Ford v Polymer Vision Ltd

This is the application of the claimant, Stewart Ford, for summary judgment for declarations as to the validity of (a) a debenture granted to him by the defendant, Polymer Vision Limited (“PVL”), on 29 January 2009 (“the Ford debenture”) to secure all liabilities owed by PVL to Mr Ford, and (b) an agreement dated 5 February 2009 (“the Option Agreement”) whereby PVL granted to Mr Ford the option, exercisable during a ten year period commencing 3 February 2009, to purchase all of PVL’s assets and undertakings for a sum equal to the aggregate of its “actual liabilities and indebtedness” as verified by PVL’s auditors. The application also seeks specific performance of a covenant for further assurance contained in clause 6 of the Ford debenture.

PVL was established in November 2006 to conduct a joint venture concerned with the development of technology relating to “rollable displays”, in particular a product called Readius. The product is not yet on the market and PVL has, I was told, made no profits. Its main assets are said to be its intellectual property rights in respect of the technology which it is in the course of developing.

PVL became a joint venture vehicle for the development of the technology as a result of a subscription and shareholders agreement (“the SSA”) dated 4 December 2006 and made between Technology Capital SA (“TCSA”), PVL and Koninklijke Philips Electronics NV (“Philips”). Philips, which is a Dutch company and had been developing the technology prior to that date, transferred its business of doing so to PVL with a view to the SSA. Under the SSA TCSA agreed to subscribe for 5.46 million A preference shares at a price of €21.3 million and Philips subscribed for (or was to be treated as having subscribed for) 910,000 B preference shares and a like number of C preference shares at a price of €3.5 million. Further terms included an agreement by TCSA to provide management services and confirmation that a Mr Arnold Eber and a Mr Karl McGoldrick were directors, with Mr Eber as a “Special Director” within the meaning of PVL’s articles. Mr Eber was appointed chairman of PVL’s board of directors, and Mr McGoldrick was appointed PVL’s chief executive officer. The result of all this was that TCSA became the holder of 75% of PVL’s voting shares with Philips holding the remaining 25%. A quantity of non-voting shares were (or were to be) held by the trustee of an employee share ownership plan.

To accommodate the new shareholdings PVL passed special resolutions and adopted new articles on 4 December 2006, the same day as the SSA.

TCSA, which is a Luxembourg company, was - and is - the wholly owned subsidiary of BWT Holdings Limited (“BWT”) which in turn is effectively under the control of a Mr David Elias. BWT is a Malaysian company. Mr Elias, who is a British subject, is resident in Malaysia.

Although incorporated in this country, PVL is, according to the evidence, based in Eindhoven in the Netherlands where it occupies premises leased to it by Philips. It has a wholly owned subsidiary called Polymer Vision UK Limited (“PVUK”), also incorporated in this country, which operates out of Southampton.

What has given rise to this litigation is a combination of (a) the parlous financial state in which PVL finds itself, in particular its need for cash if it is to maintain its operations, and (b) and more immediately, Mr Ford’s concern, having advanced substantial monies to PVL, to ensure that those advances are secured by the Ford Debenture, insofar as that instrument purports to extend to them. It is because PVL and, more precisely, TCSA have questioned the validity of the Ford Debenture and also the subsequent Option Agreement that Mr Ford has commenced these proceedings. He did so by a claim form issued on 25 February 2009. At the same time he served particulars of claim and launched the application for summary judgment (“the application”) which is before me. Before taking those steps he applied that same day, 25 February, to Warren J on a without notice basis for an order, which he obtained, abridging time for the service of the application so that the matter could come before the court on due notice to the other side the following day, 26 February. On 26 February, at a hearing at which PVL was represented, Warren J gave directions for the service of evidence on the application with a view to an expedited hearing on 6 March.

In the event the application came before me. Present on 6 March, apart from Mr Ford’s legal team led by Mr Michael Todd QC and Mr Geoffrey Zelin, were counsel, Mr Nicholas Peacock and Mr Alex McCluskey, instructed by administrators of PVL purportedly appointed by TCSA the previous Wednesday, 4 March. TCSA claimed to be entitled to do so as holder of a qualifying floating charge contained in a debenture (the “TCSA debenture”) dated 4 December 2006 (the same day as the SSA) granted to it by PVL to secure all of PVL’s obligations to TCSA under the SSA.

The administrators sought before me to enforce the moratorium on legal process imposed by paragraph 43(6) of schedule B1 to the Insolvency Act 1986 and thus to stay further pursuit of the proceedings which Mr Ford had begun. Mr Ford’s riposte was to challenge the validity of the administrators’ appointment. This was on the basis that PVL’s centre of main interests was not in this country but in the Netherlands and therefore that the administrators’ appointment could not constitute main proceedings within the EC Regulation. (There was also a challenge to the validity of any security created by the debenture and whether any and if so what money was secured by it.) If PVL’s centre of main interests was in the Netherlands it was common ground that the appointment was invalid. At Mr Peacock’s invitation, but against the opposition of Mr Todd, I granted a short adjournment to enable the administrators to investigate the matter and file evidence.

When the matter returned, on Wednesday 11 March 2009, the administrators were no longer represented by solicitors and counsel. This was because, I was told, they had received no funding to enable them to have any representation or to pursue any investigation into the validity of their appointment. Mr David Rubin, one of the administrators, was present in court. He addressed me in person on the basis of such information as was available to him on the location of PVL’s centre of main interests. Having considered what Mr Rubin had to say and the evidence on the issue which Mr Ford’s side had filed, and Mr Todd’s submissions, I ruled that PVL’s centre of main interests was indeed in the Netherlands. It followed that the purported appointment by TCSA of Mr Rubin and his colleague as joint administrators was invalid. By this time, however, PVL was represented, or at least there was a claim that it was represented, by Mr John Jarvis QC and Mr James Evans. The further hearing of the matter resumed at 2 pm that day with Mr Zelin addressing me on the substantive relief claimed by Mr Ford’s application.

The hearing continued on the following Monday, 16 March, for which only the morning was available. During the course of the hearing I was informed by Mr Jarvis that a question had arisen over the validity of the resolution authorising solicitors and counsel to act for PVL and represent it before me. This therefore called into question the extent to which the stance reflected in the submissions of Mr Jarvis and Mr Evans, which was to oppose the relief sought, could be said to represent PVL’s position in the matter. I agreed nevertheless to continue hearing their submission on a “de bene esse” basis as Mr Jarvis put it. Despite efforts during the course of the morning to obtain clarification on the point, PVL’s representation before me remained moot by the time the hearing was adjourned at 1.10 pm that day. The hearing resumed two days later on 18 March. PVL’s representation before me that day was still unresolved. Out of courtesy, Mr Evans was in court although without formal instructions from PVL. He only felt able to say that PVL opposed the relief sought by the application but advanced no further submissions. In these unsatisfactory circumstances Mr Zelin continued and completed his submissions. I reserved judgment at the end of them. What had originally been listed by Warren J as a one day hearing had taken three full days in all.

