Maple Leaf Macro Volatility Master Fund & Anor v Rouvroy & Anor

The defendants (and the appellants in this case), M Rouvroy and M Trylinski, were the founders of and originally controlling shareholders in Belvédère SA, a French company whose main activity is the production and distribution of vodka and other alcoholic and non-alcoholic drinks. Its head office is in Beaune in Burgundy. They have both worked very hard for Belvédère. In April 2006 Belvédère acquired another drinks company called Marie Brizard, and after that acquisition CL Financial Holdings Limited (“CLF”), head of a group which included Angostura Drinks Limited, acquired the controlling interest in Belvédère. But the appellants retained an interest of about 20%.

In early 2007 disputes began to arise between CLF and the appellants, which led to litigation in the Chancery Division. But in due course those disputes were settled by an agreement of 8 June 2007 under which the appellants were granted a call option to buy CLF’s shares, warrants and bonds in Belvédère by 30 September 2007 for a total price of €345 million. If the purchase was completed by that date the directors of Belvédère, who had been appointed by CLF, would then resign from the board of Belvédère with immediate effect and the appellants would then regain control of the company. But, on the other hand, if the appellants had not made a detailed written proposal by 31 July 2007 including a “guarantee from financially sound persons” for full payment not later than 30 September 2007 of at least 90% of the purchase price, it was the appellants who were to resign as directors and CLF would retain control of the company.

The appellants therefore set about raising the necessary finance. They negotiated with the first respondents, Maple Leaf Macro Volatility Master Fund (“Maple Leaf”), for a loan of about €50 million. Maple Leaf is a hedge fund incorporated in the Cayman Islands and had had a prior involvement with raising money for Belvédère and the appellants. It was managed in London by Maple Leaf Capital LLP, an investment manager registered with the Financial Services Authority. The portfolio manager at Maple Leaf was Mr George Castrounis. The second respondents, Astin Capital Management Limited (“Astin”), are an investment manager which specialise in arranging capital market transactions. They acted on behalf of Maple Leaf in putting the arrangements for the loan together. Mr Charles Bray was its chief executive officer, while his managing director was Mr David Ummels.

In very broad terms Maple Leaf and Astin say that a concluded contract was made between themselves and the appellants whereby Maple Leaf agreed to participate in a loan of €50 million or so in return for security over the appropriate amounts of shares or warrants, which the appellants would repay after 12 months with an uplift of 25%. Maple Leaf and Astin say that that contract was made and signed by both the appellants and the respondents on the evening of 25 July 2007, although it was slightly amended after that date to accommodate inter alia the fact that another lender, Lion Capital Company Limited, had agreed to lend about €20 million but wanted equivalent rather than subordinate security over the shares or warrants. Maple Leaf and Astin say that, pursuant to that concluded contract, Maple Leaf on or before 31 July 2007 actually paid €29,999,946, which found its way to CLF through the appellants or Belvédère or their agents.

By contrast the appellants say that there was no concluded contract on 25 July 2007 or at all and that, although they used the money to pay CLF and regain control of Belvédère, there is no obligation to repay or to perform the other obligations contained in the document signed by them on 25 July. Although Maple Leaf and Astin have the security of the shares or warrants, these have dropped significantly in value.

Andrew Smith J found that there was a concluded contract, which he called “the Funding Agreement” but that it automatically determined in early August 2007. He set out the financial consequences of that finding, and the appellants have been ordered to pay substantial sums. The appellants now appeal, with the permission of Toulson LJ, on the question whether there was a binding contract between the appellants on the one hand and Maple Leaf and Astin on the other.

The judge had to decide an enormous number of issues, which required him to go through the facts of the case in great detail. His judgment is a masterly synthesis of a complicated history. Since it is reported at [2009] 1 Lloyd’s Rep 475, it is unnecessary for me to recapitulate that history in any detail since reference can be made to his findings in that reported judgment.

