North Principal Investment Fund Ltd v Greenoak Renewable Energy

This is an application for interim injunctions pending a trial of this action which the parties hope will be a speedy trial. They would like the trial to be in May, but I have yet to give directions on whether or not there will be a speedy trial.

The underlying subject matter of the dispute is a project to develop a wind farm in the North Sea, pursuant to licences granted by the German authorities. The contractual and other arrangements which lie at the heart of the dispute between the parties were made in February 2005 between the defendants, on the one hand, and two Greek companies, Proton and Archirodon – Proton being an investment bank and Archirodon being a construction company. The arrangements made and encapsulated in documents signed on 28^th February involved a memorandum of understanding and also, pursuant to that memorandum of understanding, a loan agreement and a document called the “Conversion side letter”. The documents envisaged participation by Proton and Archirodon in the wind farm project (“the project”), in which the first defendant, GRE, was at that stage the main participant under arrangements made with a German company which is not a party to these proceedings.

I need (for a reason I will explain in a moment) say very little about the arrangements contained in the memorandum of understanding and the other documents. At that stage there was undoubtedly a binding loan agreement entered into pursuant to the memorandum of understanding, and a binding conversion side letter which made provision in certain circumstances for the conversion of the loan, which it was envisaged that Proton and/or Archirodon would make to fund or assist in funding the project, into equity in a company which was to be incorporated to hold the project. There is a great deal of dispute between the parties on the extent to which the memorandum of understanding contains, on the one hand, enforceable contractual provisions and, on the other hand, agreements to agree or statements in a sense of commercial aspiration rather than contractual obligation.

At that stage the documents envisaged that Proton and Archirodon would, at most, become entitled to a 40% share in the project. It is the claimant’s case that, by subsequent oral agreement reached in September 2005, that level of equity participation was increased to 50%.

I should add that the other principal limb of the alleged oral agreement was that, instead of there being a newly formed corporate vehicle for the project it was agreed, in order to meet what is said were tax concerns of GRE, that a new company would not be established but the parties would have their interests in GRE itself.

That alleged oral agreement is the subject of fierce dispute. The defendants deny that any such agreement was made. The present claimant, North Principal Investments Fund Ltd, was not a party to these arrangements, but it took an assignment of the rights of Proton and Archirodon, by means of an option to acquire those rights and subsequently, by an exercise of those rights in September 2007. There was before the involvement of the claimant in these proceedings another company called Max Q Master Fund Ltd which had taken an option to acquire Proton’s rights. Max Q and the claimant (“NPI”) are both investment funds based in the Cayman Islands managed by the same management company. No point is taken on this application as to the efficacy of the assignment.

The position of the claimant is that, by virtue of these arrangements and in the events which have happened, it is entitled to a 50% equity interest in GRE, and also (and not entirely dependent on that first proposition) it is entitled to veto any disposal by GRE of its interest in the project. Further, it claims to be entitled to the provision on a continuing basis of information in relation to any proposed disposal of GRE’s interest in the project.

As I have indicated, GRE in this action disputes any of these entitlements, but for the purposes of this application and having regard to the well-established principles enunciated in the American Cyanamid case, the defendants accept that the claimant has or raises a serious issue to be tried as to whether it will be entitled at trial to orders at least in the form which the claimant seeks at this interim stage. It is not, therefore, necessary for me to set out in detail the nature of the claims made by the claimant or the nature of the responses which have been given in evidence and in a lengthy defence to those claims. The argument has focused on the further issues which the court is required to consider when deciding whether to grant an interim injunction.

The first of those issues is to ask whether the claimant would be adequately compensated by an award in damages if no injunction were granted and if there were here a sale by GRE of its interest in the project.

It is submitted on behalf of the claimant by Mr Brisby, who appears with Mr Fraser and Mr Gentleman, that, without an injunction, the claimant will be exposed to the risk that GRE will sell the project for a price which is significantly less than could be obtained if the claimant had been in a position to veto any such sale. Principally, I think this is said because GRE might simply fail to do the best deal reasonably obtainable in the market, although the spectre is raised of the possibility of some deal with a connected person which might favour the connected person at the expense of the claimant if it is found to be entitled to an interest in GRE.

As to that latter suggestion, I do not think that there is any very strong basis on the evidence I have seen which would support at this stage a view that that was a real risk, but, having said that, there is, I think it must be accepted, a risk that a deal might be done and a sale effected of the interest at a price which was less than might otherwise have been obtained. That raises the difficulty of quantification. The courts frequently have to reach views as to the amount of damages to be recovered in somewhat speculative circumstances, but though these difficult exercises can be undertaken if necessary, I think the difficulty in arriving at a proper quantum is a factor which the court can take into account in assessing whether damages would be an adequate remedy.