It is clear, as I have mentioned, that although it received a substantive injection of funds when TCSA acquired its 75% holding of voting shares in PVL in December 2006, by late 2008 PVL was again in need of further cash if it was to continue as a going concern. Over and above PVL’s cash needs it appears that Mr Elias too was in need of funds. Mr Ford became involved as a result of an introduction to Mr Elias in or around September 2008. Through Mr Elias Mr Ford got to know of TCSA and TCSA’s shareholding in PVL and the new technology which PVL was developing. He became very interested in what PVL was working on and, in due course, was introduced to various PVL directors, including Mr Eber and McGoldrick. He became aware, in the course of all of this, of PVL’s pressing need for further funds.

Initially, Mr Ford was willing to advance monies to Mr Elias personally. He did so by advancing $3.25 million and the value of a bond (expressed to be worth $2,114,173) on the terms of a loan agreement dated 15 October 2008 (“the October Agreement”). By December 2008, Mr Elias was in need of further money. This resulted in the advance by Mr Ford to Mr Elias of a further $1 million and the signing of an addendum to the October Agreement (“the Addendum”). For his part, Mr Elias agreed to the grant, or to procure the grant, to Mr Ford of security for the latter’s overall advance, inter alia by (1) an assignment by TCSA of the benefit of the TCSA debenture over the assets and undertaking of PVL, (2) a pledge by BWT (Mr Elias’s company) over certain shares in a BWT subsidiary called Applejack Holdings (“Applejack”) and (3) the assignment or charging of certain income streams of a subsidiary of Applejack called Novo Acre. The security was expressed to be “a first priority security”. BWT was a party to the Addendum and signed it.

On 7 January, a telephone conference took place. The participants were Mr Eber, Mr Elias, Mr Ford and a Mr Robert Rakison. Mr Rakison is a solicitor and a member of Grundberg Mocatta Rakison LLP (“GMR”) based in Kingsway, London WC2. At the time, GMR acted for PVL and also for TCSA. In addition, Mr Rakison was himself a non-executive director of PVL.

There is a dispute over what if anything was agreed during that telephone conference. PVL has maintained through Mr Rakison that nothing was agreed, merely that various matters were discussed. Mr Ford and Mr Eber consider that definite agreements (albeit oral only) were reached. This being a summary judgment application, I shall assume that nothing concrete was agreed.

It is common ground that, among other matters discussed during that conference, was PVL’s financial position and its need for further funds if it was to avoid going into administration or some other form of insolvency process. Other matters were discussed included (a) a loan by Mr Ford to PVL of £500,000, (b) Mr Ford’s wish to be in control of PVL’s board (if such a loan were made) and (c) the need (if this was to happen) for Philips to be removed as a shareholder of PVL and for the issue to Mr Ford of preference shares in the company.

In his dealings with PVL Mr Ford was being advised by solicitors, Withers LLP, particularly in the persons of a Mr Duthie and Mr Winn. On 9 January Mr Winn of Withers e-mailed to Mr Rakison and others a draft loan agreement (to which Mr Ford, PVL and TCSA were expressed to be parties) providing for Mr Ford to advance £500,000 to PVL. The loan was to be repayable on demand and would carry interest at 20% per annum which was to accrue daily and be payable quarterly in arrear but which would be increased to 25% and be compounded on the last business day of every month in the event of a default in payment until payment should be made. Security for the loan and interest was to be by way of a fixed and floating charge over PVL’s assets which PVL and TCSA (as PVL’s largest shareholder) were to undertake to create and perfect by no later than ten business days after the advance was made. Among other terms in the draft was that the loan and interest should be convertible “into such number of shares of [PVL] as shall be required for [Mr Ford] to hold 100 percent of the total issued share capital …of [PVL] created as fully paid up at any time while the loan or any part thereof is outstanding, on giving [three] days notice to [PVL]…” PVL and TCSA were to use their best endeavours to effect such conversion and to negotiate the cancellation of PVL’s employee share ownership plan.

Mr Rakison, believing GMR to be conflicted in the matter, felt unable to act and so advised Mr Ford, Withers and Mr Eber. He went further: he resigned his directorship of PVL. In a lengthy letter to Mr Eber, written that same day (9 January), he drew attention to PVL’s dire financial position and to the obligations that this placed upon its directors, in particular the obligation to act in the best interests of creditors. He stated that it was “only appropriate for a company to continue trade where the directors believe it is reasonable to do so in the likelihood of obtaining ongoing finance”. He drew attention to the fact, as he understood it, that PVL “until the injection of £500,000 by Stewart Ford … had completely run out of funds”. In paragraph 17 of his letter he wrote:

The resignation of Messrs Rakison, Kuan and Seah as directors left, at the most, three directors in office: Mr Eber (who was also chairman of PVL), Mr McGoldrick and Mr Elias. There is a dispute over whether Mr Elias tendered his resignation as a director of PVL during the 7 January conference call: Mr Eber thought that he had and wrote to him on 15 January to say that he was accepting his resignation; Mr Elias, however, did not accept that he had and e-mailed Mr Eber that same day to deny that he had. I must therefore proceed on the footing that Mr Elias remained a director of PVL.

It appears, however, that Mr Eber, PVL’s chairman, considered that the loan agreement was one which PVL should sign up to.

There is also a dispute over whether, during a board meeting on 30 July 2008, Mr McGoldrick tendered his resignation both as a director and as an employee of PVL. It appears nevertheless that, at the most, he was treated as having been suspended from his position as chief executive officer but continued in office as a director. This state of affairs seems to have lasted until Mr Eber purported to reinstate him as chief executive officer following the 7 January conference call whereupon, according to Mr McGoldrick (and there seems no doubt on the evidence that this is what occurred), he returned to work full time for PVL. I should add that, in the course of addressing me on the issue of PVL’s centre of main interests, Mr Rubin (one of the two joint administrators whom TCSA had purportedly appointed) referred to the fact, and produced a print-out of the relevant Companies House entries to show, that Mr McGoldrick had been continuously a director since 16 November 2006. It is also pertinent to add that, although Mr Ford and Withers were aware by 15 January 2009 of the dispute over whether Mr Elias had resigned his directorship earlier that month, they say that they were unaware that there was any issue over Mr McGoldrick’s position until towards the end of February 2009 which is after the events with which this application is concerned. Relevant to this is that I have seen nothing in the evidence, and my attention has not been drawn to anything, to indicate that Mr Ford or Withers had any prior awareness of whether at any stage Mr McGoldrick had been suspended from his position as chief executive officer. On the contrary, e-mails to them from mid-January onwards from, inter alia, Mr Rakison, were copied to Mr McGoldrick. On any view, it would seem, Mr McGoldrick was fully back in post from mid-January onwards.

