Vivendi SA Centenary Holdings Iii Ltd v Richards & Ors, Court of Appeal - Chancery Division, October 09, 2013, [2013] EWHC 3006 (Ch)

Resolution Date:October 09, 2013
Issuing Organization:Chancery Division
Actores:Vivendi SA Centenary Holdings Iii Ltd v Richards & Ors
 
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Case No: HC11C01633

Neutral Citation Number: [2013] EWHC 3006 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Rolls Building, Royal Courts of Justice

7 Rolls Buildings, Fetter Lane

London EC4A 1NL

Date: 09/10/2013

Before :

MR JUSTICE NEWEY

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Between :

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Miss Blair Leahy (instructed by Pinsent Masons LLP) for the First Claimant

The Defendants appeared in person.

Hearing dates: 12-14, 17-21, 26 and 27 June 2013

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JudgmentMr Justice Newey :

  1. This case concerns nine payments which Centenary Holdings III Limited (``CH3'') made between March 2004 and February 2005. The second defendant, Mr Stephen Bloch, is said to have acted in breach of his duties as a director of CH3 in causing the company to make the payments, which totalled more than £10 million. The first defendant, Mr Murray Richards, is said to bear responsibility as well: both as a ``shadow director'' and for dishonestly assisting Mr Bloch's alleged breaches of duty.

  2. CH3 went into liquidation in the middle of 2005. Vivendi SA (``Vivendi'') brings the claim pursuant to an assignment from CH3's liquidators. CH3 itself has also been joined as a claimant.

    The parties

  3. Vivendi is a major French company with interests, in particular, in media and telecommunications. In the period before the events giving rise to this litigation, it was very acquisitive, seeking to build its group into a large multimedia multinational. By mid-2002, however, it had become clear that the group had expanded too rapidly. A new management team was appointed whose main role was to dispose of surplus assets so as to put the group on a more secure financial footing.

  4. Mr Richards comes from New Zealand. As a young man, he began studying accountancy and law, but he did not complete the course. Instead, he sought to become a motor racing driver, but that career was cut short by a severe accident. In 1966, he moved to Australia, where he became involved in the property business. 12 years later, he was convicted in Australia of conspiring to cheat and defraud a company called George Hudson Pty Limited and its creditors and given a sentence of some ten years' imprisonment; the relevant events had taken place in 1971-1972, when Mr Richards was in his mid-20s. Mr Richards appealed against both conviction and sentence. The appeal was dismissed on 7 December 1979, but Mr Richards' evidence in the present proceedings was nonetheless that he did not commit the offence of which he was convicted.

  5. At all events, the conviction did not stop Mr Richards pursuing a business career. He acquired extensive experience in property and technology matters and company acquisitions; by his own account, he was a ``serial entrepreneur''. Asked about his role, he said that it was essentially to find investment projects for people or companies.

  6. After the 1970s, Mr Richards became a director of relatively few companies. He said in cross-examination that he hated being a director. In the course of his evidence, he gave more than one reason for this. One explanation was that he did not want to become a resident in the United Kingdom for tax and immigration reasons. Another was that he:

    ``wanted to use professionally qualified people so that no more mistakes would be made''.

  7. In practice, the directors of companies in which Mr Richards was beneficially interested were generally professional directors. Lawyers and accountants from Investec Trust Jersey became directors of many companies associated with Mr Richards. Mr Richards said that such people ``actually managed the business for [him]'', but I do not believe that they will have been much involved in commercial decision-making.

  8. In January 2005, Mr Richards described himself in a letter as the ultimate beneficial owner of:

    ``separate Groups of Jersey Registered Companies, namely:

    A. 4Group Funding Limited

    B. I4Investments Limited

    C. 4G Communications Jersey Limited

    D. P4property Investments Limited

    E. P4property Consulting Limited''.

    All of these, Mr Richards explained, ``are managed by, and have Professional Directors who are Directors or Employees of ... Investec Trust Limited''. Mr Richards went on to say that he estimated his aggregate net worth as in excess of US$100 million.

  9. Mr Richards' name was originally Murray Richard Harrod. Mr Richards attributed his change of name to the fact that, at the time, he was managing a project being set up in China. He said that Chinese people ``have a great difficulty ... pronouncing the Hs and the Rs together''. ``Richards'', unlike ``Harrod'', does not require a speaker to pronounce an ``H'' and an ``R'' together. Even so, Mr Richards might have been expected to choose a name that did not begin with the letter ``R'' had he been principally concerned with matters of pronunciation. Although Mr Richards stated to the contrary, his criminal conviction is, I think, likely to have provided the main motivation for his change of name.

