Estafnous v London & Leeds Business Centres Ltd.

In this action the Claimant, Mr Estafnous, claims from the Defendant, London & Leeds Business Centres Limited (“LLBC”), the sum of £2m as commission for the introduction of a purchaser of a property.

The claim is based on a written agreement between Mr Estafnous and LLBC dated 30 March 2001 (“the Agreement”) under which LLBC agreed to pay the commission upon the intending buyer “completing a purchase of the Property.” Mr Estafnous says that he was responsible for introducing a Mr Kapoor who in the event did acquire the property and that the commission is due.

LLBC has a number of answers to this claim. First, it denies that Mr Estafnous was as a matter of fact responsible for introducing Mr Kapoor to LLBC.

Second, in any event it says that the obligation to pay the commission was never triggered because there never was a sale of the property as such. Instead there was a corporate transaction under which Mr Kapoor (or to be more accurate a company associated with him) acquired the shares in a company which was the ultimate parent of the company which held the property. Mr Estafnous says that on the true construction of the Agreement, this is sufficient to qualify as “a purchase of the property”; if he is wrong about this however he relies on the Agreement having been varied so as to cover a sale of shares.

Third, LLBC says that if Mr Estafnous has to rely on a variation of the Agreement and that the Agreement as so varied prima facie entitles him to claim the commission from LLBC, it is unlawful as involving the giving of financial assistance by LLBC contrary to s. 151 of the Companies Act 1985.

Finally, LLBC says that if Mr Estafnous can claim the commission from LLBC (either under the Agreement as properly construed, or under the Agreement as varied), it is unlawful as involving the informal return of capital by LLBC to its shareholder contrary to s. 263 of the Companies Act 1985.

There are therefore 5 issues which arise (these were helpfully formulated by Mr Shaw, who appeared for LLBC, and agreed by Miss Tozer, who appeared for Mr Estafnous):

I have taken the facts largely from the documents which were produced in evidence, supplemented by the witness statements and oral evidence. Of those individuals mentioned below I heard from Mr Estafnous himself, and from Mr Kapoor, Mr Kidd and Mr Migariaf, who were called by LLBC. I also heard from a Mr Tengra who was called by Mr Estafnous, but his evidence was solely directed to the circumstances in which Mr Migariaf came to be giving evidence for LLBC, and he had no knowledge of the underlying facts. With some notable exceptions, which I will deal with as necessary later, there was little conflict of evidence between the witnesses.

Mr Estafnous is an estate agent and the director of a company called Swiss Deal Limited (“Swiss Deal”). In 2001 Swiss Deal had its offices in a building known as Regent House Business Centre, 24-25 Nutford Place, London W1 (“Regent House”). The building also had frontages onto Edgware Road (nos 112-130) and George Street (nos 136-138). It consisted of a parade of shops on the ground floor on the Edgware Road frontage (and a couple more on the George Street frontage), with three floors of offices on the 1^st to 3^rd floors. The 4^th floor had formerly consisted of residential flats but in early 2001 was vacant, the flats having been stripped out ready for refurbishment into offices. There was also a basement car park.

Regent House was held on a long lease from the Portman Estate and a company known as Drillray Properties Limited (“Drillray”) was registered at HM Land Registry as proprietor of the leasehold interest. There appear to have been two concurrent leases granted, one for a period of some 50 years granted in 1960 (the exact length is not clear on the copy of the register) and one dated 21 March 1963 for a term of 99 years from 25 March 1966. In 2001 therefore there were some 64 years unexpired of the latter lease.

Drillray was itself a subsidiary and in 2001 the corporate structure was as follows. Three shareholders, namely Robert Kidd, David Serr and Linda Serr (or Linda Plant as she at some stage became), held the issued shares in Regent Street Estates Limited (“Regent”). Regent in turn held the one issued share in LLBC. LLBC held the issued shares in Drillray. Drillray as already mentioned was the registered proprietor of the leasehold interest in Regent House, but in fact held that interest on trust for LLBC pursuant to a deed of 22 September 2000.

Mr Estafnous approached Mr Kidd and asked if he could sell Regent House to one of his clients; Mr Kidd’s reaction was that everything is always for sale at the right price. This approach had taken place by 12 January 2001 as is apparent from a letter of that date from Mr Kidd (as director of LLBC) to Mr Estafnous which gave some brief details of Regent House, indicated that “we would only be prepared to consider a sale of our long leasehold interest at a figure of £22 million”, and said that he would not give further details without heads of agreement and satisfactory evidence of “your client’s funds”; and from Mr Estafnous’s response of 15 January which thanked Mr Kidd for the letter “regarding my request to sell your building above for one of my Clients.” In oral evidence Mr Estafnous said that the reference in these letters to his client was to Mr Kapoor, but I think he must be wrong about this: the letter of 15 January refers to “Our client” having asked him to submit a rent schedule to the “technical office” and this produced a further letter from Mr Kidd of 9 February 2001 with a schedule of tenancies and rents, which Mr Estafnous forwarded on the same day to the “State of Qatar Technical Office”. Mr Kapoor had no connection with Qatar and I think it is clear that the reference in the January letters to Mr Estafnous’s client was not to Mr Kapoor.

On the same day, 9 February 2001, a one-page document on Swiss Deal’s headed notepaper was signed by Mr Estafnous and a Mr Migariaf. It is headed “To Whom It May Concern” and the text is as follows:

“We Mr A Youssef Migariaf and Mr M B Estafnous, directors of both Executive Ltd and Swiss Deal Ltd, we offering the investment (REGENT HOUSE BUSINESS CENTRE) at 24/25 Nutford Place, 136-138 George Street and 112-139 Edgware Road – London W1, on very private and confidential basis not to discuss the matter with any other party.

We request in case of buying this investment that we will be retained to manage this investment.”

It is then signed and dated by Mr Migariaf and Mr Estafnous. At the foot of the page is added

“I, [Bobby Kapoor] acknowledge received the information about the investment above, I will confirm your request for the secrecy and retained your companies for management the Investment. [on terms to be discussed]”

Mr Migariaf is a businessman with dual Libyan/British nationality who has business interests in both the UK and Morocco. He describes his business interests as primarily involving acting for property owners and speculators and putting deals together for buyers and sellers in commercial property. Despite what the document of 9 February would naturally suggest, he was not a director of Swiss Deal, but only of Executive Limited, and the document would have been better expressed as “directors of Executive Ltd and Swiss Deal Ltd respectively” but there is no reason to think that the document was drawn up in a deliberately misleading way. Mr Migariaf had known Mr Estafnous for many years. He had also known Mr Kapoor for a long time (more than 10 years) but not as long as he had known Mr Estafnous. He says he regarded them both as his friends.

Mr Charnesh (or Bobby) Kapoor was born in Delhi, India and has spent the majority of his business career in dealing with property, both residential and commercial. In 2001 he was the Managing Director of a group of companies known as the Kapoor Group. Mr Estafnous knew of him, but was not personally acquainted with him. Mr Migariaf thought he might be interested in Regent House. He went to see him at his office in Hammersmith. Mr Shaw submitted (in line with LLBC’s pleaded case) that this meeting took place before the one page document of 9 February 2001 was drawn up; but I do not think this is right. Mr Kapoor’s evidence was simply to the effect that the meeting took place “some time before mid May 2001” and that once he expressed interest in the property, Mr Migariaf produced the document and asked him to sign it. I understood this evidence as meaning that this took place on the same occasion. Mr Migariaf did not say when the meeting was but his evidence was that he took details of the property with him to the meeting, which I think is most likely to have been the schedule of tenancies and rents supplied by Mr Kidd in his letter of 9 February to Mr Estafnous. I find therefore that Mr Migariaf went to the meeting with the one page document dated 9 February and some of the property details. When Mr Kapoor expressed interest in the property, Mr Migariaf asked him to sign the document which he did; he was happy to give the requested confirmation as to confidentiality but was less enthusiastic about committing to having retained management for the property which is why he added the words “on terms to be discussed” at the end.

