Murray Holdings Ltd v Oscatello Investments Ltd, Court of Appeal - Chancery Division, February 02, 2018, [2018] EWHC 162 (Ch)

Issuing Organization:Chancery Division
Actores:Murray Holdings Ltd v Oscatello Investments Ltd
Resolution Date:February 02, 2018

Case No: HC-2009-000007

Neutral Citation Number: [2018] EWHC 162 (Ch)




Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter Lane, London EC4A 1NL

Date: 02/02/2018

Before :


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Between :

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Mr Benjamin Strong QC and Mr Alex Barden (instructed by Sidley Austin LLP) for the Claimant

Mr David Allison QC and Mr Henry Phillips (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for the Defendant

Hearing dates: 12th & 13th October 2017

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JudgmentMr Justice Mann :


  1. This case involves questions of construction and (depending on the construction) rectification of what is known as a Framework Agreement dated 19th December 2007 between, inter alia, the parties to this action. The rectification claim is the claimant's - if it succeeds on its construction argument it does not need its rectification claim; if it fails on construction it seeks to run rectification. Issues of estoppel and unilateral mistake were pleaded, but not pursued at the trial. In essence the dispute concerns the net proceeds of realisation of certain economic interests in Somerfield supermarkets, and the amount of those proceeds to which the claimant is entitled before the defendant takes the rest.

  2. At the time of facts relevant to this dispute the claimant was known as Isis Investments Ltd. Since this case involves a consideration of the facts at that time it will be convenient to use the name Isis throughout rather than the claimant's later name (Murray), and I shall do so.

  3. Mr Benjamin Strong QC led for the claimant; Mr David Allison QC led for the defendant.

    Background and the terms of the Framework Agreement

  4. Kaupthing Bank (``Kaupthing) is an Icelandic bank and was one of a group of investors which acquired an interest in Somerfield supermarkets in 2005. The interest comprised shares and an interest in a loan made to a company known Tazamia Ltd, and was held in Isis (the claimant), a wholly owned subsidiary. Kaupthing more or less immediately arranged for sub-participation in that interest, with the result that it was left with an interest which represented an initial investment of £44.15m. That is an important number in this litigation. The interest with which it was left is called its ``Somerfield interest'' in this judgment and the company through which the group of investors held Somerfield was called ``Violet'' in some of the negotiations and in the Framework Agreement.

  5. In 2007 Kaupthing was in the course of restructuring its relationship with a trust set up by Mr Robert Tchenguiz (``Mr Tchenguiz''), to which it (or its group) had lent a lot of money. The trust was known as the Tchenguiz Discretionary Trust - ``TDT'' - of which the trustees were Investec in Guernsey and an associated trustee company (I can treat them as being Investec for these purposes). The overall restructuring arrangements were known as Project Re, and were fairly complex, but they involved the transfer of the trust's holdings in a number of shares into a company, chosen to be the defendant (``Oscatello''), a BVI company owned by the TDT, where they would be charged to the bank to secure bank borrowing. A substantial overdraft was to be provided to Oscatello and other loans were restructured through a total return swap and contracts for differences. Further loans called Profit Participation Loans (``PPLs'') were to be introduced into the structure, £75m lent by Isis (obviously funded by Kaupthing) and £75m from the Gudmundsson brothers (again, ultimately financed by Kaupthing). These loans were at a significant rate of interest and also carried the right to share in the profit which was hoped to arise from the trust assets. The details of this do not matter (at least for present purposes).

  6. Into this arrangement was introduced the part with which this litigation is concerned. Clause 6 of the Framework Agreement provided for Oscatello (for the TDT) to acquire an interest in the Somerfield interests still held by Isis. In what follows it is common ground that the references to Violet are references to the Somerfield entity and that the economic interests referred to are Isis's holding of its interest in Somerfield (shares and loan). Clause 6 provided:


    6.1 In consideration of the payment of an amount of £44.05 million (the ``Violet EquityCo Price'') from Oscatello to Isis on the Closing Date, Isis hereby undertakes and agrees (and Kaupthing undertakes to procure) that all rights to dividends, distributions, bonuses, interest, return of capital, disposal proceeds and/or other economic benefits received in respect of (i) the shares held in Violet by Isis (whether from Violet (or any member of its Group)) and (ii) the £27.15 million loan made to Tazamia Limited, (the ``Violet Economic Return'') shall be applied in the following order:

    (A) first, in payment of any third party costs and expenses (if any) reasonably and properly incurred by Isis in obtaining such Violet Economic Return;

    (B) secondly, in payment to Oscatello of £44.05 million;

    (C) thirdly, in payment to Isis of 8% per annum of £44.15 million;

    (D) fourthly, in payment to Oscatello of any remaining amounts.

