owner (whether
at or subsequent to the date of occurrence of an Insolvency Event in relation
to that Shareholder) and for this purpose a Shareholder shall be deemed to
remain the beneficial owner of its shares notwithstanding that these shares are
transferred to, or to a nominee for, a bank or other financial institution by
way of security."
[7] The
provisions of Clauses 13(B) and (C) are incorporated into the Articles of
Association of Skye Bridge Limited in terms of Article 134 thereof. In brief, the effect of Clause 13 is that,
absent agreement by the other parties, the rights of the "Affected Shareholder",
upon the occurrence of an Insolvency Event, are restricted to a return of the
capital paid up on its shares in the winding-up of the company. The "Affected Shareholder" ceases to have any
rights under the Shareholders Agreement.
The shares attributable to the "Affected Shareholder" cease to carry
with them any rights to dividend or other participation in the profits of the
company.
The Dispute
[8] The
pursuers aver, in article 3 of condescendence, that:
"For these
purposes (of Clause 13), the first defender is a holding company of the second
defender. In terms of section 736 of the
Companies Act 1985, a company is a "subsidiary" of another company, its
"holding company" if, inter alia,
it is a subsidiary of a company which is itself a subsidiary of that other
company. Thus, the ultimate parent
company of a group is a holding company of all the companies in that group
including both direct and indirect subsidiaries. In section 736, "company" includes "any body
corporate"."
The pursuers go on to aver that
certain stages in insolvency proceedings brought in Germany in respect of the
first defenders are "Insolvency Events" for the purposes of Clause 13. The first declarator sought by the pursuers
is in the following terms:
"For declarator
that the appointment of a preliminary insolvency administrator of the first
defender pursuant to the decisions of the Insolvency Court, Augsburg, Germany,
dated 1, 4 and 7 February 2005 is within the definition of "Insolvency Event"
in Clause 13(D)(i) of the Shareholders Agreement in respect of Skye Bridge
Limited, (formerly Skye Bridge Tolls Limited) a company incorporated under the Companies
Act with registered number SC120665 and having a registered office formerly at
18 South Groathill Avenue, Edinburgh EH4
2LW and now at 2 Lochside View, Edinburgh Park, Edinburgh EH12 9DH dated 23 January 1992 as amended and
novated by a Novation Agreement dated 28 May 2002 and subsequent dates."
[9] The
second declarator sought is in the following terms:
"For declarator
that the decision of the said Insolvency Court
dated 1 April 2005
ordering the commencement of formal insolvency proceeding in respect of the
assets of the first defender and the appointment of a Formal Insolvency
Administrator of the first defender is within said definition of "Insolvency
Event"."
[10] The third declarator sought is in the following terms:
"Accordingly,
for declarator that an Insolvency Event has occurred in relation to the second
defender under and in terms of Clause 13 of the said Shareholders Agreement as
so amended and novated and under and in terms of the Articles of Association of
the said Skye Bridge Limited."
[11] While the defenders, in their written pleadings, did not accept
that the events in the German Insolvency Court did constitute "Insolvency
Events" in terms of Clause 13, when the matter came before me for debate
on the pursuers' pleas, a joint minute was lodged, number 26 of process, in
which the defenders agree that for the purposes of the action:
"the decision of
the Insolvency Court, Augsburg, Germany dated 1 April 2005 referred
to on Record, was the making of a winding-up order in relation to the First
Defender by a court of competent jurisdiction as referred to within the definition
of "Insolvency Event" in Clause 13(D)(i) of the Shareholders Agreement, in
respect of Skye Bridge Limited, dated 23 January 1992 as amended and
novated by a Novation Agreement dated 28 May 2002 and subsequent dates,
referred to on Record."