It is not possible to date this meeting securely, but it took place at some time between 9 February and 20 March 2001; the exact date does not matter. Nor do I think it matters whether Mr Estafnous knew on 9 February that Mr Migariaf was going to try and interest Mr Kapoor: the fact that the document of 9 February 2001 was addressed “To Whom It May Concern” and that Mr Kapoor’s name was not included in the document as printed (but added in manuscript) might suggest that Mr Estafnous did not know when he drew it up quite who Mr Migariaf was going to try and interest in the property; indeed Mr Migariaf may not have known himself at that stage. These questions were not however explored in evidence and I do not need to resolve them.

What is clear however, and Mr Estafnous did not suggest otherwise, is that it was Mr Migariaf who was responsible for getting Mr Kapoor interested. In his witness statement Mr Estafnous referred to Mr Migariaf as “having introduced Mr Kapoor to me”, and in oral evidence both in chief and in cross-examination he accepted more than once that Mr Migariaf “brought Mr Kapoor to me”, and “brought Mr Kapoor to the table”. There is a dispute to what extent Mr Migariaf played any significant role after that but his initial role in finding Mr Kapoor and interesting him in the property is not in doubt.

By 20 March 2001 Mr Kapoor had not only been told about Regent House by Mr Migariaf but had made an offer of £19m for it. This appears from a letter of that date sent by Gordons, Mr Kapoor’s solicitors. It was faxed to Swiss Deal but in its first paragraph says

“This letter is addressed to the Owners of the Investment No 24-25 Nutford Place”

In the body of the letter Gordons say that they act for Mr Kapoor and his group companies and that they understand that he had made an offer for the property of £19m. They add that their client has stated that the offer will stand for one week and then be withdrawn.

I consider it clear from this letter that although Mr Migariaf had given Mr Kapoor details of the property he had not told Mr Kapoor who the owners were or how to contact them. As Mr Kapoor said in his witness statement, his solicitors sent the letter to be forwarded on to the owner. He sent it to Swiss Deal because that was the contact address which Mr Migariaf had given him; Mr Migariaf told Mr Kapoor that he effectively used Swiss Deal’s offices as his London business base.

Mr Estafnous had the fax from Gordons on 20 March. The next day he wrote to Mr Gouldman of his own solicitors, England Palmer, referring to the offer of £19m and expressing his confidence that he would get the acceptance of it on Friday 23 March. He gave Mr Kidd’s contact details, said that LLBC would confirm their acceptance of the sale for £19m and their acceptance to pay him £2m on completion; and asked Mr Gouldman to prepare a contract for the payment of the £2m commission. He continued

“As soon as we have signed this contract between them and myself and executed by your company, I will pass all the details about my client.”

He stressed the urgency of the matter as the offer was only valid for 7 days.

On 23 March 2001 England Palmer wrote to Lawrence Graham, who were LLBC’s solicitors. They said:

“Our client is able to introduce to your client a party who is willing to purchase the above property at a price of 19 million pounds, subject to contract, and your client is apparently willing to sell the property at this price.

In consideration of the introduction to the interested Buyer, your client has agreed to pay our client the sum of 2 million pounds upon completion of the sale.”

They then asked for a solicitors’ undertaking. I infer from this letter that by the time it was written Mr Estafnous had relayed Mr Kapoor’s offer of £19m to Mr Kidd (without disclosing his identity), and had obtained from Mr Kidd confirmation that the offer was acceptable and that LLBC would pay £2m commission in respect of it to Mr Estafnous; Mr Kidd had also given to Mr Estafnous the name of LLBC’s solicitors. Mr Kidd’s evidence was that he thought £19m was an unrealistic price (“exceptionally high and unusual”); his attitude was that if Mr Estafnous could introduce someone who could pay such an unrealistic price he was prepared to pay him an unrealistic commission, although he thought the prospects of actually having to do so were remote, describing it in oral evidence as a “fantasy”.

On 24 March Mr Estafnous signed a confirmation in the following terms (on Swiss Deal’s headed notepaper)

“This is to confirm, I am MAKRAM ESTAFNOUS the director of SWISS DEAL Ltd, the following:

1 – In case of the client Mr. CHARNESH KAPOOR or his company which introduce by Mr. ANWER YOUSSEF MIGARIAF, Passport No: 500333293, succeeded in the sales of the investment 24-25 Nutford Place, 136-138 George St and 112-130 Edgware Rd, London W1,

For the sum of £19.000.000.00 (say nineteen million pound). And after I receive the commission from the vendor.

I will pay to Mr. ANWER YOUSSEF MIGARIAF the sum of £500.000 (say five hundred thousand pound) upon the completion process of this sale.”

Mr Estafnous’s evidence was that this was Mr Migariaf’s reward for bringing Mr Kapoor to him; he said in oral evidence “Like many other people, he brings me customers, I look after them.” Mr Migariaf’s evidence was that he was led to believe that he was sharing a commission equally with Mr Estafnous and was annoyed to discover later that Mr Estafnous’s commission was £2m not £1m. Mr Estafnous denied this, and I do not need to resolve this particular question.

On 27 March Mr Fielding of Lawrence Graham agreed on the telephone with Mr Gouldman of England Palmer to give an undertaking as requested but pointed out that he could not undertake that Lawrence Graham would continue to represent LLBC up to completion. So on 28 March Mr Gouldman drafted and sent to Mr Fielding a form of agreement; Mr Fielding returned this on 29 March with some manuscript amendments (asking Mr Gouldman to incorporate these in a clean version for signature) and the comment

“I think that in the context of my undertaking given yesterday, we have taken matters almost as far as we can without my actually knowing with which firm of lawyers I should be corresponding, or, for that matter, my clients receiving a formal subject to contract offer from an identified purchaser.”

This confirms that at that date Mr Kidd did not know either Mr Kapoor’s name or those of his solicitors.

Mr Gouldman presumably drew up a clean version, and the agreement was then executed. It is dated 30 March 2001. It is made between LLBC and Mr Estafnous. It is quite short and reads as follows:

“WHEREAS

(A)

LLBC has agreed, subject to contract, to sell the property situate and known as 24-25 Nutford Place, 136-138 George Street and 112-130 Edgware Road, London W1 at a price of 19 million pounds, subject to the existing occupancies thereof, at a price of 19 million pounds sterling to a party (the intending Buyer) who is to be introduced to LLBC to Mr Estafnous.

(B)

LLBC and Mr Estafnous wish to agree certain financial arrangements in connection with the introduction of the Intending Buyer to LLBC as set out herein.

NOW IT IS HEREBY AGREED as follows:-

On the same day Mr Estafnous sent a fax to Gordons giving contact details for Mr Fielding at Lawrence Graham. I infer that this was after the Agreement had been signed. Mr Kapoor accepted in evidence that this was how his solicitors knew who to get in touch with.