    6.2 Isis hereby also undertakes and agrees (and Kaupthing also undertakes to procure) that:

    (A) If Isis receives any Violet Economic Return, Isis will promptly notify Oscatello;

    (B) Isis shall hold Oscatello's proportion of any Violet Economic Return received by it on trust for Oscatello;

    (C) Isis shall on demand by Oscatello pay to Oscatello the amount of the Oscatello's proportion of any Violet Economic Return in accordance with the provisions of clause 6.1;

    (D) Isis shall not transfer or otherwise dispose of any or all of its ownership or economic interest (direct or indirect, legal or beneficial) in Violet; and

    (E) Isis shall exercise its voting rights in Violet in the same manner that the voting rights in Violet held by the TDT Group are exercised.

    6.3 Kaupthing, Isis, TDT, Eliza and Oscatello each agree that, if requested by any of the other Parties referred to in this clause 6.3, they shall enter into a total return swap agreement to govern the distribution of the Violet Economic Return on the same terms as this clause 6.''

  7. The agreement therefore provides for a waterfall of payments once the Somerfield interest is realised. Following (A) to (D) literally (and without prejudging the construction questions that arise) it seems that the costs come out first, then Oscatello gets its £44.05m back, then Isis gets a sum looking like interest, then Oscatello gets the balance. What is said by Isis to be the problem in this case arises out of the absence of any express reference to a return of Isis's original investment of £44.15m before Oscatello gets its £44.05 at the second level of the waterfall. Isis claims to be entitled to that sum at that stage of the waterfall, either by a process of construction or by way of rectification. Putting it shortly, and using terminology which will later figure in the story, Isis says that it was understood that by 2007 the investment was worth more than the £44.15m acquisition cost and what Oscatello was doing was purchasing the ``upside'' of the investment (i.e. the excess of its value over the acquisition cost) for £44.05m. So far as the agreement would seem to provide that Oscatello gets the whole of the proceeds, apart from costs and an interest payment, it should be construed otherwise or rectified, because if that construction or effect were right then Oscatello would get almost the whole of the value of the investment and not just the upside or profit.

  8. For the sake of completeness I should describe the other parts of the Framework Agreement, but since none of its other terms was relied on as being helpful in the construction process I do not need to set them out verbatim. Clause 2 provided for the introduction of the PPLs, forms of which were annexed to the Agreement. Clause 3 provided for the transfer of Trust shareholdings into Oscatello and clause 5 provided for proper governance of the assets within that company. Clause 4 dealt with completion and clause 7 contained provisions for applying cash receipts as between the parties as and when received in respect of the underlying securities. Clause 8 provided warranties and the remaining provisions were general standard form provisions about confidentiality, announcements, costs, variations, an entire agreement clause, notices and jurisdiction. The only observation to make about all this is that clause 6 is an odd provision to find in the context of the rest of the agreement (which provides for the consolidation of trust holdings in one place and to a degree, the division of the spoils), but since neither side considered that particularly relevant to any of the issues I have to decide I can leave it at the level of an observation.

  9. In 2009 Isis received around £130m for the whole of the Somerfield interest (including the part disposed of by sub-participation). Disputed amounts were paid into court. Oscatello was paid over £23m in respect of its admitted entitlements. A balance of over £41m remains in court awaiting the result of these proceedings.

    The evidence in this case

  10. Somewhat surprisingly, neither side called any oral evidence in this case. No witness statements were served; no Civil Evidence Act notices were served. No real explanation, and certainly no properly evidenced explanation, of this state of affairs was advanced by either party. So the only evidence was contemporaneous documentary evidence of the transaction and the odd witness statement filed at a much earlier stage in these proceedings.

  11. In assessing the evidence I have to bear in mind two things in particular. The first is the deemed admission...

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