But it is worth emphasising the detail of the agreement made between the appellants and CLF as set out in paragraph 42 of that judgment, because it shows how tight the timetable was for the raising of the necessary funds. In particular the appellants had: (1) by 0900 hours on 26 July 2007 to provide CLF with a list of the purchasers of the CLF securities and a statement that all the securities were the subject of purchase orders; and (2) by 1630 hours on 30 July to procure a certificate confirming the matching of the relevant transactions or at least 95% of them. That effectively meant that payment for the shares or warrants had to be made by or very shortly after that date. There was then a further provision that, if completion had not occurred by 1600 hours on 31 July 2007, the proposal was not to be treated as acceptable to CLF and the appellants would lose control of Belvédère.

By reason of these circumstances and the events that happened on 25 and 26 July, the judge concluded that, subject to an important reservation, a contract between the appellants and Maple Leaf and Astin came into existence initially on the terms of what has been called Version 9 as set out in paragraph 7 of the judge’s judgment and signed by both appellants and respondents, albeit that there were later amendments evidenced by versions 10 and 10a.

He came to that conclusion by what I may respectfully call a traditional analysis of the documentation and the objective intention of the parties. The good sense of that conclusions is bolstered by the obvious consideration that if there were not a binding commitment from Maple Leaf and Astin, the appellants would not be able to provide CLF with the required list of purchasers or a statement that the securities were the subject of purchase orders. The judge also found that the appellants did not “subjectively” intend to be bound by Version 9 or by any contractual commitment at that stage.

Mr David Oliver QC, in the course of his admirably succinct and forceful submission for the appellants, has relied heavily on that absence of subjective intention on the part of the appellants. The reason why that is or may be important is that the judge also found in paragraph 240 that it was a condition of the Funding Agreement that Lion Capital were to be a party to the agreement and that, as I understand this finding, it was a condition precedent to the agreement becoming binding as between the appellants and the respondents that Lion Capital was to participate in the agreement.

The appellants stress the fact that Version 9 contained a space at the end for Lion Capital’s signature and that no signature was ever appended to Version 9 or any later version by Lion Capital. Thus the funding agreement, they say, never became viable. The reason why Lion Capital did not sign at the same time as the other signatories was probably because the relevant partner, Mr Javier Ferrán, who had received Version 8b but not Version 9of the agreement, was in the process of going to JFK Airport in New York and catching the night flight to London. That is, say the appellants, nothing to the point because Lion Capital never did append its signature to Version 9 or indeed any other version.

The judge did not accept the argument that the agreement never became binding. He said there were several reasons for rejecting the argument, and he gave two of them. The first reason was that Lion Capital did in fact accept the terms agreed between the appellants and the respondents by at latest an e-mail of 0901 hours of 27 July 2007, because Mr Ferran asked to be put into contact with Maple Leaf’s lawyers to avoid duplicating work on producing the necessary documentation which the various versions of the agreement had always contemplated would be produced once agreement was reached. The fact that negotiations had continued on the minor matters I have mentioned, so that by now versions 10 and 10a had been sent to Lion Capital and digested by then meant merely that Lion Capital agreed, as had the appellants and respondents, to version 10a rather than Version 9. That was enough to ensure that they had become parties to the Funding Agreement. The second reason given by the judge was that, by 30 July 2007, the appellants and Lion Capital had decided that Lion Capital would make their investment not on the terms of the Funding Agreement but by a quite separate agreement, with different and, from the appellants’ point of view, more beneficial terms.

The respondents accepted this new arrangement. That way the requirement that Lion Capital should participate in the Funding Agreement simply fell away and left the appellants and respondents in contractual agreement with each other. Any way in which the earlier agreement was “incomplete” due to the absence of Lion Capital’s participation was thus resolved by the decision that Lion Capital was not to invest on the terms of the Funding Agreement but on other terms altogether.

Mr Oliver, for the appellants, attacked both these conclusions for essentially the same reason. He submitted that once the judge had concluded that Lion Capital’s participation was an essential condition of the Funding Agreement, the only way in which that participation could occur was by Lion Capital appending their signature to the agreement. It was always contemplated, particularly in view of the fact that the appellants never intended to be bound by Version 9, that the only way the Funding Agreement could become binding was by the appending of the signature of all relevant parties including that of Lion Capital. It was, said Mr Oliver, illogical for the appellants to find that they were bound, although they did not intend to be bound, because they had appended their own signature to Version 9 but for Lion Capital’s participation to be found to have occurred when they never signed a relevant document at all.