Also shortly after the Agreement was signed Mr Estafnous telephoned Mr Kidd, told him the name of the intending buyer, namely Mr Kapoor, and told him to expect a call from Mr Kapoor. Mr Kapoor did telephone him shortly afterwards. These two calls are not documented but Mr Estafnous in oral evidence said that after he signed the agreement, straightaway he phoned the name of the potential buyer to Mr Kidd; and Mr Kidd in his witness statement said “Following signature of the Agreement by me and by the Claimant on or around 30 March 2001, I received a telephone call from a Mr Bobby Kapoor who expressed some interest in the property.” In his oral evidence he said that if he remembered rightly, he received a call from Mr Estafnous saying that he would receive a call from Mr Kapoor, which thereafter he did. I see no reason not to accept this evidence (and Mr Shaw did not suggest I should reject it), and I therefore find that the two telephone calls that I have referred to were made. I also infer that Mr Estafnous must have contacted Mr Kapoor (directly or indirectly) and given him Mr Kidd’s telephone number.

Matters thereafter seem to have proceeded quite slowly. On 30 April 2001 Mr Estafnous passed on further details of the tenants on the 3^rd floor to Mr Kapoor. On 16 May Chas T. Nicholls, solicitors for Mr Migariaf, wrote to Mr Estafnous seeking confirmation that he would pay his £500,000 commission, saying that they understood from Mr Migariaf that contracts were due to be exchanged in the next day or two; Mr Estafnous replied the next day confirming that commission would be paid upon receiving the commission from the vendor’s solicitors.

On 25 May 2001 Mr Kapoor’s bankers, the Royal Bank of Scotland, wrote a bank reference addressed to Lawrence Graham; Mr Kapoor faxed this to “Mr Makram” (ie Mr Estafnous) at Swiss Deal. On 30 May Lawrence Graham, who had received a copy of the bank reference from Gordons, wrote to Gordons saying that

“Having given further consideration to the matter our client has come to the view that the only way in which he are prepared to progress the sale is if it is structured as a sale of the owning company.”

They also mentioned that their client had had discussions with “your client’s agent” about a redemption penalty which would be incurred on the current loan facility which their client required to be compensated for, and asked for details of any conditions that Mr Kapoor would be seeking to impose.

Gordons replied promptly on 31 May 2001 saying

“Our client is prepared to consider the transaction as one of sale and purchase of the shares in the owning company but is not prepared to commit to the same until we have fully investigated the owning company ...”

They also said the contract would be subject to planning and the freeholder’s consent.

It appears that Lawrence Graham did not respond immediately. (I should say here that neither England Palmer’s file, which has been routinely destroyed, nor Lawrence Graham’s file, was in evidence, so this is an inference from the letters about to be mentioned). On 7 June Mr Kapoor faxed copies of the letters of 30 May and 31 May to Swiss Deal’s number and on 8 June Mr Estafnous sent a fax to Mr Kidd (who was then on holiday in the Caribbean) complaining that there had been no answer and encouraging him to tell his solicitors to get a move on. On 12 June Gordons advised Mr Kapoor by fax that they had heard from the vendors’ solicitors to the effect that the freeholder’s consent would not be necessary as they anticipated the sale of the property being by way of the acquisition of the company shares; and that they were not prepared to proceed on the basis of a contract conditional on Mr Kapoor’s proposed development plans being passed. This was sent on by Mr Kapoor to Mr Estafnous (marked “Att. Mr Mackram”); and Mr Estafnous on the same day sent a second fax to Mr Kidd in the Caribbean enclosing a copy and urging him to accept the condition that the contract be subject to planning. He said among other things

“You know from the beginning the deal subject to the planning permission and of course the approval from the Portman State, you have confirmed those two conditions, the buyer as I talked to you before your travelling, he will buy the company owns the building.”

The thrust of the letter was that the deal was a very good one from Mr Kidd’s point of view and he should not let this opportunity slip.

The response was an e-mail from Mr Kidd to Mr Estafnous also dated 12 June 2001. Since this is relied on by Miss Tozer as an offer made by Mr Kidd on behalf of LLBC to Mr Estafnous to vary the Agreement so as to cover a sale of shares I should set it out in full. It reads as follows (I have corrected some of the spelling and supplied some letters that are missing on the copy):

“Dear Makram

SUBJECT TO CONTRACT

I received your faxes, it seems there is some confusion as to the terms, I will outline once more and perhaps you will pass this e-mail to Mr Kapoor and Gordons in order that they can also be clear as to the position.

On 26 June 2001 Mr Estafnous passed on to Mr Kapoor the name and contact details of “new solicitors for the building 24 Nutford Place”, namely Irwin Mitchell, and asked him to ask his solicitors to contact them. On 27 June he wrote to his own solicitors, England Palmer, with the same information, asking them to take the necessary steps to notify Irwin Mitchell of the contract and undertaking between the parties.

By 20 July planning permission had been obtained and Irwin Mitchell wrote to Gordons asking if they would proceed and imposing a deadline of the end of July for exchange of contracts. In fact however the matter did not proceed, and “went cold”; Mr Kidd says it was fairly clear to him by the end of August that Mr Kapoor had gone cold on the transaction, and Mr Kapoor agrees that it went cold in the summer of 2001.

The terrorist attacks in New York of 11 September 2001, which occurred shortly afterwards, had the effect of blighting the commercial property market for many months. In March 2002 however Mr Estafnous sought to interest Mr Kidd in a new potential purchaser for the property, Art Property Holdings Limited, who was said to be willing to pay £19.4m, and on 14 March asked Mr Kidd to confirm that the existing agreement for payment of the £2m commission would apply; Mr Kidd replied on 15 March confirming that their agreement would stand in respect of Mr Estafnous’s new client “provided we receive a net figure of £17,400,000”. On 11 April 2002 Mr Estafnous wrote again to Mr Kidd: the letter was mostly about his new client but contained a reference to Mr Kapoor as follows:

“Kapoor matter, I do enclose from Anwar solicitor to secure £500,000 (five hundred thousand pounds) to him. There are more papers which I show to you one day where the balance going to by clear my side. I am not greedy at all plus I will explain to you if you like more details about the construction of the deal.”

(Anwar is a reference to Mr Migariaf). Miss Tozer placed some reliance on this reference to Mr Kapoor as showing that Mr Estafnous was still actively involved in April 2002 in a possible acquisition by Mr Kapoor but I think this cannot be safely inferred from what is a passing and quite cryptic comment: what it suggests is that Mr Estafnous thought Mr Kidd regarded him as greedy in the commission arrangements for Mr Kapoor, but whether this was said in the context of an ongoing matter or by reference to what had been agreed the previous year is not apparent. Mr Kidd’s attitude in oral evidence was that he was not interested; if Mr Estafnous could sell for £19m, he would get his commission and what he did with it was his affair.

In the event Mr Kapoor did re-emerge as interested in the property at some time in mid-2002; so far as appears from the documents I have seen, this was not until the end of May when Irwin Mitchell (acting for LLBC) and Manches (acting for Mr Kapoor) exchanged letters confirming that they acted in connection with a proposed transaction. Mr Kidd says that Mr Estafnous was not involved in the revival of the transaction or in the negotiations and (save for the letter of 11 April 2002 which I have already considered and rejected), there is nothing to suggest that he was.

I have not been shown the details of the negotiations between Mr Kapoor and Mr Kidd, but a letter of 28 May 2002 from Manches shows that their instructions at that stage were that their clients would purchase LLBC at a total price of £16m. The letter included the statement that

“The object is for our clients to acquire 24/25 Nutford Place, London W1H 5YN. We understand that there are other properties currently owned by the Company which will be transferred out of the company before the transaction can be completed.”