[12] In their note of argument, number 23 of process, lodged in
advance of the debate, the defenders, in essence, advanced three principal
heads of defence. In the first place in
that note, it is stated that by the 1
April 2005, the assets
"which are the
true subject of this action, namely the shares in SBL, (Skye Bridge
Limited), had been indirectly disposed of by means of a Sale
and Purchase Agreement. In terms thereof,
Walter Group International, then holding the shares in DIG (which company in
turn held the SBL shares through its agent DS UK), sold its DIG shares to STRABAG
Bauholding on condition that if and when formal insolvency proceedings were
opened, the sale would become immediately effective."
These
contentions continue:
"The conditions
of that sale having been fulfilled, the Sale
and Purchase Agreement regulating that disposal became fully effective, with
the consequence that from 1 April 2005,
and in advance of the appointment of
the formal insolvency administrator, the shares in SBL had ceased to be part of
the insolvent estate of the first defender. In consequence, since they were not owned by
any ancestor or "holding company" (as defined) of SBL, they were not subject to
the consequences of the occurrence of an Insolvency Event."
The next argument, foreshadowed in the
defenders' note of argument, was as follows:
"... the shares in
SBL were held by DS UK as agent for DIG.
During the Skye Bridge
project, all work from inception and design to completion was carried out by
DIG and its unincorporated predecessor, as narrated in Answer 4. At the request and with the knowledge of the
pursuer's predecessors, the shares in SBL were held by a UK
company - DS UK - so as to facilitate potential claims by the parties to the Shareholders
Agreement, including the pursuer's predecessors for "consortium relief" from taxation. The defenders' averments sufficiently
instruct the formation of an agent and principal relationship as between DIG
and DS UK, and the communication of the existence of that relationship to the
pursuer's predecessors and other parties to the Shareholders and Novation Agreements."
The defenders' argument, in the note,
went on to state that the establishment of the relationship of agent and
principal as between DS UK and DIG was that since the shareholding of DIG was
disposed of by the sale and purchase agreement which became effective from 1
April 2005 the shares never fell into the insolvent estate of the first
defenders and the "Insolvency Event" of 1 April 2005 "could not
affect the shares in SBL"."
[13] The last line of defence referred to in the note of argument
depended on an approach to the construction of the Shareholders Agreement. In the note of argument it is contended that
the terms of the Shareholders Agreement fall to be construed equitably
according to their purpose and intent and to be read as a whole. It is stated:
"The intention
of the parties at the date of signature was to create a Joint Venture, and
to regulate its operational terms.
Neither the Shareholders nor the Novation Agreements envisaged premature
termination, such as has occurred. Esto the correct and literal
construction of the Shareholders Agreement is as contended for (which is denied),
the defenders will be unjustifiably deprived of their lawful share in an asset
in the Joint Venture, namely the compensation payment made by Scottish
Ministers following premature termination.
The proper construction and affect (sic) of the Shareholders Agreement, separatim the other Agreements between
or among the participants to the Joint Venture, did not envisage confiscation
of assets by one party from any other, nor the unjustifiable acquisition of
such assets without consideration by one party at the expense of another. Cl 13 should not be construed in isolation,
as the pursuers now contend, but in its entire commercial context."
[14] The foregoing arguments are all set out in greater detail in
Answer 4 of the defenders' pleadings.
The defenders initially sought dismissal of the action or, alternatively,
a proof restricted to certain matters but, as will be seen, ultimately their
position was not to seek dismissal but to seek a proof before answer limited to
one of their lines of defence.
The Pursuers' Submission
[15] In opening his submissions, the solicitor-advocate for the
pursuers, sought decree de plano in terms of the second and third
conclusions. It was agreed, he said, between
the parties, in the joint statement of issues, number 15 of process, that the
second defenders were registered shareholders in Skye Bridge Limited in terms
of the Shareholders Agreement. Nevertheless
the defenders' contention was that the beneficial interest in those shares now
lay with DIG and that DIG had left the Walter Bau Group of companies
before the relevant insolvency event.