  10. Mr Bloch, who is British, went into business after graduating from the University of East Anglia. In the 1980s and 1990s, he was involved in, among other things, a footwear retailer, a telephone/voice response service provider, a company providing security services for vacant properties and a music publishing and record business. In 2001, he co-founded Wizard Mobile Solutions Limited, which, I gather, developed an award-winning security product for mobile phones and data.

    Factual history

    Background

  11. CH3, a Scottish company, was called Seagram Distillers plc until May 2002. CH3 became part of the Vivendi group in 2000 when the latter acquired the Seagram group's entertainment division. Mr Richard Constant was a director (and latterly sole director) of CH3 between 2001 and 22 January 2004.

  12. By 2003, CH3 was no longer trading, but it had some very valuable assets, including a shareholding in the company that held the Vivendi group's core film and entertainment industry interests. CH3 also held a number of leases. It was a lessee of properties at 5-7 Mandeville Place, London W1; Pinnacle House, Wimbledon; Unit 2, Blaikies Key, Aberdeen; and Unit 15, Woodside Estate, Dunstable. The most significant of its leases, however, related to a property in Hammersmith called the Ark. The Ark had been Seagram's European head office, but by 2002 it was surplus to requirements. The building, which comprised more than 145,000 square feet, had an open-plan design and a central atrium. These features presented obstacles to the Ark being let to more than one occupant.

  13. CH3's obligations under its leases represented a very significant liability. The company's accounts to 31 December 2002 disclosed ``Other provisions'' totalling £41.8 million. The notes to the accounts explained:

    ``Other provisions represent the anticipated costs associated with onerous property lease commitments of vacant London offices. Market rentals are currently less than the annual commitment payable by the company and its subsidiary undertakings under its leases and the provision represents the future net present value of the likely amount of rental shortfall over the remaining periods of the leases.''

    £35.4 million of the £41.8 million figure was accounted for by the Ark, where CH3 had no right to terminate its leases until the end of 2010 or early 2011. The rent for the property amounted to some £4.5 million per annum. With insurance and other charges, the annual bill was of the order of £6.5 million.

    The transfer of CH3

  14. By 2003, a Mr Alexis Kyprianou of Vivendi had been asked to make arrangements for the disposal of a number of the group's non-core assets, including the leases of the Ark held by CH3. Mr Kyprianou was assisted in this task by a Mr Peter Harrod, who was the financial controller of CH3's then parent company, Centenary Holdings Limited (``CHL''), and its subsidiaries. Mr Harrod and Mr Richards are brothers.

  15. Mr Harrod drew Mr Richards' attention to the Ark. During cross-examination, Mr Richards explained:

    ``I had asked [Mr Harrod] to look out for projects for me. He said, well, there's one that's empty that's in the company I work for, but because I work for them I've got to be very careful.''

  16. CH3 was not in a position to assign its leases of the Ark to one of Mr Richards' companies because the freehold owner, Deka-Immobilien Investment GmbH (``Deka''), was unwilling to countenance an assignment to an organisation that did not have a triple A rating. The idea arose that Vivendi would transfer, not the leases, but the company that held them, CH3, having first removed various assets from the company. There would be a reverse premium of £15 million to take account of CH3's obligations under its leases.

  17. PricewaterhouseCoopers (``PwC''), who were CH3's auditors, were instructed to advise Vivendi. In accordance with advice from them, CH3 was transferred to a company beneficially owned by Mr Richards by means of the following steps:

    i) CH3's shares were first transferred from CHL to Centenary 4 Limited (``C4''), another company in the Vivendi group;

    ii) Most of CH3's assets were distributed in specie by way of dividend;

    iii) C4 sold CH3 to Centenary 6 Limited (``C6''), a subsidiary of C4, for £77.7 million;

    iv) CH3 lent £77.7 million to C6;

    v) C6 used the £77.7 million to discharge its debt to C4;

    vi) Centenary 7 Limited (``C7''), a company owned by P4 Property Investments Limited (``P4 Investments''), bought C6 from C4 for £1.

  18. The end result was that CH3 became a subsidiary of C6, which was itself a subsidiary of C7 and indirectly of P4 Investments, of which Mr Richards was the ultimate beneficial owner. CH3 was left with its leases, cash of £15.1 million and the benefit of its £77.7 million loan to C6.

  19. The sale and purchase agreement relating to C4's sale of C6 to C7 contained undertakings by C7:

    i) To use all reasonable endeavours to...

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