Mr Kapoor said there were a number of reasons why the price had dropped, the main one being that he was initially led to believe the property was freehold but it was in fact a leasehold with some 60 years to run. I am not sure he is remembering this correctly as the leasehold nature of the interest would have been apparent early on (certainly before the reference to the approval from the Portman Estate) but as far as the evidence before me shows, there was no re-negotiation of the price in 2001. It is not however necessary to resolve this.

The negotiations ultimately resulted in a share sale agreement dated 14 November 2002 under which a company called Abbey Road Properties Limited (“Abbey Road”) acquired the shares in a company called IMCO (192002) Limited. Abbey Road is a company associated with Mr Kapoor. IMCO (192002) Ltd was by then the ultimate holding company of LLBC. This was as a result of a corporate reorganisation carried out in October 2002 for the purposes of the sale.

Mr Kidd made a short second witness statement which summarised this reorganisation. It exhibited the index to an extensive bible of documents but I have not been shown the underlying documents themselves, and Mr Kidd’s explanation was very abbreviated, and the details were not explored in oral evidence. It is not therefore possible to be confident of all the details of the steps involved, but with the aid of some diagrams showing the stages in the reorganisation which were in evidence, the broad outline can be discerned and this is I believe adequate for present purposes. In summary the steps in the reorganisation were as follows:

Under this Share Sale Agreement, the consideration for the sale of the shares was £4,252,447, payable partly in cash on completion and partly in loan stock issued by Abbey Road; in addition Abbey Road undertook an obligation to procure the discharge of an inter-company debt owed by LLBC to Regent. This debt was shown on the completion balance sheet as at 31 October 2002 at £11,362,555, so the total benefit to the vendors was of the order of £15.6m. Completion was due on the date of the agreement, and although I do not have any formal evidence as to the date of completion it is admitted on the pleadings that the shares were transferred on 14 November 2002.

I have drawn this account of the facts as I have already said largely from the documentation, supplemented by evidence over which there was no significant dispute. It omits one matter of contention on which there was a marked conflict of evidence, namely whether Mr Estafnous or Mr Migariaf was present at the first meeting between Mr Kapoor and Mr Kidd; and a more general issue whether Mr Estafnous or Mr Migariaf played the more significant role in the transaction. I will revert to these points when considering whether Mr Estafnous introduced Mr Kapoor.

I can now consider the five issues that I have set out above (paragraph 7)

In my judgment the answer to this question is Yes.

Under Recital (A) of the Agreement, it was recited that LLBC had agreed to sell the property (subject to contract) to a party “who is to be introduced to LLBC by Mr Estafnous” and under clause 1 the commission was payable “in consideration of the introduction of the Intending Buyer to LLBC.” There is no doubt that the person here referred to was Mr Kapoor who had indeed made an offer to purchase at £19m; on my findings of fact this offer had been relayed to Mr Kidd who had accepted it on behalf of LLBC (paragraph 21 above). At the time when the Agreement was signed however Mr Kidd did not know the identity of the proposed buyer or that of his solicitors: this is clear from Lawrence Graham’s letter of 29 March 2001 (paragraph 23 above), and in cross-examination it was put to Mr Kidd that Mr Estafnous had told him he did have a person willing to pay £19m but he was not willing to reveal who it was until Mr Kidd signed up to the Agreement, to which he replied “Fair enough, yes”. That was the missing piece of information which Mr Estafnous had and which Mr Kidd did not. When therefore the Agreement recited that the buyer was to be introduced to LLBC by Mr Estafnous, I consider the obvious and natural meaning to be that Mr Estafnous would disclose to Mr Kidd the identity of the person described as the Intending Buyer and put Mr Kidd in touch with him.

This is exactly what Mr Estafnous did immediately after the Agreement was signed. He actually did it in two ways – one by passing on contact details for Lawrence Graham to Mr Kapoor’s solicitors Gordons, and the other by telephoning Mr Kidd and telling him to expect a call from Mr Kapoor, and then getting Mr Kapoor to call him. In my judgment by doing this he introduced Mr Kapoor to Mr Kidd, and hence to LLBC.

Mr Shaw advanced a number of reasons why I should not find that Mr Estafnous had introduced Mr Kapoor to LLBC. He referred me to the decision of the Court of Appeal in Burney v The London Mews Company [2003] EWCA Civ 766 where Waller LJ referred to what Nourse LJ had said in an earlier case, John D Wood v Dantata [1987] 2 EGLR 23 about the meaning of the word “introduction” in a typical contract for commission payable to an estate agent. In summary Nourse LJ said that where two estate agents had each claimed to introduce the purchaser, the court must decide which is the “effective cause of the transaction.” Mr Shaw submitted that I could not find that Mr Estafnous had introduced Mr Kapoor to Mr Kidd without deciding which of Mr Migariaf and Mr Estafnous had been the “effective cause of the transaction”; that as a matter of fact I should find that Mr Migariaf had been the effective cause; and hence that Mr Estafnous had not been responsible for the introduction.

I reject this submission. As Waller LJ himself says (at paragraph [23]) the judgment of Nourse LJ must, like any other judgment, be read in its context. The particular context he had in mind was one where two agents, both appointed by the vendor, claim to have introduced the successful purchaser. In such a case, as Nourse LJ points out, what one is looking for is the agent who introduces the purchaser not to the property as such, but to the purchase, the transaction which takes place; and in that context it makes sense to ask which of the two agents was the effective cause of that transaction. But that is a very different context from the present. This is not a case of two agents having been appointed by the vendor and each claiming to have earned their commission; this is a case where Mr Kidd on behalf of LLBC agreed to pay commission to Mr Estafnous for introducing a purchaser, and it was no concern of his whether he had found that purchaser himself or had relied on Mr Migariaf (as Miss Tozer said, as a sort of sub-agent) to do so.

So I do not think it matters whether Mr Migariaf or Mr Estafnous played a more important role in the transaction. This seems to me in any event to be an impossible question to answer in any meaningful sense. I have found that it was Mr Migariaf who initially introduced Mr Kapoor to Mr Estafnous, and that it was Mr Migariaf who was responsible for interesting Mr Kapoor in the property; but in doing so he had with him particulars which Mr Estafnous had obtained from Mr Kidd, and it was Mr Estafnous’s initiative in approaching Mr Kidd which had led to Mr Kidd agreeing that he could try and find a purchaser and to those particulars being available. I regard each of Mr Estafnous and Mr Migariaf as having played a significant part in getting matters to the stage at which Mr Kapoor was prepared to make an offer for the property and I do not think it can sensibly be said that one of them was a more effective cause than the other: they were working together, not in rivalry.

A related question which was explored in the evidence was whether Mr Estafnous was acting in effect as a messenger for Mr Migariaf or the other way round. Both Mr Estafnous and Mr Migariaf had a tendency to downplay the role of the other, Mr Migariaf for example suggesting that when Mr Kapoor addressed faxes to Swiss Deal’s offices or to “Makram”, this was just a convenient means of contacting Mr Migariaf himself so that Mr Estafnous’s role was essentially that of messenger for Mr Migariaf; and Mr Estafnous suggesting that once Mr Migariaf had introduced Mr Kapoor to him, the rest was up to him and insofar as Mr Migariaf had any continuing role it was as a messenger for him. Mr Shaw went so far as to submit that when Mr Estafnous wrote to Gordons on 30 March 2001 disclosing the contact details for Lawrence Graham, he did so as agent for Mr Migariaf.