Mr Ford’s case is that on 9 January 2009 he entered into a facility agreement, set out in a letter of that date (“the Facility Letter”), which was in materially the same terms (indeed most of it is word for word the same) as the draft circulated earlier that day by Withers to Mr Rakison and others. The Facility Letter was signed by Mr Ford and, separately, by Mr Eber on behalf of PVL. Mr Ford, it is not disputed, advanced £500,000 to PVL that same day. The Letter was not signed by TCSA which has since refused to do so. This means that any undertaking by TCSA set out in the Letter (for example, to effect or procure the conversion of Mr Ford’s loan into a controlling shareholding in PVL) does not bind TCSA with the result that Mr Ford’s rights against PVL in respect of or associated with the £500,000 loan are at the most enforceable against PVL alone. This assumes that PVL is bound by Mr Eber’s action in signing the Letter on PVL’s behalf.

On Monday 12 January 2009, three days after the Facility Letter had been signed and the £500,000 loan to PVL had been advanced, Mr Rakison wrote again to Mr Eber. On this occasion he e-mailed a copy of the letter to Mr Ford (and others) as well as to Mr Elias. According to Mr Rakison, his letter followed a conference call the previous week between a Mr Johan Eliasch, Mr Ford and Mr Elias. Mr Eliasch, who controls a number of companies, had business dealings with Mr Elias (or entities controlled by him) in the course of which Mr Eliasch had advanced substantial sums of money. The conference call had dealt largely with issues between Mr Eliasch, Mr Ford and Mr Elias concerned with conflicting securities which Mr Eliasch (or the entities controlled by or associated with him) and Mr Ford claimed to have over assets held by entities controlled by Mr Elias (notably, TCSA’s shares in PVL). I am not directly concerned with those matters which are peripheral to the issues raised by this application. The only passage from the letter material to this application is paragraph 3.3 which stated as follows:

Although Mr Rakison questioned whether PVL had authorised the £500,000 loan to it, it was not suggested, in either this letter or in a follow-up letter from him to Mr Eber the following day, much less in any letter to Mr Ford or Withers (and whether from Mr Rakison or from anyone else) that PVL’s receipt of the £500,000 loan was in any way improper, let alone that it should be returned. It would appear - there is no challenge to this assertion in Mr Ford’s evidence - that the money was needed to pay employees and discharge some of PVL’s pressing creditors.

The following day, 14 January, Withers wrote to Mr Rakison giving notice of a breach by BWT and Mr Elias of their obligations under the Addendum. This was concerned with Mr Ford’s loans to Mr Elias personally and with Mr Ford’s rights - conferred by the Addendum - over the shares in Applejack. It was not concerned with any loan to or other contractual relationship he had with PVL. I only refer it as part of the background to Mr Ford’s dealings with PVL.

On 15 January, as I have already mentioned, Mr Eber wrote to Mr Elias (with copies, inter alia, to Mr Rakison and Mr McGoldrick) purporting to accept Mr Elias’s offer of resignation said to have been made during the 7 January conference call; Mr Elias e-mailed back that same day to deny that he had done so. On the same day, Mr Rakison wrote to Mr Eber, with copies inter alia to Mr Ford and Withers, to take up the issue of Mr Elias’s position on PVL’s board and, in particular, to deny that Mr Elias had resigned during the 7 January conference call. His letter went on to state that:

The next day, 16 January, TCSA signed a letter of nomination, pursuant to article 16.2 of PVL’s articles, re-appointing Mr Seah and Kuan as Special Directors of PVL. For good measure, in view of the issue over whether he had resigned, the letter also confirmed that Mr Elias should continue as a Special Director of PVL. The efficacy of this document has not been called into question. It meant that Mr Seah and Mr Kuan were once again directors of PVL and that, whatever doubt there may have been following the 7 January conference call, Mr Elias was without question a director of PVL as well. I will come later to the significance of the fact that they were “Special Directors” of PVL.

In a letter from Withers to Mr Rakison sent later that day, Withers repeated Mr Ford’s understanding that during the 7 January conference call Mr Elias had tendered his resignation and that subsequently the written resignation of Messrs Rakison, Seah and Kuan had been received and that, on that footing, “the meeting of the board of directors of the company which took place on Friday 9 January was properly constituted and attended by the only two directors of the Company at that time, being Arnold Eber and Karl McGoldrick”. But I have not seen any minutes of a directors’ meeting held on 9 January. In their witness statements Mr Eber and Mr McGoldrick do not suggest that any such meeting took place. Nor does Mr Duthie, the partner in Withers with responsibility for advising Mr Ford.

Another conference call took place on 18 January, this time between Mr Elias, Mr Ford, Mr Duthie and Mr David Burns of GMR. It resulted in a letter from Mr Duthie to Mr Rakison and Mr Burns the following day, 19 January. That letter dealt with two matters. The first, concerned with PVL, referred to PVL’s need for further substantial funds by the end of that week and to Withers’ understanding that PVL was “already technically insolvent”. It stated that Mr Ford had already lent £500,000 to PVL in accordance with the terms of the Facility Letter and that he was considering an advance of further funds “but clearly needs to engage with David Elias and [PVL] in order to resolve the outstanding issues before he would be prepared to do so.” The letter warned of the danger of delaying the provision of further funds having regard to the directors’ duties to PVL’s creditors. The other matter dealt with by the letter was Mr Elias’s continuing failure, having regard to the terms of the Addendum, to procure the security which he had thereby promised to provide for Mr Ford’s advances to him. That security included an assignment to Mr Ford by TCSA of the TCSA debenture. A draft assignment was enclosed. The letter called on Mr Elias to return the assignment duly executed by TCSA by 5 pm on 21 January 2009. As Mr Elias indirectly controlled TCSA through BWT (which was itself a party to Addendum) there was no reason why this outstanding contractual requirement should not have been fulfilled.

An executed assignment was not forthcoming by the stipulated deadline. The following day, 22 January, Withers emailed to GMR the text of a letter from Mr Ford to Mr Elias stating the terms on which Mr Ford would be willing to provide further financial support for PVL and a further substantial personal loan to Mr Elias. The letter followed a telephone conversation between them that morning. Among a variety of conditions which Mr Ford set out were (1) that the Facility Letter should be executed by TCSA, (2) that PVL and PVUK should provide Mr Ford with debentures by way of fixed and floating charges over their respective assets and undertakings, (3) that the boards of PVL and PVUK should formally approve the Facility Letter and the required debentures and supply certified copies of the relevant board minutes, (4) that TCSA should execute an assignment to Mr Ford of its security rights over any of PVL’s assets or undertakings (and including therefore the TCSA debenture) and (5) that Mr Elias and TCSA’s other nominees should provide copies of signed letters of resignation as directors of PVL. The letter stipulated further terms in relation to the monies that Mr Ford had advanced to Mr Elias personally. The letter went on to state:

Mr Burns responded by reminding Withers that GMR were unable to advise PVL owing to their conflict, but otherwise made no comment on the contents of Mr Ford’s letter. Mr Duthie replied to this by suggesting that Mr Elias make arrangements for PVL “to obtain such independent legal advice as he and other members of the [PVL] Board consider necessary and appropriate”. He mentioned that Mr Elias and Mr Ford would be speaking to each other that evening to address any outstanding commercial points and that, as he understood it, it was their joint view that the transaction documents should be put into final form and executed as soon as possible with a view to the release of the documents to Withers “if and when the parties decide that they are in a position to proceed”.