The pursuers disputed the defenders' contention as to when DIG left the
Walter Bau Group. That was a matter for
German law. But, in any event, the
position advanced by the defenders was not relevant, having regard to the
provisions of the Shareholders Agreement and the Articles of Association which
continued to operate. In the first place
Clause 1(A) of the Shareholders Agreement provides as follows:
"Subject to sub-clause
(B) of this Clause no Shareholder shall pledge, mortgage, charge, transfer,
assign or dispose of any legal or beneficial interest in all or any of its
Shares or Convertible Loan Stock in the Company without the prior written
consent of all the other Shareholders, such consent not to be unreasonably
withheld in the case of an absolute transfer or assignation, not by way of
security, to an Affiliate provided that:-
(1) such transfer or
assignation is subject to any charges described in sub-clause (B) of this
Clause which may then be outstanding,
(2) such transferee or
assignee becomes a party to this Agreement in a manner reasonably satisfactory
to the other Shareholders, and
(3) if any other Shareholder
so requires, the relevant Shareholder gives an undertaking in similar form, mutatis mutandis, to those contained in
Clause 11."
[16] The word "Affiliate" is defined in Clause 12 of the agreement
to mean, in effect, a company in the same group of companies. Clause 8 of the Shareholders Agreement
provides for the manner in which consent is to be given. The pursuers' solicitor-advocate submitted
that Clause 1(A) established the principle of delectus personae in relation to holders of shares, by
providing that there should be no transfer of any legal or any beneficial
interest in any or all of the parties' shares without the prior written consent
of all the other shareholders. Any
transfer whether to an Affiliate, or otherwise, required that the transferee
became a party to the Shareholders Agreement in a manner reasonably
satisfactory to the other shareholders.
The Shareholders Agreement was also predicated upon the registered
shareholder holding the beneficial and legal interest in the shares. That submission was made with particular
reference to Clause 1(B) of the Shareholders Agreement which is to the
following effect:
"Notwithstanding
the provisions of sub-clause (A) of this Clause each of the Shareholders shall
enter into such charges over their Shares in the Company as may be required by
the providers of finance pursuant to the documents referred to in Clause 3
provided that no such charge shall impose any personal liability on any
Shareholder. Notwithstanding that any
such charge may require the Shareholders to transfer their shares to the
chargee or its nominee by way of security, each Shareholder shall continue to
be deemed to be a Shareholder in the Company for the purposes of this Agreement
and references herein to a Shareholder's Shares in the Company shall be deemed
to be references to such Shareholder's beneficial interest in such shares and
its rights under such charge to have such Shares voted in accordance with its
directions, until such Shareholder makes a transfer in accordance with sub‑clause
(A) of this Clause or such charge becomes enforceable and the chargee
determines to enforce the same."
[17] Clause 4 of the Shareholders Agreement requires that the
company should not do certain things without the prior unanimous consent of the
shareholders. Among the matters in
relation to which the company requires the unanimous consent of the
shareholders is any agreement or proposal to amend or vary or terminate the
Concession Agreement or the Development Agreement. The pursuers' solicitor‑advocate
pointed out that the event of termination of the Concession Agreement and
Development Agreement has occurred and has occurred, as provided for in the Shareholders
Agreement, with the unanimous written consent of all the shareholders,
including the second defenders. My
attention was then drawn by the pursuers' solicitor-advocate to the provisions
of Clause 11 of the Shareholders Agreement.
It is in the following terms:
"Undertakings of Miller Parent
and Dywidag
(A) Miller Parent hereby
undertakes to each of the other parties that it will procure that Miller
Engineering shall observe and perform all of Miller Engineering's
obligations under this Agreement and that, if circumstances arise in which Miller
Engineering will cease to be an Affiliate of Miller Parent, Miller Parent will
procure that, (and Miller Engineering by its execution hereof agrees that)
prior to having ceased to be such an Affiliate, Miller Engineering will
transfer the whole of its interest in shares in the Company to Miller Parent or
to another company which is and is expected to remain an Affiliate of Miller
Parent. If the transferee is an
Affiliate of Miller Parent this undertaking shall continue in force as if
references to Miller Engineering were references to such Affiliate. Miller Parent agrees that its liability
hereunder shall not be prejudiced by any time or other indulgence which may be
granted to Miller Engineering by any other party hereto.