Insofar as it matters, I consider that Mr Migariaf (and Mr Kapoor himself) underplayed the extent to which Mr Kapoor did use Mr Estafnous to aid with the negotiations: the fact that Mr Kapoor sent the faxes of 25 May 2001 (with the bank reference – paragraph 28 above) and 12 June 2001 (the letter from Gordons – paragraph 30 above) not only to Swiss Deal’s fax number but for the attention of “Mr Makram” or “Mr Mackram” suggests to me that Mr Kapoor knew that Mr Estafnous was the person in contact with Mr Kidd and was not just a messenger for Mr Migariaf; similarly Mr Estafnous communicated direct with Mr Kapoor on 30 April, 15 June and 26 June 2001 (paragraphs 27, 31 and 32 above). I find therefore that Mr Kapoor did appreciate that Mr Estafnous was playing a significant role in his own right in the transaction and was not a mere messenger for Mr Migariaf; and I reject Mr Shaw’s submission that Mr Estafnous was simply acting on behalf of Mr Migariaf in his dealings with Mr Kidd. This seems to me a quite artificial analysis of what happened.

But I do not think it matters. Mr Kapoor was no doubt right when he said in oral evidence that his primary point of contact was Mr Migariaf and from his point of view no doubt Mr Estafnous appeared to be assisting Mr Migariaf – equally it seems to me plain (as Mr Kidd himself accepted) that Mr Kidd’s point of contact in any dealings with Mr Kapoor was Mr Estafnous. But none of this in my judgment in any event affects the question, which is whether Mr Estafnous introduced Mr Kapoor to Mr Kidd. As the judgment of Waller LJ itself illustrates (at paragraphs [25]-[28]) one cannot extrapolate from the Dantata case any general proposition that mere introduction is not enough if someone else can be said to be a more effective cause of the transaction going through; all that is needed is that the agent has brought the vendor and purchaser together: see the illustrations given at paragraphs [26] (provision of particulars) and [28] (putting a board in the garden). If an agent who puts a board up in the vendor’s garden which leads to the purchaser contacting the vendor direct can be said to have introduced the purchaser, then it must follow in my judgment that an agent who actually puts the purchaser in touch with the vendor, as Mr Estafnous did, can equally be said to have introduced that purchaser.

Quite apart from this it is trite law that the construction of a contract must ultimately depend on the language of the particular contract viewed against the factual matrix applicable to that contract. The Agreement is not a typical estate agent’s commission contract; typically an estate agent will be engaged to try and interest someone in the property. Here however Mr Kidd knew that Mr Estafnous had (or was claiming to have) someone who was already prepared to offer £19m for the property; what Mr Kidd wanted to know was who it was. In this context, I see no difficulty in holding that Mr Estafnous had done what the Agreement required him to do when he put Mr Kapoor in touch with Mr Kidd.

Mr Shaw also submitted that Mr Migariaf had himself mentioned Mr Kapoor’s name to Mr Kidd. If it is suggested that he did so before Mr Estafnous did, I do not think this is right. Mr Migariaf did say in his witness statement that he gave Mr Kapoor full contact information about Mr Kidd and tried to set up a meeting between them, but this is not dated and there is nothing to suggest that it was before Mr Estafnous had made the initial introduction. If he had done I would have expected Mr Kidd to say so, but he did not. Nothing Mr Migariaf said in oral evidence persuades me that he was the one who first disclosed Mr Kapoor’s name to Mr Kidd.

Mr Shaw further submitted that the relevant introduction only took place when Mr Kapoor and Mr Kidd were physically brought together; and that I should find that Mr Migariaf was responsible for the initial meeting rather than Mr Estafnous. I have no hesitation in rejecting this submission. There is nothing in the Agreement which suggests that what was contemplated was a physical introduction, and it would seem to me to be a very narrow and artificial construction of the Agreement to hold that Mr Estafnous would only be entitled to his commission if he effected a physical introduction. In many property transactions there is no need for the principals to meet in person, and it is often inconvenient to do so. A vendor does not pay commission because an agent has given him the opportunity to meet his purchaser in person, but because he has put him in touch with a purchaser who completes a purchase. It was clearly not a meaning of “introduction” that would have found favour with Waller LJ in Burney v The London Mews Company and I have not been shown any other authority that would support it. In my judgment this is not what introduction means in the Agreement.

This makes it unnecessary for me to resolve what was much the most contentious issue of fact at the trial, namely which of Mr Migariaf and Mr Estafnous was present at the initial meeting between Mr Kapoor and Mr Kidd; but in case I am wrong on the question of construction, I should briefly deal with it. Mr Estafnous said that he recalled a meeting at Regent House where he introduced Mr Kapoor to Mr Kidd and a Mr Selwyn, another director of LLBC. He says that he recalled meeting Mr Kapoor in the reception and taking him up to the conference room and there was then a discussion about the tenants and other matters to do with the building. Mr Kapoor denied any such meeting; he says he was first introduced by Mr Migariaf to Mr Kidd in about May or June 2001 at the Marriott Hotel (which is around the corner from Regent House), and that the only times he met Mr Estafnous were after the transaction completed. Mr Migariaf said that Mr Kidd was reluctant to meet Mr Kapoor until he had evidence of his standing, which was supplied by the bank reference of 25 May 2001. Once this had been provided, a meeting was arranged between Mr Kapoor and Mr Kidd at the Marriott Hotel and “I made that introduction without any involvement by [Mr Estafnous] at all”. He also said that as far as he was aware Mr Estafnous never met Mr Kapoor during the whole of the transaction. Mr Kidd confirmed that he met Mr Kapoor at the Marriott hotel after he had received the bank reference and Mr Estafnous was not present; he adds however that “I cannot now be absolutely clear as to whether or not we had a brief preliminary meeting before I received this evidence [of standing]”; and in oral evidence was prepared to accept that there had “quite possibly” been a meeting at the property at some time.

I find that the first meeting between Mr Kapoor and Mr Kidd took place at the Marriott Hotel without Mr Estafnous being present: this is what both Mr Kapoor and Mr Kidd said, and Mr Estafnous himself accepted in oral evidence that there may have been such a meeting without anyone telling him about it. I also accept that Mr Migariaf was there and introduced Mr Kapoor to Mr Kidd. This meeting took place after 25 May 2001 and probably before Mr Kidd went to the Caribbean in June 2001. I find it much more difficult to know whether as Mr Estafnous said there was a meeting at the building, but if there was, it was I find a later one. It follows that Mr Estafnous did not physically introduce Mr Kapoor to Mr Kidd as they had already met. For the reasons I have already given however, none of this in my judgment matters, as Mr Estafnous had effected an introduction within the meaning of the Agreement on or shortly after 30 March 2001.

In summary, I am in no doubt that Mr Estafnous did introduce Mr Kapoor to LLBC as required by the Agreement. I add that it is notable that Mr Kidd in his witness statement gave a number of reasons why commission was not in his view payable under the Agreement, but did not suggest that one of them was that Mr Estafnous had not made an introduction. This cannot be determinative, as what the Agreement means is a matter of law; but I have little doubt that if Mr Estafnous had not done what Mr Kidd was expecting him to do, Mr Kidd would have mentioned it.

In my judgment the answer to this is No.

Under Clause 1 of the Agreement the commission is payable on Mr Kapoor (or a party associated with him) “completing a purchase of the Property”; and Clause 3 refers to the commission being payable on “completion of the sale of the property”. The Property is not defined as such but is clearly a reference back to the property referred to in Recital (A), namely the property “situate at and known as 24-25 Nutford Place, 136-138 George Street and 112-130 Edgware Road, London W1”. This is self-evidently a description of a building; and the normal meaning of a purchase (or sale) of a building is the purchase (or sale) of the land (or to be more precise of a legal estate in the land). Mr Kapoor did not in the event complete a purchase of the land; after as well as before the transaction the land remained vested in Drillray as legal owner of the registered leasehold estate (holding on trust for LLBC). What Mr Kapoor (or more accurately Abbey Road, a party associated with him) purchased was the shares in IMCO (192002) Ltd.