Despite the forcefulness of Mr Oliver’s argument, I cannot accept it. In the first place, there was no requirement either within or outside the Funding Agreement that it would only become binding when signed. The most that Mr Oliver can point to is the space for the parties’ signature, including that of Lion Capital, and the fact that the parties, apart from Lion Capital, did in fact sign the Funding Agreement. That does not mean that there was any consensus that the Funding Agreement was not to become binding unless it was actually signed. The judge made no such finding in paragraphs 240 to 241 of his judgment. He merely concluded that it was necessary for Lion Capital to be a party to the agreements. It follows, in my view, that the learning in paragraphs 2-065 to 2-069 in the 30^th Edition of Chitty on Contracts under the heading “Prescribed Mode of Acceptance” has no relevance. There was no prescribed mode of acceptance in this case. The fact that the agreement envisages a signature and leaves a space for those signatures is not a “prescription” that the agreement can only become binding on the appending of signatures. The signatures are evidence and no doubt the best evidence of what had been agreed, but they are not themselves conditions of the agreement.

In the second place, I would not myself accept that the appellants’ subjective intentions have any relevance to the questions whether and when there came to be a binding contract. It is trite law that, although no contract can be made without an intention to be legally bound, that intention has to be ascertained objectively, not by looking into the parties’ minds. Since a claim had been brought in deceit as well as in contract, it was of course necessary for the judge to ascertain the appellants’ subjective intention in that context, but it was not relevant to do so in the contractual context. The judge, moreover, quite correctly looked at the entire conduct of the parties over the relevant period and came to his conclusions against that perspective.

No doubt a major factor that persuaded him that there was objectively an intention to be bound was the fact that the appellants had signed Version 9. But that was by no means the only factor and there is thus, as it seems to me, no inconsistency between holding that the appellants were party to a binding agreement when they had signed the agreement, but that Lion Capital could participate in the agreement by showing that they intended to participate in version 10a by their e-mail of 0901 hours on 27 June without also actually signing the agreement.

For these reasons Mr Oliver’s attack on paragraphs 252 and 253 of the judgment must fail. I agree with the judge that Lion Capital did become a party to the version of the agreement which has come to be known as 10a and which reflects the final agreement of the parties. I also agree that once, with the respondents’ agreement, Lion Capital did a different deal with the appellants, it simply became irrelevant that Lion Capital were no longer participating in the Funding Agreement and any agreement that it should so participate either fell away automatically or was waived by the appellants precisely because it was no longer relevant.

In these circumstances it is important to be aware that once Maple Leaf had signed up to the agreement, the appellants through their agents, H et Associés and Bucéphale, continually pressed Maple Leaf to make the relevant payments for share warrants to CLF through the agency of CACIES. The judge records in paragraph 152 that payment of €29,999,946 was made by Maple Leaf by 31 July 2007. Mr Oliver submitted at the end of his reply that, even at this late date, the parties were still negotiating and the appellants were making clear that they were not going to abide by Version 9 or any other version because they wanted better terms, as set out in the e-mail quoted in paragraph 140 of the judgment. As Mr Oliver put it, when Maple Leaf paid the sum of about €30 million they were “taking a punt”, by which I understood him to mean that Maple Leaf were themselves doubtful whether a binding agreement had been made, but nevertheless paid this not inconsiderable sum in the hope that it would in due course be concluded, by a court if necessary, that there was indeed a binding agreement.

This is not to my mind a tenable version of events. I agree with the judge that the right version is that an agreement was made on the evening of 25 July subject to a condition that Lion Capital was to participate. Lion Capital did agree to participate and the agreement was then complete. It does seem that after the appellants had signed Version 9 they regretted it on the next day and tried to re-negotiate the deal. M Rouvroy half recognised this in the e-mail to Astin, set out at paragraph 140 of the judgment, when he said:

Mr Nicholas Strauss QC had various other reasons on behalf of Maple Leaf for supporting the judgment but, since the appellants’ arguments must fail, it is unnecessary to give them any detailed consideration. I would pay tribute to the careful and thorough judgment of Andrew Smith J and dismiss this appeal.

I agree and cannot usefully add anything.

I too agree. I would only add to what Longmore LJ has said my own appreciation of Mr Oliver’s succinct submissions the brevity of which has in no way diminished their cogency.