Mr Burns said in response that he had not yet had a chance to discuss the terms of Mr Ford’s letter with Mr Elias who, so far as he was aware, had not yet instructed lawyers to review any documentation on PVL’s behalf. A subsequent e-mail from Mr Duthie indicated that the matter was urgent and therefore that he was aiming to have the documentation all executed by close of business the next day (Friday 23 January) to enable Mr Ford to proceed on the Monday (26 January) “to provide such further financial assistance to [PVL] as he may consider appropriate”. The relevant documents were circulated at the same time.

Matters had not progressed during the following day, Friday 23 January. Mr Burns e-mailed Mr Duthie to say that he was awaiting instructions from Mr Elias and that, owing to GMR’s conflict, they could not advise PVL in respect of the loan agreement and the debenture to be created by PVL. He added that, so far as he was aware, PVL’s board had not made any arrangements in the matter. He referred to PVL’s need for legal advice in relation to the documentation.

On 27 January, following his return from a few days’ absence, Mr Rakison took up the correspondence again on GMR’s behalf. In a letter that day he again stated that nothing had been approved during the 7 January conference call but accepted that without the further funds - injected on 9 January - PVL would have had to consider entering into some form of insolvency procedure. He stated that the terms of the Facility Letter were objectionable and had given rise to a conflict which had precluded his firm from continuing to act both for TCSA and PVL and necessitated his resignation. He questioned whether any board meeting of PVL had taken place on 9 January (at which the Facility Letter had been purportedly entered into) and stated that, in any event, the resignation of Messrs Seah and Kuan could not have been effective before 12 January and that Mr Elias had not resigned at all, yet none of those three had been given notice of any board meetings that day. He questioned therefore whether the meeting could have been properly constituted.

In the meantime, Withers pressed Mr Rakison to indicate whether GMR continued to act for Mr Elias and/or TCSA even if the firm felt unable to act for PVL. Mr Rakison responded to say that GMR were without instructions from either but would come back when they had spoken to Mr Elias.

This he was able to do the following afternoon, 28 January, when he e-mailed various persons at PVL - with copies to (among others) Mr Eber and Withers - to say that Mr Elias, in his capacity both as a director of PVL and as manager of BWT, wished to have an urgent and complete update on PVL’s financial position and sought from the recipients of the e-mail the latest update on the creditor position, the latest budget showing cash requirements for the following year “and the most urgent ‘going legal’ creditors”. He wanted a Ms Vincent to visit PVL in Eindhoven “to review the current situation and…fully understand the technology, state of business etc so that she can brief David [Elias] ASAP bearing in mind that PVL is either insolvent or on the verge of insolvency…”

Mr Eber’s response - having received a copy of Mr Rakison’s e-mail - was to say that he did not consider that Mr Elias or his other nominee directors were directors any longer following their resignations and did not consider that they had any authority to request any information relating to PVL. He therefore felt unable, he said, to approve Ms Vincent’s visit. His e-mail was copied to Mr Elias and Withers.

Mr Rakison responded to Mr Eber the following day at 3:15 pm on Thursday 29 January. In that e-mail he disputed Mr Eber’s contention that Mr Elias and his nominees were no longer directors, described the contention as “disingenuous” and referred to the steps TCSA had taken to re-appoint (or, in the case of Mr Elias confirm) Messrs Seah, Kuan and Elias as Special Directors of PVL. He therefore challenged Mr Eber’s assertion that Mr Elias and his nominees had no authority to require any information relating to PVL or that he was entitled to disapprove of Ms Vincent’s proposed visit. He called for a board meeting of PVL to be held as soon as possible “at which all current Directors - the TCSA Directors, Karl McGoldrick and you - should be present in person or by telephone”. He complained that Mr Eber was acting in breach of the Companies Act 2006 and reserved TCSA’s and PVL’s rights. He copied his e-mail to, among others, Mr Duthie.

Earlier that day, in the course of the morning, the Ford Debenture had been entered into. It was signed by Mr McGoldrick on behalf of PVL. The debenture contained fixed and floating charges over PVL’s assets and undertakings as security for the payment of all liabilities, current and future, and whether for principal, interest or otherwise, owing or incurred by PVL to Mr Ford, and whether in accordance with the Facility Letter or otherwise.

It would thus appear clear that, whether or not the Facility Letter was (and is) binding to any extent on PVL, the Ford Debenture was apt by its terms to secure the £500,000 which Mr Ford had advanced to PVL since there is no denying the fact that Mr Ford had made that advance and, having received that sum, that PVL was indebted to Mr Ford in that amount. Indeed, there has not been any suggestion that that payment did not create a liability in PVL. The only question therefore is whether, for any reason, the Ford Debenture was not (and is not) valid or binding on PVL as those claiming to represent PVL have suggested.

The execution of the Ford Debenture was purportedly carried out under the authority of a resolution of PVL said to have been passed at a meeting of its directors at 10 am European time that day (that is on 29 January). According to the minutes of the meeting, present at the meeting, which the minutes state was held at PVL’s premises at Eindhoven, were Mr Eber (by telephone) and Mr McGoldrick. The minutes note that “due and proper notice had been given to all the directors and that a quorum was present”. I will come later to whether due notice had indeed been given. It stated that Mr Eber was appointed as chairman of the meeting. Paragraph 3 of the minutes noted that the purpose of the meeting was to consider and, if thought appropriate, approve the granting of a debenture over PVL’s assets and undertakings in favour of Mr Ford as security for all monies outstanding to him from PVL. It also noted that pursuant to the Facility Letter PVL had agreed to provide security in the form of the debenture. Paragraph 4 then noted that the draft debenture was produced and its terms carefully considered and that it was resolved to be in the interests and to the advantage and for the benefit of PVL to enter into it, that the debenture be approved and that any one director with a witness who attests his signature be authorised to sign the debenture on PVL’s behalf and that any one director be authorised to execute and do all such other things as he should deem necessary in respect of it.

The Ford Debenture bears Mr McGoldrick’s signature on behalf of PVL. His signature was notarised, ie witnessed, by a Dutch notary, a Ms Loan-Groenen (according to the stamped declaration on the Debenture).

The following day, Friday 30 January, Mr Ford advanced a further £50,000 to PVL.