It is true that this gave Mr Kapoor control of the building. There is also no doubt that this was the purpose of the transaction, as shown by Manches’ letter of 28 May 2002 which said that “the object is for our clients to acquire 24/25 Nutford Place” (paragraph 36 above). But in law the purchase of shares in a company that owns land is self-evidently a different transaction from the purchase of land. Thus for example in Freedman v Union Group plc (unreported, 4.3.1997), Mr Freedman had been instrumental in introducing a prospective purchaser of a property and had a written contract under which he was entitled to a fee of 1% “in the event of a sale ensuing”. The property transaction was later replaced by a corporate sale and Mr Freedman negotiated a reduced fee, but when he tried to claim it was met with a defence among others that there was no consideration. This was rejected on the basis that it was enough that he had a genuine claim under the earlier agreement, Peter Gibson LJ saying

“The fact that a lawyer would probably not interpret the January agreement that way because in law the sale of the property by a company is not the same thing as the sale by all the company’s shareholders of their shares, is immaterial, given the genuineness of Mr Freedman’s belief, shared by Mr Lewin that he had a cause of action.”

This suggests that Peter Gibson LJ at any rate would not have thought the earlier agreement apt to cover a sale of shares. A similar view was taken by McNair J in Harris & Gillow v Kelly (1953) 162 EG 622. The plaintiff estate agents had a written contract entitling them to commission on the sale of a dance hall, but failed in a claim to recover commission on the sale of the shares in the company that owned the dance hall. The case is briefly reported and the terms of the contract not set out, but it appears that McNair J rejected the claim because the share transaction was a different transaction and not covered by the express terms of the contract.

When one adds to this the fact (which Mr Estafnous readily agreed to in oral evidence) that all that was in contemplation at the time of the Agreement was a property transaction, the argument that the Agreement nevertheless covers the transaction that took place faces obvious difficulties.

Miss Tozer submitted however that certain cases had taken a more liberal view. She referred me to Levers v Dunsdon (1967) 206 EG 979, in which a commission agreement entered into between the Plaintiff estate agent and the Defendants provided that commission was payable on the sale of “the business and freehold property, fixtures, fittings and equipment, not including stock, known as the Gap Bridge Motor Company.” In fact the Defendants were shareholders in a company which owned the freehold and business and sold the shares in the company. MacKenna J held that the Plaintiff was entitled to his commission, saying:

“It was argued by the defendants that if the agreement was to pay commission on the sale of the assets, no commission was payable in the event which happened, which was the sale of shares. For a time I was troubled by this point, but on consideration I am of opinion that the commission agreement was wide enough to cover the sale of shares, at least in the case where the price of the shares was calculated as it was in the present case.”

This is undoubtedly some support for a more liberal interpretation but the reasoning is very brief. (It also appears that an appeal was brought and settled on the basis of the Plaintiff accepting £3,000 (as opposed to £5,890 awarded him under the judgment) so the parties at any rate appear to have seen some room for doubt as to whether the judgment would have been upheld.)

Miss Tozer also referred me to the New Zealand case of Allen v Anderson [1969] NZLR 951. In this case the commission agreement, signed by Mr Anderson as “owner”, appointed the Plaintiff as “my agent for the sale of my property hereon described” and promised to pay a commission if “the property is sold to anyone”. The property was described as “Moat Service Station”. In fact Mr Anderson did not own the land or business, but he and his co-defendant owned the shares in a company which owned the land and business, and sold the shares to a purchaser introduced by the Plaintiff. Turner J upheld the claim for commission, saying:

“A land agent’s authority is not to be construed technically and narrowly. It is a commercial document, usually drawn up by a layman and signed by a layman, without special professional advice, and it should be read in the light of common sense so as to result in common-sense justice. When Mr Anderson signed this authority he knew he had no “business” to sell in the technical sense; all he had was shares. If therefore through the introduction of the agent a purchaser had been found to whom the company had sold its business, the authority would have been read as an authority from the company (through Anderson) to sell its “business”....But if (as actually happened) the shareholders chose not to conclude the matter in this way, but to sell their shares instead, they must in my opinion themselves be liable for commission for services which resulted in them, and not their company, collecting the purchase money. It seems to me useless for Mr Anderson to say as he has attempted to say in this case: “I know that I signed an authority to sell a business. I know that the work done by the agent pursuant to this authority resulted in some sort of a “sale”; but that sale was a sale of shares, and what I specified in my authority was a sale of a business.” Can it lie in his mouth, having represented that he had a business to sell, now to say by way of defence that in fact he had no business ?”

Miss Tozer said that similarly LLBC actually had no title to the land to sell as the land was vested in Drillray, and although this was not known to Mr Estafnous, it was a fact reasonably available to him as it was recorded at HM Land Registry, and the register of title, being a public document, is admissible in evidence as part of the background facts against which the contract must be construed: see Scott v Martin [1987] 1 WLR, 841 at 849H where Nourse LJ held that a planning permission was admissible to construe a conveyance. This, she said, shows that the Agreement cannot have been referring to a sale of the land as such and should therefore be construed as extending to any transaction under which the Intended Buyer acquired the ultimate beneficial ownership of the Property.

I accept that if LLBC had sold the shares in Drillray, the analogy of Allen v Anderson would have been a close one. I doubt that it would then have been necessary to rely on the principle exemplified in Scott v Martin: having held itself out as owner of the land when it fact it was owner of (a) the shares in Drillray and (b) the beneficial interest in the land, I can see a strong case for saying that LLBC would have made itself liable for commission if it had sold what it had to sell, namely either (a) by selling the shares in Drillray or (b) by exercising its rights as equitable owner to require Drillray to convey the legal estate. But this is not what happened, and I do not need to decide what the position would have been if it had.

Where however I think the analogy breaks down is that in this case in the end LLBC did not sell anything. Instead it was itself sold (as part of the transaction under which the actual subject-matter of the sale was the shares in IMCO (192002) Ltd). There are two reasons why I do not think this makes LLBC liable for payment of commission under the Agreement. First, Clause 1 in referring to the Intending Buyer “completing a purchase of the Property” must be read with Recital (A), the purpose of the recitals being to give the background to the Agreement. Recital (A) refers to LLBC having agreed, subject to contract, to sell the property; and in this context the reference in Clause 1 to a purchase of the Property is in my judgment to a purchase of the sort contemplated by Recital (A), that is on a sale by LLBC.

The second reason, which is allied to the first, is that while it is entirely normal (and readily understandable) for a company such as LLBC to pay commission on a sale of its own asset (in that it would receive the purchase price), it is much less clear why a company would agree to pay commission on a sale of itself or of its parent, where the proceeds of sale will not benefit the company at all, but its shareholders. It is, to put it at the lowest, not obvious how this would be in the interests of the company. I am not at this stage concerned with whether there would be any illegality involved (this arises under Issue v) below); but such a transaction would be an unusual one for a company to enter into. As such if a contract is intended to make a company liable for paying commission on a sale of itself or its parent, this should in my judgment be spelt out in clear words. Where a perfectly sensible meaning can be given to a contract without it, I do not think the Court should construe a contract as extending to such a commission without this being clear from the language used.