(B) Dywidag and Dywidag (UK)
hereby respectively undertake in the same terms, mutatis mutandis, as the undertakings of Miller Parent and Miller
Engineering respectively set out in Clause 11(A)."
[18] What this Clause did, it was submitted, was to provide
guarantees by the two parent companies concerned, Miller Group and Dyckerhoff
& Widmann, of the obligations of their respective subsidiaries and also
undertakings in effect that the respective shareholding in the company would be
retained within the respective groups (by the novation agreement the first
defenders came into the position of Dyckerhoff & Widmann and the
pursuers came in for Miller Engineering for the purposes of this provision). The provisions of Clause 11, it was further
submitted, provided for delectus personae
at group, as well as at individual shareholder level. The existence of these parent company
guarantees, it was submitted, emphasised that the parties regard the
shareholding companies, now the pursuers and the second defenders, as being
personally liable under the Shareholders Agreement. They were acting as principals for the
purposes of the agreement.
[19] The pursuers' solicitor-advocate then turned to consider Clause
13 of the Shareholders Agreement. He
summarised its provisions in the following way.
Clause 13(A) provides that when an Insolvency Event occurs in
relation to any shareholder, the Affected Shareholder ceases to have any rights
under the Agreement on or after the date of the relevant Insolvency Event. Clause 13(B) follows this, in relation to the
position in respect of the shares of the Affected Shareholder which, with effect
from the date of the relevant Insolvency Event, cease to have any rights other
than to return of capital paid up on the Shares in a winding-up of the
Company. The phrase "Shares attributable
to a Shareholder" is defined by Clause 13(D)(ii) in a manner which accords with
the Shareholders being beneficial owners of the shares and which reflects the
possibility of transfer by way of security as provided for in Clause 1(B).
[20] The definition of "Insolvency Event" itself is contained in
Clause 13(D) and contains a wide definition of the relevant events. Importantly it applies to events in relation
to the Shareholder or any holding company of that Shareholder within the
meaning of section 736 of the Companies Act 1985. section 736(1) is to the following effect:
"a company is a
"subsidiary" of another company, its "holding company", if that other company:
(a)
holds a majority of the voting rights in it, or
(b)
is a member of it and has the right to appoint or
remove a majority of its Board of Directors, or
(c)
is a member of it and controls alone, pursuant to an
agreement with other shareholders or members, a majority of the voting rights
in it,
or if it is a
subsidiary of a company which is itself a subsidiary of that other company."
[21] The effect of that wording, it was submitted, was that a
company may have more than one holding company which gave colour to the reference
to "any holding company" in Clause 13(D).
In other words, a company may have direct and indirect holding
companies. It was, furthermore,
submitted that the concluding wording of section 736(1) involved recognition
that each company up the requisite chain of relationship is a holding company
of all the companies lower down the chain.
In Morgan Grenfell Development Capital
Syndications Limited &c v Arrows
Autosports Limited &c (2004) All ER (D) 76, Lindsay, J at para 22
expressed a doubt as to whether "any number of tiers of sub-sub and
sub-sub-subsequent subsidiaries are, by the section itself, given the uppermost
company as their "holding company"". His
Lordship's view was that in the concluding words of section 736(1) did not seem
to him to go beyond two stages upward.
The pursuers' solicitor-advocate submitted that whatever force there
might be in Lindsay, J's doubt, in the present case, the defenders at Answer 2,
page 9, admitted that the second defenders were only two stages below the first
defenders. Accordingly, standing the
language of Clause 13 of the Shareholders Agreement and, in particular, Clause
13(D), the parties to the agreement must be held to have contemplated that an
insolvency event, as defined, would affect the shareholder even where that shareholder
and one of its holding companies remained solvent and able to perform its
obligations. The pursuers' solicitor-advocate
drew my attention to the Articles of Association which are 6/2 of process. Article 9 of the Articles of Association
provide that the holding of shares on trust should not be recognised. Article 29A contains provisions in relation
to the need for approval of transfers of shares which mirror those in the Shareholders
Agreement.