On Monday 2 February, Mr Burns e-mailed Withers with comments on the various proposals in Mr Ford’s letter to Mr Elias of 22 January. As regards Mr Ford’s requirement that the Facility Letter be executed by TCSA, GMR’s comment was that the Letter needed varying but that the intention was “to give Stewart [Ford] as much security as possible.” Of Mr Ford’s requirement that, inter alia, PVL should enter into a fixed and floating charge over its assets and undertakings, the only comment was that the consent of an entity named “Head” would be needed as Head held a share pledge given by BWT over the shares in TCSA which, so the letter alleged, prevented BWT from selling or otherwise disposing of any of TCSA’s assets other than in the course of trade without Head’s prior written consent. (In fact, under the instrument in question - a copy of which was in evidence - the restriction on BWT did not extend to the assets of PVL, merely to the assets of TCSA so that nothing in it would have prevented PVL from granting a debenture over its assets, a course of action which, in any event by 2 February, PVL had already adopted.)

The following day, 3 February, at just after 10 am, Mr Rakison e-mailed Mr Duthie to say that he had not heard from him and was wondering whether he would be in contact that day. In fact, that same morning at 10 am GMT (11 am European mainland time) another board meeting of PVL was taking place. According to its minutes, the meeting was held “by telephone conference” between Mr Eber and Mr McGoldrick, with Mr Ford and Mr Duthie in attendance. The minutes noted that due notice had been given to all the directors entitled under PVL’s articles to receive notice, that a quorum was present and that Mr Eber was appointed chairman. The minutes further noted that PVL was in severe financial difficulties and in danger of immediate insolvency. The minutes referred to demands for immediate payment received from substantial creditors and to overdue employee wages and salaries with one creditor having initiated an insolvency process in respect of which a Dutch judge was due to hear an application that afternoon “which could result in the appointment of an administrator/receiver/liquidator” of PVL’s assets. The minutes then noted that Mr Ford was prepared to advance further loan monies, amounting to not less than £190,000, in consideration of PVL granting him an option to purchase its assets and undertaking “at a price which would ensure that all creditors of the Company [ie PVL] at the relevant time were repaid in full”. The minutes recorded the board as noting that such an arrangement would be in the best interests of PVL’s creditors and that the only alternative would be for the board to place PVL in administration. Then, after referring to discussion of the details of the proposed loan and option agreement, the board resolved to approve the agreement (in the form attached to the minutes) and authorised each of Mr Eber and Mr McGoldrick to execute it for and on behalf of PVL.

The Option Agreement itself is dated 5 February 2009. It recites, among other matters, that to avoid PVL’s immediate insolvency it had been agreed between PVL’s board of directors and Mr Ford that Mr Ford would lend PVL £190,000 and pay £1 for the grant to him of the option and that Mr Ford had advanced the £190,000 on 3 February. The document then provides that, in consideration of the £1 and the £190,000 advance, PVL granted to Mr Ford an option to purchase PVL’s “Assets” (defined as its undertaking, goodwill, assets and rights as at the date of exercise of the option) at the “Option Price”. The latter is defined as “such sum (not being less than the amount of the Indebtedness) as may be agreed between [PVL] and [Mr Ford] or, in the absence of such a agreement, such sum as shall be equal to the amount of the Indebtedness as at the date upon which the Option is exercised” with “Indebtedness” defined as “the aggregate amount from time to time of [PVL’s] actual liabilities and indebtedness as verified by [PVL’s] auditors”. The option is expressed to be exercisable once only (and in respect of all of the Assets) during a ten year period starting on 3 February 2009.

According to his evidence, again unchallenged in this respect, Mr Ford advanced further sums after 5 February. He advanced £50,000 on 11 February and a further £150,000 on 13 February. Subsequent to the launch of these proceedings he has advanced yet further monies, including £400,000 on 3 March. There is little doubt that without these various advances, totalling well in excess of £1 million, PVL would long since have had to cease trading and enter into some form of insolvency process. As it is, TCSA has attempted, unsuccessfully (see paragraphs 8 to 10 above), to place it in administration.

In the meantime, on 4 February TCSA appointed two Isle of Man companies to be special directors of PVL and removed Mr Eber as a special director, each with immediate effect. Mr Duthie was informed of this later that same day. Two days later, on 6 February, the two corporate directors appointed Mr Eliasch to be their attorney with full power to act in their names in dealings with PVL.

On 9 February, Mr Eliasch, acting presumably as attorney of the two Isle of Man corporate directors, e-mailed Mr McGoldrick to say that, on behalf of all the other directors of the board of PVL, Mr McGoldrick was “dismissed and suspended” as a director and prohibited from entering PVL’s premises. The e-mail also forbad him from discussing any matters relating to PVL with any third party, including Mr Ford and Mr Eber or their legal representatives. Mr McGoldrick e-mailed back to say that he did not accept that decision “as I do not accept the board that you refer to”. He stated that all of his actions to date had been “in the best interests of the survival of [PVL] with priority being its creditors and employees”. He said that the next day he would turn up at his office at PVL as usual to support PVL’s employees and deal with its creditors. He said that he had copied his email to Mr Ford and Mr Eber “because I believe that PVL has survived thus far due to Stewart Ford’s investment in the company and his commitment to the company going forward.”

E-mails and letters continued to pass between Mr McGoldrick and Mr Eber (and, later, solicitors acting for them) and GMR, and also between Mr Eliasch and Mr Ford in which the conduct and motives of each side - and the legitimacy of the Facility Letter, Ford Debenture and Option Agreement - were called into question. These culminated in the launching of these proceedings in late February.

In his witness statement Mr Eber stated that following the signing of the Facility Letter Mr Ford approached him and Mr McGoldrick for the security envisaged by it. He went on to say that he and Mr McGoldrick considered that it was binding on PVL and that Mr Ford should be provided with the security. They were then supplied with a draft of the debenture to consider. As regards the convening of the 29 January board meeting he stated that he considered the board at that time to consist simply of Mr McGoldrick and himself. This followed what he had understood to have been Mr Elias’s resignation during the 7 January conference call - although Mr Elias and Mr Rakison dispute that this happened - coupled with the subsequent resignations of Mr Rakison, Mr Seah and Mr Kuan. His understanding was that TCSA was no longer to have the right to appoint any directors to the board. Mr McGoldrick likewise understood (from Mr Eber) that by 29 January as a result of the 7 January conference call and the resignations that followed it he and Mr Eber were PVL’s only directors. Both he and Mr Eber stated that they regarded the debenture as being in standard terms and believed that executing it was in the best interests of PVL and its creditors. The two of them therefore approved it and Mr McGoldrick signed it on PVL’s behalf.