I therefore reject the construction advanced by Miss Tozer. I do so with some regret as I acknowledge the force of the point that she eloquently made that such a construction in effect enabled the vendor to avoid paying commission by structuring a transaction in a different way. I do not think that in this case Mr Kidd set out to deprive Mr Estafnous of commission in this way – his evidence was to the effect that if he had received £19m, he would have been happy for Mr Estafnous to have his commission however the transaction was structured, and he plainly thought that the main reason why Mr Estafnous was not entitled to his £2m was that the price of £19m was never in the event obtained, the terms of Clause 3 coming as some evident surprise to him in the witness box. But it undoubtedly follows from the construction I have adopted. Nevertheless the construction of a written contract, however much informed by commercial common sense, must ultimately be based on the language used in the contract; and it is not an uncommon experience for parties to a contract to find that they have not made provision for the events which have happened. In this case Miss Tozer did not argue that any term should be implied into the contract and based her case squarely on its true construction, but for the reasons I have given I do not think the Agreement is to be construed as she submits.

In my judgment the answer to this is No.

If (as I have held) the Agreement does not on its true construction cover the transaction which in fact occurred, Miss Tozer submits that it was varied by agreement between Mr Kidd and Mr Estafnous. She relies on the e-mail from Mr Kidd of 12 June 2001 as constituting an offer, which was impliedly accepted by Mr Estafnous continuing to progress the transaction. The pleaded case (as amended in the course of the hearing, my having indicated that I would encourage both parties to amend their pleaded cases to reflect more accurately their contentions at trial) is that by the e-mail Mr Kidd

“informed [Mr Estafnous] that he proposed to “sell the company” rather than the interest in the property held by “the company” and requested that [Mr Estafnous] progress the revised transaction...”

and that

“As requested by [LLBC], [Mr Estafnous] continued to progress the transaction, inter alia by forwarding that e-mail to Mr Kapoor on 15 June 2001. Accordingly [Mr Estafnous] impliedly accepted an offer made by [LLBC] in the e-mail referred to ... to vary the Agreement (if on its true construction it was necessary to do so) so that the commission referred to therein would be payable upon a sale of all of the shares, or a controlling interest in the company in which title to the property was vested, [LLBC] and/or another company which directly or indirectly owned Drillray.”

I have set out the e-mail above (paragraph 31). I find it impossible to spell out of this e-mail, expressly or impliedly, any offer by Mr Kidd to Mr Estafnous to vary the Agreement. There are a number of reasons why this is so. First, it does not refer to the Agreement, or to Mr Estafnous’s commission, at all. This is an unpromising start for any suggestion that it would be understood by a reasonable recipient as an offer to vary his commission arrangements. Second, although it is addressed to Mr Estafnous, it says nothing about his personal position. Rather, it is sent to him so he can pass on the information in it to Mr Kapoor and his solicitors. Third, consistently with this, the reference to “We now require to sell the company ...” is part of the information which Mr Kidd asks Mr Estafnous to pass on to Mr Kapoor; it is intended by way of clarification of the terms which are on offer as between Mr Kidd and Mr Kapoor. There is nothing to suggest that it is also intended to be taken by Mr Estafnous as an offer to vary his own contractual position.

In my judgment the e-mail was simply what it purported to be, a response to Mr Estafnous’s two faxes of 8 and 12 June 2001. Mr Estafnous had raised what appeared to be difficulties in the transaction; and Mr Kidd was replying with clarification of the terms LLBC required, for passing on to Mr Kapoor. He was using Mr Estafnous as a channel of communication, and indeed did ask him to progress the transaction by passing the information to Mr Kapoor; but this was only natural given that Mr Estafnous had raised the problems in the first place. I find it impossible to read this as containing a promise that if he did so, the commission agreement would be varied.

Mr Estafnous did pass the information on to Mr Kapoor (by forwarding the e-mail on 15 June 2001). I accept that in doing so he was progressing the transaction, although he does not appear to have played any significant part after that. But I do not consider that he was thereby accepting any offer to vary the Agreement for the simple reason that no such offer was made. I may add that neither Mr Kidd nor Mr Estafnous thought that there had been a variation in the Agreement, and although no doubt this question is to be answered objectively, it would be a little surprising if a contract had been varied when neither party thought it had.

I should also record that Mr Shaw placed some reliance in this context on a document disclosed by Mr Estafnous. It is a draft, ostensibly dated October 2002, of a letter to be sent by Mr Estafnous to LLBC, referring to the details of the share sale agreement which in fact took place, and agreeing to accept an unspecified sum in settlement of any claims he might have under the Agreement. It is obviously professionally drawn, and Mr Shaw suggested that it could only have been drawn up because Mr Estafnous did not think that the Agreement covered the transaction which had taken place (and hence that it could not have been varied). Mr Estafnous, despite disclosing it, denied all knowledge of the document. I do not find it either necessary or helpful to try and reach any conclusions about this unexplained document.

In the light of my answer to Issue iii), this does not arise. It was however fully argued and I will give my views.

Sections 151 to 153 of the Companies Act 1985 (in Chapter VI, headed “Financial assistance by a company for acquisition of its own shares”) provide, so far as material, as follows:

“151

Financial assistance generally prohibited

(1)

Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place.

(2)

Subject to those provisions, where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

(3)

If a company acts in contravention of this section, it is liable to a fine, and every officer of it who is in default is liable to imprisonment or a fine, or both.

Mr Shaw’s submission for LLBC is that if the Agreement was varied on or shortly after 12 June 2001 as contended for by Miss Tozer, it was unlawful under s. 151(1). He submits that Mr Kapoor was then a person proposing to acquire shares, the agreement by LLBC was an agreement to give financial assistance for the purpose of that acquisition, and the Agreement is therefore to this extent unlawful and cannot be enforced.

Miss Tozer had a number of answers to this. The first was that at the time of the assumed variation Mr Kapoor could not be described as “proposing to acquire” shares in a company as he was still undecided whether to do so. She referred to the commentary in Buckley on the Companies Acts at §151.19 to the effect that

“for a person to be “proposing” to acquire shares he has to have formed an intention to acquire shares. It is not sufficient if he is merely considering the possibility of acquiring shares.”

Reference is then made to the well-known case of Cunliffe v Goodman [1950] 2 KB 327 where Asquith LJ discussed the meaning of intention. Miss Tozer referred to the letter of 31 May 2001 from Gordons to Lawrence Graham which said that their client was prepared to consider the transaction as one of sale and purchase in the shares of the owning company “but is not prepared to commit to the same until we have fully investigated the owning company” and said that this showed that Mr Kapoor had not formed a definite intent to enter into a share sale.

I do not accept Miss Tozer’s submission. With all respect to the learned editors of Buckley, I am not sure that the question whether someone is proposing to do something is quite the same as whether they are intending to do it; but whether this is so or not, a person can I think be described as proposing to acquire a company even if they have not carried out due diligence and reserve the right not to proceed if the due diligence might turn up something that would cause them to abandon the proposal. I consider that by 31 May 2001 Mr Kapoor was proposing to acquire shares even though he was understandably not prepared to commit to the acquisition until after full investigation. Any other view would mean that a company that paid the cost of commissioning a report into itself from investigative accountants would be likely to be outside the reach of s. 151, yet just such an arrangement was held to be caught by s. 151 in Chaston v SWP Group plc [2002] EWCA Civ 1999.