[22] I was advised that charges required to be given by the
shareholders to their fund providers. A
copy of the share charge granted by the shareholders is 6/13 of process. By paragraph 1 of part 1 of the schedule to
the charge, at page 30 thereof, each of the shareholders, including the second
defenders, warranted that the shares were owned by it. Having regard to all of the foregoing, the pursuers'
solicitor‑advocate submitted that the defenders' line of argument based
on the proposition that the shares in Skye Bridge Limited were held by the
second defenders as agent for "DIG" were both irrelevant and lacking in
specification. So too were the averments
that the shares were held by the second defenders in some sort of trust
capacity. (Senior counsel for the
defenders, however, in his submissions, disclaimed any case based on trust.)
[23] The defences were to the effect that the Skye Bridge Limited
shares were held by the second defenders as agent for DIG following an
inter-company agency agreement between the second defenders and DIG. The defenders go on to aver in Answer 4:
"DIG is a
solvent company incorporated in the Federal Republic of Germany. An internal agreement between DIG and DS UK
(the second defenders) valid and subsisting from the outset of the joint venture
until the present date regulates the holding of, and the beneficial ownership
of, 40.5% of the shares in Skye Bridge Limited."
[24] The defenders later aver as follows:
"Said agency
agreement was constituted in the following way.
In 1991, in the course of the negotiation of the joint venture arrangement
for the Skye Bridge project, and at the express request of Miller Group Civil
Engineering Limited, made between and among the Miller Group, Dyckerhoff &
Widmann AG, and Bank of America, the Miller Group suggested that a UK corporate
vehicle should be employed to hold those shares in Skye Bridge Limited
belonging to Dyckerhoff & Widmann AG.
Dyckerhoff & Widmann AG already owned and controlled such a
subsidiary, namely DS UK (the second defenders). A share in Skye Bridge Limited was therefore
issued to DS UK, on the footing, and as was known to the pursuer's predecessors,
that they would be held by DS UK as agent for Dyckerhoff & Widmann AG, and
could revert at any time to Dyckerhoff & Widmann AG at that company's
request. That arrangement, being
essentially internal to a group of companies, but nevertheless known to the
pursuer's predecessors, was established in correspondence and first confirmed
in said internal Note dated 14 February 1992 but was not formalised in a
probative document. The purpose of the
arrangement, as suggested and promoted by, and known to the Miller Group, was
to enable the participants in the joint venture to secure a form of relief from
UK taxation on
profits known as "consortium relief".
Relative correspondence is produced.
Dyckerhoff & Widmann AG accordingly agreed in about December 1991 to
make use of its UK
subsidiary DS UK, for the purpose of holding the initial and subsequent
allotments shares as its agent. The
single share initially pertaining to Dyckerhoff & Widmann AG was
transferred to DS UK on 16 December 1991. Subsequently, DS UK applied on behalf of
Dyckerhoff & Widmann AG for an allotment of a further 404 shares, so as to
comply with the shareholding requirement for joint venture participants
expressed in the Shareholders Agreement."
[25] The defenders go on to make averments as to how the alleged agency
agreement was honoured and complied with by the parties to it during the
currency of the Skye Bridge project. These
averments culminate in an averment that "accordingly, although held by DS UK as
agent, the beneficial ownership of the 405 shares standing in the name of DS UK
belonged to Dyckerhoff & Widmann AG, and from March 2000, to DIG."
[26] In addressing the foregoing averments, the solicitor-advocate
for the pursuers made the following points.
In the first place he pointed out that DIG was not incorporated until
1999. Accordingly any agreement between
DIG and the second defenders regarding the holding of the shares could not have
subsisted from the outset of the joint venture.