Mr Ford was aware by 29 January of the dispute over who claimed to be duly appointed directors of PVL. In particular, he regarded the re-appointment of Mr Seah and Mr Kuan, so shortly after they had resigned, and the claim that Mr Elias had remained a director throughout, as contrary to what he understood had been agreed during the 7 January conference call: the essence of the agreement which he thought had been reached was that full control of PVL’s board was to be passed to him and that TCSA would assign to him its shares in PVL and attempt to procure Philips to do likewise. Consistent with that, in his understanding, was the resignation from the board of Messrs Rakison, Seah and Kuan. Moreover, having on 9 January advanced the £500,000, Mr Ford was anxious to obtain from PVL the security which, as he understood it, PVL had undertaken to provide him by the terms of the Facility Letter to cover that advance and any future payment he might make. He instructed Withers to prepare the form of debenture, which they did, and approached Mr Eber and Mr McGoldrick to grant the security.

Mr Duthie, in his witness statement, made clear that, like Mr Ford, he was well aware of the dispute over who were rightly directors of PVL. Given the existence of that dispute he was, he pointed out, anxious to ensure that Mr Ford could rely on any decisions reached at any board meeting of PVL and on any documents executed in consequence. To that end, as he stated, he needed to ensure that any board meeting was properly convened. He was fully aware of the SSA and of PVL’s articles of association and had their terms very much in mind when advising Mr Ford about the steps necessary to ensure that a board meeting was validly convened so that any decisions reached at such a meeting were ones on which Mr Ford could rely. In paragraph 8 of his witness statement Mr Duthie said this:

The relevance of this is simply that, provided Mr McGoldrick had PVL’s actual or ostensible authority to sign the Ford Debenture on its behalf, that instrument is binding on PVL and that is an end of the matter. That this is the law was made clear by the House of Lords in Criterion Properties plc v Stratford UK Properties LLC & ors [2004] UKHL 28; [2004] 1WLR 1846 where the question was whether the managing director and another director had actual or apparent authority to sign a particular agreement on behalf of a company. At [4] Lord Nicholls expressed the position thus:

At [28] to [31] Lord Scott said this:

I will deal a little later with whether the board meeting on 29 January was validly convened and therefore whether it validly resolved to grant the Ford Debenture (and gave authority for the instrument to be executed on PVL’s behalf). I should first set out the evidence relating to the subsequent board meeting which resolved to enter into the Option Agreement and authorised its execution as similar questions arise.

As regards that later meeting Mr Eber stated that at the beginning of February Mr Ford approached him and Mr McGoldrick to discuss PVL’s future, told them that he would be prepared to lend further funds to PVL but stated that he would require an option to purchase PVL’s assets in return for his investment. Mr Eber stated that it was clear to him that Mr Ford’s main concern was to rescue PVL from failure and protect its employees, that he shared Mr Ford’s concerns and desire to keep PVL going and that he was therefore of the opinion that entering into the Option Agreement to enable this to happen was in the best interests both of PVL’s creditors and of PVL itself. He therefore arranged for the further board meeting to take place. At the time he was of the same view as to who PVL’s directors were as he had been when the meeting on 29 January had been convened. He stated that he considered the granting of the option agreement to be in PVL’s best interests.

Mr McGoldrick’s evidence about the later meeting and the decision to grant the Option Agreement was to the same effect. In particular, he stated,

As I have mentioned, Mr Ford and his solicitor, Mr Duthie, were present at the second meeting. Mr Ford had this to say about the circumstances in which the Option Agreement came to be granted:

In paragraph 31 he commented on TCSA’s failure to attract the further significant investment needed by PVL if it was to survive and how, but for his (Mr Ford’s) goodwill, PVL would have gone into some form of insolvency. In paragraph 32 he stated his view that it was not in the best interests of PVL’s creditors for PVL to fail (a view which he believed Mr Eber and Mr McGoldrick both shared) and that he had since approached PVL’s creditors and PVL’s minority shareholder, Philips, to ascertain if some form of financial rescue package could be agreed with them, adding that he was prepared to inject significant funds of his own into PVL in order for this to happen, that this might be on the basis that he purchase PVL’s assets and that, thus far, the response from PVL’s creditors and Philips had been “very positive”. He stated that he was hopeful that in the event that a rescue plan should be agreed the jobs of PVL’s employees would also be protected. He then continued:

In his witness statement, Mr Duthie said this of the meeting on 3 February:

Were the two meeting validly convened? If they were, and the two directors were fully authorised by the resolutions passed at them to execute the Ford Debenture and Option Agreement, then, as Criterion Properties makes clear and I have mentioned, the two transactions are enforceable against PVL and no further enquiry is needed.

The provisions in PVL’s articles of association concerned with the proceedings of directors are contained in Article 26. Article 26.1 provides, so far as material, that the directors shall hold their meetings outside the United Kingdom. Article 26.3 provides that “It shall not be necessary to give notice of a meeting of the Directors to a Director who is absent from the Netherlands.” Article 26.4 provides that “Subject to Article 16.3 the quorum for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed at any other number shall be two…” Article 29.9 enables a meeting of directors to consist of a conference between directors who are not all in one place provided each director is able to speak to each of the others simultaneously (for example by telephone). Article 26.10 provides that “a Director taking part in a conference as described in Article 26.9 is deemed to be present in person at the meeting and that the meeting is deemed to take place where the largest group of participants is assembled or, if there is no such group, where the Chairman is.” Article 16.3 provides that “No Board is quorate unless a Special Director …is present.” Article 16.4 sets out various matters which should not be performed by PVL unless approved by a board resolution; they include incurring any liabilities in excess of €250,000 or granting security over PVL’s assets.

The role of Special Directors is dealt with by article 16.2 which provides that they are appointed upon a binding nomination of the A Shareholders. Correspondingly, article 21.2 provides that the office of a Special Director is to be vacated if the A Shareholders in their sole consideration so determine. Since TCSA has at all material times been PVL’s sole A Shareholder the power of appointing and removing special directors has been vested in TCSA alone.

The SSA contains provisions concerned with the holding of board meetings. Ignoring those that are replicated in PVL’s articles (set out, so far as material, above) I need only mention clause 8.6 which reads so far as material as follows:

A question that was debated before me was whether clause 8.6.3 required notice of a board meeting to be given to a Special Director notwithstanding that that director is absent from the Netherlands (ie notwithstanding the provisions of article 26.3). If it does then there can be little doubt that, assuming TCSA was entitled on 16 January to reappoint Mr Seah and Mr Kuan as Special Directors and (if he had otherwise ceased to be a director) to reappoint (or confirm in office) Mr Elias as well, notice should have been given to those persons of the meetings on 29 January and 3 February 2009 if the decisions which were made at them were to be binding on PVL.

It was pointed out by Mr Jarvis that the provisions of clause 8.6 are expressed to be “in addition” to anything contained in PVL’s articles. Moreover, clause 20.5 of the SSA provides that in the case of a conflict between the provisions of the SSA and the articles the provisions of the SSA shall prevail. In any event, it was submitted, because only two directors took part in the two meetings, of which the appointed chairman, Mr Eber (who was the only Special Director present and who could only therefore have been appointed the chairman: see article 26.6), was at the time in this country (and not in the Netherlands) the meetings were each deemed, by article 26.10, to be where Mr Eber was with the result that they were both held in the United Kingdom. This was not in compliance with article 26.1.