I have felt much more doubt whether Mr Kapoor was proposing to acquire shares in any relevant company. The company which Abbey Road ultimately acquired shares in was IMCO (192002) Ltd which was not in his contemplation at the time – indeed it was not even then in existence, not being incorporated until 28 May 2002. In June 2001, Mr Kidd had simply asked Mr Kapoor to agree to a sale of “the owning company” (see Lawrence Graham’s letter of 30 May 2001) which is most naturally read as referring to Drillray. If this was all that Mr Kapoor proposed to acquire, s. 151 would not be engaged as on any view there was no assistance given by Drillray or its subsidiaries. Since s. 151 is a penal section, there is much to be said for the view that unless it can be distinctly shown that Mr Kapoor in June 2001 proposed acquiring either LLBC or its parent, the section has no application, and that this cannot be shown. Nevertheless, the s. 151 point only arises if the 12 June 2001 e-mail is to be read as an offer to vary the Agreement to cover sale either of Drillray or of LLBC or of any other company that was the ultimate owner of Regent House; and if this e-mail (in which Mr Kidd simply said “we now require to sell the company”) can be so read, it would seem wrong to give a different interpretation to Lawrence Graham’s letter of 30 May 2001. I am therefore prepared to assume that Mr Kapoor can be said in June 2001 to have been proposing to acquire shares in whichever company Mr Kidd and his fellow-shareholders decided should be sold, including, if they thought fit, LLBC or its parent.

The next question is whether under the Agreement as varied LLBC, by promising to pay commission to Mr Estafnous on a sale of itself or its parent, was promising to give financial assistance for the purpose of that acquisition. It is established that “financial assistance” has no technical meaning and “one must examine the commercial realities of the transaction and decide whether it can properly be described as the giving of financial assistance by the company, bearing in mind that the section is a penal one and should not be strained to cover transactions which are not fairly within it”: Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1, 10 per Hoffmann J, approved by the Court of Appeal in Barclays Bank plc v British & Commonwealth Holdings plc [1996] 1 BCLC 1. So the question is whether the assumed variation of the Agreement can as a matter of commercial reality fairly and properly be described as the giving of financial assistance by LLBC for the purposes of the acquisition. It seems to me that this requires that the transaction must at least have been intended to help the acquisition take place, or as Arden LJ put it in the Chaston case to “smooth the path to the acquisition” (at paragraph [38]).

Mr Shaw initially submitted that the Agreement as varied did this as it relieved the vendors of any obligation to pay commission to Mr Estafnous. My difficulty with this is that I do not see that the vendors would have had any such obligation. Mr Shaw then submitted that the variation smoothed the path to the acquisition because the variation was said to be in consideration of Mr Estafnous progressing the transaction. I can see that if Mr Estafnous’s services had really been needed to bring the transaction to a successful conclusion, and if the variation of the Agreement had been the price that needed to be paid to secure them, this might very well have been the giving of financial assistance by LLBC for the purpose of the acquisition. But looking at the commercial realities I do not think this was the position. There is an inevitable artificiality in even asking the question what LLBC’s purpose in agreeing to vary the Agreement was when Mr Kidd (the relevant director of LLBC for this purpose) did not intend to vary the Agreement at all, and when I have found that there was no such variation; but I agree with Miss Tozer that if there had been a variation, the commercial reality would have been that the agreement to pay Mr Estafnous was not made to secure his services (which Mr Kidd did not really need in order to conclude the transaction, and in the event did not use except for asking him to pass on the e-mail, a service which scarcely merited the payment of £2m), but to reward Mr Estafnous for the introduction which he had already made. In this respect the case would have been similar to Corporate Development Partners v E-Relationship Marketing Ltd [2007] EWHC 436 (Ch), a decision of Rimer J in which he held that there had been no breach of s. 151 where the defendant company agreed to pay a transaction fee to the claimant in the event, among other things, of someone introduced by the defendant acquiring the company. The question whether a particular transaction is in breach of s. 151 is no doubt a fact-sensitive one, but if there had been a variation I would have found the facts of that case similar to this and would have adopted a similar analysis to that of Rimer J.

If the question had arisen therefore I would have held that the variation of the Agreement did not entail any breach of s. 151.

That makes it doubly unnecessary to consider the other points argued on s. 151. I will therefore just briefly record my conclusions on them:

For the reasons I have given however if the Agreement had been varied, I would not have found that to involve a breach of s. 151.

In the light of my conclusions on Issues ii) and iii), this does not in the event arise either but I will give my views.

Section 263 of the Companies Act 1985 provides as follows:

“263 Certain distributions prohibited

(1)

A company shall not make a distribution except out of its profits available for the purpose.

(2)

In this Part “distribution” means every description of a distribution of a company’s assets to its members, whether in cash or otherwise, except distribution by way of –

(a)

an issue of shares as fully or partly paid bonus shares,

(b)

the redemption or purchase of any of the company’s own shares out of capital (including the proceeds of any fresh issue of shares) or out of unrealised profits in accordance with Chapter VII of Part V,

(c)

the reduction of share capital by extinguishing or reducing the liability of any of the members on any of the company’s shares in respect of share capital not paid up, or by paying off paid up share capital, and

(d)

a distribution of assets to members of the company on its winding up.

(3)

For purposes of this Part, a company’s profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution of capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

This is subject to the provision made by sections 265 and 266 for investment and other companies.

(4)

A company shall not apply an unrealised profit in paying up debentures, or any amounts unpaid on its issued shares.

(5)

Where the directors of a company are, after making all reasonable enquiries, unable to determine whether a particular profit made before 22^nd December 1980 is realised or unrealised, they may treat the profit as realised; and where after making such enquiries they are unable to determine whether a particular loss so made is realised or unrealised, they may treat the loss as unrealised.”

This section has also now been repealed but not so as to affect the present case.

It was not suggested that LLBC had sufficient profits available for distribution to make a distribution of £2m. The question is whether the agreement to pay £2m to Mr Estafnous was an agreement to make a distribution within the meaning of s. 263(2). I accept that s. 263(2) is widely worded (“every description of a distribution … whether in cash or otherwise”) and covers, for example, a sale of a company’s assets at an undervalue to an entity controlled by its members (see Aveling Barford Ltd v Perion Ltd [1989] BCLC 626). But s. 263(2) requires that the distribution be a distribution “to its members”. Mr Estafnous was not a member of LLBC and prima facie the agreement to pay him is not caught.

Mr Shaw’s submission was that this was nevertheless an agreement to make a distribution to LLBC’s members (Regent or the individual shareholders in Regent) because it avoided the need for Regent or its shareholders to pay an agent to find a buyer for their shares. This is similar to a submission he made in relation to s. 151, and I reject it for similar reasons. I accept that if a company discharges a liability owed by its members, that can amount to a distribution to the members; but neither Regent nor its shareholders were under any liability to Mr Estafnous, and I do not accept that LLBC’s agreement to pay him relieved them of any obligation, or need, to do so.

Mr Shaw came close to submitting that whenever a company paid out money to a third party at the direction of its members that was a distribution to the members; but in my judgment this is not so. The distribution has to be one which can be regarded as a disguised way of making a distribution to the members; and I do not think the agreement to pay Mr Estafnous can fairly be regarded as a way of distributing anything to Regent or its shareholders. It was a payment to Mr Estafnous, not to its members.

It follows that if I had held that the Agreement (either on its true construction or as a result of a variation) covered the transaction that took place, I would not have held that it was illegal as involving a contravention of s. 263.

It may be helpful if I summarise my conclusions on the 5 issues:

In the light of my conclusions Mr Estafnous’s claim fails and the action must be dismissed.