A further point made in this respect by the claimants is that there is no basis for supposing that the defendants would be able to meet any award of damages. There is virtually nothing in the evidence which says anything about the financial standing of the respondents. It is a matter which one might expect the respondents to address in their evidence but they have not done so. The claimants have pointed out that it appears from a search of the Cyprus Companies Registry, where these companies are incorporated, that they have a nominal share capital, they have nominee shareholders (though the claimant knows who stands behind the companies) and they have not filed any accounts. There is, therefore, no evidence of their assets or indeed of their liabilities.

On that basis, I would conclude that the claimants can show that there is a real possibility that, without an injunction, damages might not be an adequate remedy. Recognising the force of the point concerning the lack of evidence of the financial standing of the defendants, they have put forward in a letter from their solicitors an offer as being a means of dealing with the present application. The terms of that letter have changed to a significant extent in the course of today, following points made on the letter by Mr Brisby in the course of his submissions.

So far as meeting concerns about the adequacy of damages as an alternative remedy, the letter proposes that notice should be given by the defendants of any proposed sale on five clear working days prior to the entering into of any contract for sale and that, in any event, the defendants would procure that 60% of the net sale proceeds would be paid into a joint account in the names of the parties’ solicitors pending resolution of this action or further order. Net sale proceeds in this context means the proceeds of sale after deductions of costs, charges and expenses and the discharge of any loans outstanding, whether or not then due for payment by the first defendant and certain other liabilities. The figure of 60% is arrived at on the basis that the claimants claim an entitlement to 50% in GRE holding the project, and the additional 10% is put forward as a margin to cover possible awards of damages.

In these circumstances, Mr Maclean, who appears today for the defendants, submits that the concerns of the claimants on the adequacy of damages will be met and, therefore, this is not a case for the grant of an injunction.

So far as any further consideration of the balance of convenience is concerned, he submits that this regime would give his clients the necessary freedom to negotiate and, subject to the giving of notice, conclude any sale of the interest in the project. He points out that the court must also, of course, have regard to whether the defendant would be properly compensated in damages if it transpired that the injunction should never have been granted. So far as that is concerned, he in turn has pointed to the paucity, as he submits, of the evidence about the financial standing of the claimant. What is said in evidence is that the claimant investment fund has net assets of €35 million, but I am given no further information about that. I had no information or evidence at all about the make up of the assets or liabilities – where they are located, what they comprise, how they are valued, how saleable they are, and so on.

In addition, I am told, and there has been produced to me a certificate issued by Morgan Stanley, that the claimant has deposited with Morgan Stanley at the moment some €24 million worth of cash and liquid securities, but it seems clear that the cash and those securities are available to meet such liens and charges as Morgan Stanley may have. I have no direct evidence on this, but it seems highly probable (and it is not denied) that the claimant is actively trading through Morgan Stanley in various markets and that those liquid funds are available for meeting margin calls. If there is a real prospect of the defendants suffering financial loss as the result of the grant of an injunction, that evidence does not give me, particularly in these turbulent times in the markets, comfort that the claimant has assets available to meet a substantial liability in damages. By way of meeting that, Mr Brisby was given instructions in the course of the hearing to offer certain fortification of a cross-undertaking in damages. One suggestion involved the provision of a guarantee in the sum of €5 million by Proton, but I have to say that I am not particularly attracted by that and I do not propose to consider it further. I know little about Proton and whether it has any presence in London and, if so, what presence, but what was also offered was an undertaking to maintain in London a sum of €10 million, of which €9 million would be retained in liquid securities or cash with a first-rate investment house, for example, presumably, Morgan Stanley, but subject to that institution’s rights to make margin calls and so on, and a further €1 million would be held in cash in, in effect, a blocked account at Stephenson Harwood, the claimants’ solicitors.

The issue of the adequacy or otherwise of damages as an alternative remedy and whether sufficient protection is given to the parties by the proposals that have been put forward by the claimants requires consideration of the orders which are sought.

The claimants seek in paragraph 1 of their proposed order an injunction which would restrain the defendants until judgment or further order from disposing of or agreeing to dispose of or encumbering or agreeing to encumber in any way, including by way of a charge, all or any part of the share capital of the first defendant or of its business or assets, including any interest, actual or contingent, in the project, without either the claimant’s written consent or the leave of the court.

The principal objection (not, I should hasten to say, the only objection by any means) taken by the defendants to the injunction roughly in those terms sought by the claimant was that it leaves the defendants exposed to a simple veto by the claimant of a proposed sale. To deal with that point, the claimant has added the words which I have just read out (“without either the plaintiff’s written consent or the leave of the court”) so that if the defendants proposed a sale or an encumbrance which the claimant was not prepared to agree, then the defendants would be entitled to apply to the court for the court’s approval. and That would put the defendants in a position to satisfy the court that the terms of the proposed transaction were reasonable terms and also to submit to the court that, if the defendants were not permitted to sell or encumber as proposed, the claimants would not be well placed to meet any claim in damages should it transpire that this injunction should not have been granted in the first place.