I am of the view that, given the terms of clause 8.6.3 - and notwithstanding article 26.3 - notice of the two meetings should have been given to all of the Special Directors. It was not enough to rely simply on notice being given to Mr Eber. But I am also of the view that this is by no means an obvious conclusion from a reading of clause 8.6 and article 26 and that someone could quite genuinely have concluded (as Mr Duthie states that he did) that clause 8.3.6 did not override the requirements of article 26.3 but was merely concerned with what the notice should comprise (and what papers should be supplied) in those cases where, by article 26.3, the Special Director in question is entitled to be given notice of a board meeting. I am also of the view that, for the reasons summarised above, the submission that the meetings were held in the United Kingdom and that therefore there was no compliance with article 26.1 is also correct.

The consequence of these conclusions is that, looking simply at the requirements set out in the SSA and PVL’s articles, the two meetings were not validly convened. This means that the resolutions passed at them (to grant the Ford Debenture and Option Agreement, approve the terms of the drafts produced to the meetings and authorise any one director to execute them on PVL’s behalf) could not bind PVL.

But this brings into play another consideration. That is whether, having regard to the provisions of section 40 of the Companies Act 2006, the resolutions passed are, in favour of Mr Ford and notwithstanding the defects identified, binding on PVL so that, if the Ford Debenture was executed in accordance with the authority conferred at the 29 January meeting (or in some other manner regarded in law as the act of PVL) and was in the terms that the meeting approved, it is to be treated as binding upon PVL, and similarly as regards the execution by PVL of the Option Agreement.

Section 40 is derived from sections 35A and 35B of the Companies Act 1985. Paragraph 28 of the speech of Lord Scott in Criterion Properties (set out above) referred to the possible need in that case to take into account the effect of section 35A (as it then was).

Section 40 is as follows:

It is to be noted that for the section to apply so as to validate some transaction or other act to which the company is a party, notwithstanding that the act in question is beyond the powers of the directors under the company’s constitution, it is necessary that the person dealing with the company - in the sense that he is a party to the transaction or other act in question - must deal “in good faith”. That is the touchstone. Good faith, however, is presumed “unless that contrary is shown” and the contrary is not shown merely by proving that the person in question knows that the act is “beyond the powers of the directors under the company’s constitution.”

The following questions arise. The first is whether the grant to Mr Ford of the Ford Debenture and, later, the Option Agreement are acts or transactions within the scope of section 40. In my view they clearly are; I do not consider that the contrary is arguable. The next question is whether the defects in the two meetings - the failure to give notice to all of the Special Directors and the fact that, given the identity of the two directors who did attend and the manner of their attendance, the meetings are deemed to have taken place in the United Kingdom - are within the scope of the expression “limitation under the company’s constitution” appearing in subsection (1) and “beyond the powers of the directors under the company’s constitution” appearing in subsection (2)(b)(iii). I am equally clearly of the view that they are.

In Smith v Henniker-Major & Co (a firm) [2003] Ch 182 - a case to which I was not referred by counsel - the scope of section 35A (as it then was) was in issue. One of the questions raised by that case was whether a director of a company - in fact he was its chairman - could rely on section 35A to validate a resolution passed at the meeting, attended only by himself, to assign to himself certain causes of action of the company pursuant to which resolution, two days later, he caused the company to execute the assignment in question. Although in so acting the chairman believed that he had power under the company’s articles to act alone, in fact the “meeting” was inquorate since, under the articles, the quorum for a board meeting was two.

The Court of Appeal was divided on the issue. Robert Walker LJ thought that that the chairman could rely on section 35A to validate what had happened whereas Schiemann and Carnwath LJJ thought that he could not. The majority took the view (see paras [110] and [123]) that it was not open to the chairman, whose duty it was to ensure that the company’s constitution was properly applied, to have recourse to the section and rely on his own error, even if honestly made, to turn his own decision, which had no validity under the company’s constitution, into a decision of the board.

But in expressing their view the majority did not appear to consider that the kind of defect in question in that case (the absence of any quorum at the “meeting” of one - the chairman - which did take place) was necessarily fatal to the application of the section if someone other than a director of the company had sought to rely on it. Robert Walker LJ plainly thought that the absence of a quorum was not fatal, otherwise he could not have decided as he did. In any event, he had earlier characterised the defects as “procedural irregularities” and as such within the purview of what (at [41]) he described as the “irreducible minimum” which he considered must be shown if section 35A was to be engaged, namely “a genuine decision taken by a person or persons who can on substantial grounds claim to be the board of directors acting as such, even if the proceedings of the board are marred by procedural irregularities of a more less serious character”. He considered (see para [41]) that “the essential distinction was between nullity (or non-event) and procedural irregularity”.

Here, it is worth noting, the meeting was quorate. The defects were (1) a failure to give notice to persons entitled to be given notice and (2) the fact that the meeting was deemed to have been held in the United Kingdom. It is difficult to think of any policy reasons why, in favour of a third party (an “outsider” in contrast to, say, a director), either of the defects should not be within the purview of section 40 and every good reason why they should, not least, in the case of the first defect, the difficulty of knowing who might be entitled to notice and whether notice had been given, especially where there is a dispute as to who precisely the directors might be, and, in the case of the second defect, the need to know how by a combination of several of the PVL articles and the status, as a Special Director, of Mr Eber as against Mr McGoldrick who was not a Special Director, the meeting was deemed to have taken place in the United Kingdom where Mr Eber happened to be rather than at PVL’s premises where Mr McGoldrick was located.

The next and remaining question therefore is whether, for reasons other than his knowledge (assuming he possessed it) that the meeting of directors, although quorate, had not been validly convened on account of the two defects already described, it is shown that Mr Ford acted in bad faith in dealing with PVL by taking the Ford debenture. This being a summary judgment application it is only necessary for PVL to show a real prospect that Mr Ford acted in bad faith.

It is important to my mind to consider separately each of the two transactions - the grant of the Ford Debenture on 29 January and the grant of the Option Agreement a week later. The first question in each case is whether, in resolving to commit PVL to the particular transaction and in executing the document in question to effect the transaction, Mr Eber and Mr McGoldrick were making improper use of their directors’ powers. For if they were not, then, whatever Mr Ford’s purpose may have been in entering into the transaction (whether, for example, he was concerned simply to help PVL financially through a difficult period or his aim went further and was to obtain control of PVL or its assets), it is impossible to see how it can be said that he was not acting in good faith. As section 40(2)(b)(iii) makes clear, the fact alone that he is aware that the act in question - the purported grant of the particular instrument - is beyond the powers of the directors is not to be equated with bad faith.