The note of 14 February 1992, which is referred to in the defenders'
averments, and which is lodged as 7/2 of process, did not say anything about
the second defenders being granted any authority to act as agents. It was merely a statement of the advantages
and disadvantages of the second defenders holding the shares. The other document relied upon by the
defenders, described as retrospective confirmation, and which is 7/3 of
process, did not remedy any deficiency in respect of the failure to show how
authority to act as an agent had been conferred on the second defenders. Indeed the language of that document was
contradictory of a relationship of principal and agent. It rather used the language of trust. The defenders had simply failed to aver
sufficiently the conferring of authority on the second defenders to act as
agent when the Shareholders Agreement was entered into. Reference was made to Bowstead & Reynolds
Agency, 17th edition, para 1.001(1) and Keighley Maxted &c v Durant
(1901) AC 240. While it was true that
the Miller Group wished to obtain consortium relief, to achieve that right,
required the second defenders, as a UK
company, to have the beneficial ownership of the shares and not simply to be
acting in some way as agents in relation to them. The shares in terms of the Shareholders
Agreement were vested in the second defenders as a UK company
for that purpose. I was referred to a
summary of what is entailed in consortium relief which is set out in Cadman "Shareholders
Agreements", 4th edition, at pages 148-149, where it is stated as
follows:
"Consortium
relief is a restricted form of group relief whereby various reliefs, including
trading losses, can be surrendered as between a consortium owned company and
its consortium members. A company
("consortium company") is owned by a consortium for this purpose if it is a
trading company which is not a 75 per cent subsidiary (within its extended
group relief meaning) of any other company and at least 75 per cent of whose
"ordinary shares" (as defined above) are directly and beneficially owned by two
or more UK resident companies ("consortium members"), each of which owns at
least 5 per cent of the ordinary shares of the consortium company."
(emphasis added)
[27] I was referred to certain provisions in the Income and Corporation
Taxes Act 1988 regarding consortium relief, contained in Chapter IV of the Act,
which is headed "Group Relief". In
particular, reference was made to section 413(5) which provides that "References
in this Chapter to a company apply only to bodies corporate resident in the United
Kingdom".
I was also referred to section 413(6) which provides:
"References to a
company being owned by a consortium shall be construed in accordance with paragraph
(a) below except for the purposes of the definition of "group/consortium
company" in subsection (2) above and of sections 403(10), 406(1)(b) and
409(5), (6) and (7), and for those purposes shall be construed in accordance
with paragraph (b) below -
(a) a company is owned by a
consortium if three-quarters or more of the ordinary share capital of the
company is beneficially owned
between them by companies of which none beneficially owns less than one‑twentieth
of that capital." (emphasis added)
[28] It was essential, therefore, for consortium relief to be
obtained, in the circumstances pertaining to the Skye
Bridge project, that the second
defenders were, and remained, the beneficial owners of the shares of the
company of which the consortium owned the stock. Consistent with that being the position, was
the fact that the second defenders, on the 20 December 2004, held themselves as
beneficial owners of the shares in the document 6/4 of process whereby they
agreed to the termination of the Concession Agreement and the Development
Agreement.
[29] The pursuers' solicitor-advocate went on to submit that there
was simply no basis, in the defenders' case, for the existence of any such
alleged agency agreement affecting the operation of the provisions of the Shareholders
Agreement and moreover the existence of any such agreement would be
incompatible with their terms. There
were no averments that DIG had been accepted by the other parties to the Shareholders
Agreement as being the true beneficial owners of the shares. Any transfer of shares from the second
defenders could only be effected with the prior written consent of the other
shareholders under Clause 1 of the Shareholders Agreement. There were no averments that any such consent
had ever been given. Moreover, at all
material times the shares held by the second defenders were the subject of a pledge
to the funders (6/13 of process).
[30] The position, therefore, was that by the date of the
termination agreement there was an Insolvency Event which meant that the second
defenders' rights as shareholders in Skye Bridge Limited were restricted in the
way provided for in terms of Clause 13 of the Shareholders Agreement.