Mr Maclean on behalf of the defendants submits that the alternative put forward by the defendants in their solicitors’ letter provides, in effect, much the same protection to the claimants. They would be told on five clear working days’ notice of a proposed sale and its principal terms, including the price, payment provisions and so on, and that would therefore give the claimants an opportunity of applying to the court for an injunction to restrain that particular sale if the claimant thought that the terms of the sale were objectionable.

I have concluded that the appropriate course here is to grant the injunction sought by the claimants in paragraph 1 of their proposed order. I do so principally for this reason. The circumstances are that they have a seriously arguable case that they are entitled to a 50% interest in the equity of GRE and, in any event, a seriously arguable case that they are entitled to a veto over a sale by GRE of its interest in the project.

In those circumstances, it seems to me that, provided there is proper protection for the defendants so far as exposure to loss is concerned, the claimants should have the benefit of an injunction to restrain a sale of what they may well establish to be their property rather than simply putting them in the position where they have to come again to court to restrain a proposed sale. In one sense there is not a great deal of difference, in the end, between what the claimant is asking for and what the defendant is proposing, and to a large extent it comes down to who has the onus of coming to court either to restrain a sale or to seek permission for a sale. But, as I say, I think in the circumstances of this case the right approach is to grant the order and, therefore, if necessary, put the onus on the defendant to seek the approval of the court to a proposed sale. I say “if necessary” because the terms of the order leave open that the claimant itself could agree to the proposed sale and may be expected to do so if satisfied that it is on reasonable terms or if it realises that it is likely that the court will think that it is a sale on reasonable terms.

So far as any loss to the defendants is concerned, given that they can, so far as paragraph 1 of the order is concerned, negotiate a sale and then, if necessary, seek the consent of the court to that sale, I do not at present see a great deal of scope for the defendants suffering any very substantial loss as a result of the grant of this order, and I consider, dong the best I can, that their position would be protected by a cross undertaking in damages, which of course the claimant must give, but fortified by the offer made on behalf of the claimant to retain €10 million in London on the basis which I have just described. Furthermore, I should say that I cannot be completely confident that the 10% cushion which is proposed by the defendants in their letter over and above the 50% which, is assumed, for these purposes only, to represent the claimants’ interest, would be a sufficient cushion to meet what might be the loss suffered by the claimants on a sale. At this stage it is extremely difficult to know, particularly if the sale proceeds are reduced by deductions of significant sums by way of, for example, repayment of loans. But I accept that this point is, to a large extent, diminished in importance by the fact that the defendants’ offer would nonetheless give the claimants an opportunity of applying to court for an injunction.

So in the end I am principally swayed in this matter by believing that, in the circumstances, it is right that the onus, if necessary, should lie on the defendants to obtain approval to a sale.

That brings me to what is sought by the claimants in paragraph 2 of their proposed order. Paragraphs 2 and 3 seek orders that the defendants provide to the applicants’ solicitors all documentation including, but without prejudice to the generality of the foregoing, draft agreement, minutes and correspondence concerning a potential sale of GRE’s interests in the project to the one named possible purchaser or any other potential purchaser, and also documentation evidencing a potential buy-out by GRE of a residual interest of a German company in the German entity which ultimately holds the wind farm project, and that this should be a continuing obligation to provide within 48 hours all such documents which come into existence. So the effect of this would be that as and when the defendants enter into discussions or negotiations of any sort with a view to any sale of GRE’s interest in the project, it would have to provide copies of that documentation to the claimants. So all draft agreements, all minutes of meetings, correspondence, emails and so on would have to be provided.

The claimants say, and the defendants accept, that they have a seriously arguable claim to be provided with this information, and they say that the balance of convenience favours the grant of this order because it would enable the claimants to be consulted on any negotiations and to provide their own views. In that way they can prevent a situation arising in which, if a point had been made early enough, it could have been included in any deal ultimately agreed where it might be difficult to include it at a late stage. It is not clear to me how the claimants envisage proceeding if they are unhappy with the negotiations which the defendant is engaging in and whether they would take any steps to become involved in any such negotiations.

In considering whether it is appropriate to grant an order in these terms, it seems to me that two points above all must be borne in mind. First, while the claimants have raised a seriously arguable issue as to their entitlement to this order and indeed to the first order, it is just that. This is a heavily disputed claim. That, it seems to me, must be borne in mind in deciding whether it is appropriate to impose the obligations contained in paragraph 2. Secondly, paragraph 1 will require the defendants to provide information to the claimants either to satisfy the claimants that they should give their written consent, or to satisfy the court that the court should itself consent to a proposed sale. In my judgment, the provision of the further and very extensive information and documents which the claimants seek in paragraph 2 is not necessary to protect its interests pending a trial of this action In my judgment, the provisions of paragraph 1 of their proposed order provides them with sufficient protection over that period.

Accordingly, while I will therefore grant an order in the terms of paragraph 1, I decline to grant orders in the terms of paragraphs 2 and 3 of the proposed order.