[31] It was then submitted on behalf of the pursuers that the
defenders' last line of defence, which sought to avoid consequences of the
plain wording of Clause 13 was, it seemed, based on an argument that the Clause
was never intended to operate in the circumstances that had occurred, viz the early termination of the
Concession and Development Agreements, with compensation being paid on an
agreed basis, as the consequence of those terminations. The terms of Clause 13 were, however, clear
and unambiguous. The possibility of the
Concession and Development Agreements being terminated must be held to have
been within the reasonable contemplation of the parties to the agreement when
it was executed, for example, the Loan Stock Agreement (6/17 of process)
entered into at the same time of the Shareholders Agreement provided for such
termination at Condition C, page 14.
There was no uncertainty or ambiguity in the wording of Clause 13 to
which the defenders could point to.
Reference was made to City Wall
Properties (Scotland) Limited v Pearl Assurance
plc 2004 SC 214, for the proposition that in construing and enforcing
formally written commercial contracts, primacy must be given to the words which
the parties chose to employ. It was not
for the court to rewrite the contract simply to save a party from a bad bargain
or for an allegedly unforeseen consequence of its plain terms. The solicitor-advocate for the pursuers then
referred to various provisions of the Concession and Development Agreements
which, he said, contemplated and, indeed, provided for the consequences of
these Agreements being terminated although it was accepted that neither
Agreement expressly alluded to a consensual termination which was what had
actually occurred. In particular,
reference was made to page DA11 in the Development Agreement and to Clauses
21, 23.2, 23.4, 27, 28.2 and 30.
Reference to the following provision in the Concession Agreement were
referred to: Clauses 2.3.2, 4, 10.2, 10.4, 14, 15.2, 15A, 16 and 17. Clauses 16 and 17 expressly referred to
compensation being payable on the termination of the agreement in certain
circumstances. None of the shareholders
could have early termination of the Concession and Development Agreements
forced upon it. Clause 4(viii) of the Shareholders
Agreement specifically provided that agreement to terminate the Concession and
Development Agreements required the unanimous prior written consent of all the
shareholders. As previously noted, the
second defenders did consent to the termination agreement. The first and second defenders were part of a
large commercial undertaking, with expert advisors, so they could have sought
to have stipulated that, in exchange for their consent to termination of the
Agreements, the provisions of Clause 13 would be held not to apply, or should
be modified, to prevent a bar to them from participating in the compensation
under the termination agreement. That
was not done. For all of the foregoing
reasons there was no basis for coming to the conclusion that the plain wording
of Clause 13 fell to be disapplied in the event of a consensual termination of
the Concession and Development Agreements.
The Defenders' Submissions
[32] In response, senior counsel for the defenders, in the first
place, advised the court that the second defenders did not now oppose the
second declarator sought, being pronounced.
As to the third declarator sought, however, a proof before answer, it
was submitted, should be fixed in relation to the parties' respective pleadings. Although senior counsel for the defenders
then proceeded, in submission, initially to seek to support the defenders' line
of defence that the shares of the second defenders had by some means passed to
the ownership of a third party at the date of the relevant insolvency event, or,
alternatively, that the second defenders were then holding them simply as agent
for DIG, he abandoned these lines of defence after having taken instructions
and, no doubt, in the light of the comprehensive, compelling and careful
submissions made by the solicitor-advocate for the pursuers. I have no hesitation in saying that senior
counsel was correct not to seek to further these lines of defence since I am
entirely satisfied that, for all the reasons advanced by the pursuers' solicitor-advocate,
they were wholly without merit, not least because they were completely
incompatible with how the parties to the Shareholders Agreement had agreed it
would work and they were incompatible with the defenders' obligations under the
Shareholders Agreement.
[33] This left senior counsel for the defenders with one line of
defence to advance. As formulated by him,
in submission, it was to the following effect: "In the context in which Clause
13 was agreed to by the parties it should not be construed as contended for by
the pursuers." The reasons for inviting
the court to follow that course were as follows. In the first place, it was said that the
parties had not, at the time of the execution of the Shareholders Agreement,
had in contemplation the possibility of a consensual termination of the
Concession and Development Agreements.
All the energies of the participants in the joint venture were, it was
said, directed to carrying out an undertaking involving the design,
construction and operation into the future of the Skye
Road Bridge. It was submitted that the events which gave
rise to the purported operation of Clause 13 were really not events to which
that Clause were directed. What had been
envisaged was a continuing agreement with no early termination ending rights
which required to be compensated. It
would be unconscionable, it was said, to deprive the defenders from enjoying a
share of the compensation. The
provisions in the Concession and Development Agreements, to which reference had
been made, did not address the question of consensual termination and agreed
compensation being made in that event.
[34] Senior counsel for the defenders ultimately, however, had to
accept that he could not argue that Clause 13 was, in any respect, ambiguous
and that if the second defenders were shareholders at the time of the
insolvency event in question, they had no right to participate in the profits
of the company which would include the compensation paid under the termination
agreement. His submission ultimately in
effect came to be a plea ad misericordiam. The plain unambiguous language of Clause 13
if applied, he contended, would produce an unfairness or injustice to his
client.
The Pursuers' Reply
[35] In a brief reply, the pursuers' solicitor-advocate observed
that it was now being accepted on behalf of the defenders, that the second
declarator sought was justified. That
being so, it followed, as night followed day, that the third declarator was
also justified. Since senior counsel for
the defenders accepted that Clause 13 was unambiguous and that, according to
its plain wording, it was applicable in the circumstances argued for by the
pursuers, what he was asking the court to do was to apply "a blue pencil" to
the Clause and either to rewrite it or to disapply it in the
circumstances. But that was not the
function of the court. Once it was
accepted (a) that the first defenders had been wound up (b) that the
second defenders were an indirect subsidiary of the first defenders and (c) the
second defenders were the registered shareholder of the shares, and a party to
the Shareholders Agreement, then the plain wording of Clause 13 operated and
the defenders had to live with the consequences of a Clause which had been
freely agreed to by them.
Decision
[36] I am entirely satisfied that, having regard to the submissions
made on behalf of the pursuers, and the ultimately single line of defence
advanced on behalf of the defenders, the pursuers are entitled to decree de plano in terms of the second and
third conclusions of the summons (the terms of the first conclusion having been
superseded and rendered unnecessary by virtue of the event referred to in the
second conclusion). As has been seen, the ultimate position of the defenders
was to invite the court to construe Clause 13, which was accepted by them to be
unambiguous, in a way which effectively involved ignoring its provisions or
modifying them on lines which were never in the event precisely spelled out by
senior counsel for the defenders. That
invitation was not based on any rule of construction that I am aware of in
relation to the interpretation of detailed commercial contractual provisions of
the kind with which this case is concerned.
It was a submission which was not made under reference to any
authority. It was, as I have already
characterised it, a plea ad misericordiam,
to save the defenders from what they perceive as an unfairness operating in
unforeseen circumstances. Even if I were
prepared to accept, which I am not, that there was any apparent unfairness
arising from unforeseeable circumstances, I would not consider that that
allowed the court to rewrite or disapply the effect of Clause 13 when its
wording, as was accepted, is clear and unambiguous. In any event, for the reasons put forward on
behalf of the pursuers, in my opinion, it could have been within the
contemplation of the defenders that the Concession and Development Agreements,
like any other continuing contracts might be terminated prematurely by
agreement, and that in that event, some consequential financial arrangement might
require to be arrived at. As pointed out
on behalf of the pursuers, Clause 4 of the Shareholders Agreement expressly
provided for such consensual termination.
There accordingly was, in my judgement, no merit, in any event, in the
defenders' attempts to argue that the events which have occurred could not have
been in contemplation of the parties at the time that the Shareholders
Agreement was executed and that they could not have foreseen how Clause 13
would operate in such a case. In the
circumstances, I do not agree, therefore, that there is any unfairness involved
in giving effect to the clear and unambiguous provisions of these commercial
arrangements. The consequences of these
provisions, from which the defenders now seek to be released, could have been
foreseen by the defenders and their advisors.