In his skeleton argument Mr Jarvis submitted that Mr Eber and Mr McGoldrick were indeed exercising their powers as directors for improper purposes and were failing to promote the success of PVL for the benefit of PVL’s members as a whole. He pointed to three matters: the first was that their primary or dominant purpose in refusing to recognise Messrs Elias, Seah and Kuan as Special Directors and in failing to give notice to them of the meetings on 29 January and 3 February was to exclude them from the management of PVL’s affairs and, in particular, from the decision whether or not to authorise the Ford Debenture and the Option Agreement. The obvious inference, he submitted, is that they did so because they knew that, had a full meeting of the board been called, the transactions with Mr Ford would not have been approved. The second, confined to the Facility Letter and the Ford Debenture, was that, given what Mr Jarvis described as the “completely one-sided nature” of those arrangements, no reasonable director in their position could have believed that the Facility Letter and Ford Debenture were in PVL’s best interests. The third, confined to the Option Agreement, was that no reasonable director in their position could have believed that that agreement was in PVL’s best interests, even on the assumption that the option price would pay off all creditors in full.

He supported these matters by pointing out, that Mr Eber signed the Facility Letter on PVL’s behalf without PVL’s authority and re-appointed Mr McGoldrick as chief executive officer without board approval. He submitted that the two of them refused, without reasonable cause, to recognise Messrs Elias, Seah and Kuan as Special Directors and that they were concerned to exclude them from PVL’s management and affairs by failing to notify them of the meetings on 29 January and 3 February, much less notify them of the intention at those meetings to consider approving and, if approved, authorise the execution of the Ford Debenture and Option Agreement and that they failed to take any independent legal or other professional advice on them. Mr Jarvis further submitted that Mr Eber and Mr McGoldrick were under no compulsion to sign the Facility Letter or the Ford Debenture or the Option Agreement. He submitted that there was no evidence of their consideration of the proper purchase price to be paid by Mr Ford on exercise of his option under the Option Agreement and pointed out that a payment sufficient only to pay PVL’s creditors ignored any interest that PVL’s members might have and that there was no evidence that PVL’s intellectual property rights were worth at the most the amount that might from time to time be owed by PVL to its creditors. He submitted that, even in the event of deadlock on PVL’s board and an absence of any prospect of further trading by PVL without Mr Ford’s loans to PVL, it did not follow that allowing him an option to purchase PVL’s assets at the price agreed - the amount needed to discharge its liabilities - was in PVL’s best interests. He drew attention to the failure by Mr Eber and Mr McGoldrick to secure from Mr Ford any further funding commitment in return for the benefits he was obtaining under the Ford Debenture and the Option Agreement.

In considering these arguments it is worth noting that nowhere in the evidence and nowhere therefore in Mr Jarvis’s written submissions, is there any suggestion that Mr Eber or Mr McGoldrick had some collateral motive for acting as they did, for example a conflicting interest or a desire to damage the interests of Mr Elias or TCSA, or some form of personal grudge against Mr Elias and the other directors. The absence of any such evidence or suggestion does not, of course, mean that Mr Eber and Mr McGoldrick were exercising their directors’ powers for proper purposes when committing PVL to these transactions. But it does render more difficult the suggestion that they were not.

I am of the view that, on the evidence and making every assumption in PVL’s favour where the evidence is in conflict, it is not realistically possible to say that the decision to grant Mr Ford a debenture for the monies which he had advanced to PVL to enable it to continue in operation was a misuse by Mr Eber and Mr McGoldrick of their powers as directors. The fact that Mr Ford was not obliged to advance further monies to PVL, although in the event he did, or that Mr Eber and Mr McGoldrick did not seek separate legal or other professional advice before resolving to grant the Ford Debenture does not undermine this conclusion. It has not been suggested that the terms of the Ford Debenture were in any respect unusual or unfair.

The only possible contrary argument is that the two directors considered that, given the Facility Letter, PVL was obliged to grant Mr Ford the security when there is no evidence to suggest that any meeting of directors had been convened to approve the signing of the Facility Letter and also that the terms of the Facility Letter, even ignoring those which were only binding in the event, which did not happen, that TCSA should sign up to the Letter, were onerous in that the stipulated rate of interest was 20%, with a penal compounded rate in the event of any default.

Given PVL’s dire circumstances at the time it is hard to see how the decision, even on the terms set out in the Facility Letter, to borrow £500,000 from Mr Ford can be characterised as a misuse by Mr Eber of his powers as a director (and as chairman) of PVL. The high rate of interest is hardly surprising given PVL’s financial position but, in any event, there was no evidence to suggest that the rate agreed by Mr Eber was improper in any way. I do not therefore consider that these matters serve to undermine the view that there was nothing improper in the decision to grant Mr Ford the Ford Debenture, notwithstanding the procedural defects (if I am correct that they were defects) in the convening of the meeting on 29 January.

I am unable to take the same view regarding the decision reached at the meeting on 3 February to enter into the Option Agreement. It is well established (see the summary of the relevant jurisprudence set out in chapter 15[9] of Gore Browne on Companies) that whether the directors of a company have exercised their powers properly or improperly is not to be determined simply by what the directors genuinely believed, so that if they genuinely thought that the company’s best interests were served by the transaction and they were not motivated to any degree by personal considerations that is an end of the enquiry. The power in question - in the instant case a contract to dispose of PVL’s assets - has to be exercised for the purpose for which it was conferred.

There are three noteworthy features of the Option Agreement. The first is that it involves a commitment by PVL, if the option is exercised, to dispose of the whole of its assets and undertaking to Mr Ford. The second is that the price payable on exercise of the option is not related to any assessment of the value of the assets and undertaking; instead, it is limited to the amount of PVL’s liabilities at the time of exercise of the option. The third is that the option is granted for a period of ten years so that PVL’s position might have changed radically and for the better by the time that Mr Ford should choose to exercise the option.

I consider that it is at the very least arguable that committing PVL to the disposal of all of its assets and undertaking on such terms was an improper exercise by the directors of their powers. I see force in the criticisms made by Mr Jarvis of that transaction. At all events, I would need rather more evidence of PVL’s circumstances and what its assets and undertaking were realistically worth and why it was thought right to confine the option price simply to PVL’s liabilities and grant the option for so lengthy a period before coming to any conclusion on the propriety of the action of Mr Eber and Mr McGoldrick in resolving to commit PVL to such a transaction. Moreover, given the far-reaching nature of the transaction I would have wanted to know rather more about why it was considered appropriate to commit PVL to the transaction without informing, much less consulting, PVL’s shareholders (TCSA and Philips) or the other Special Directors, even if Mr Eber and Mr McGoldrick believed, and had good grounds for believing, that their meeting to discuss and resolve on the matter had been validly convened. Mr Zelin sought to persuade me that, on a liquidation which would, he said, have inevitably followed if Mr Ford had not been granted the option, PVL’s assets would have yielded far less than the value of its liabilities. But, in the absence of any valuation evidence of the assets I regarded Mr Zelin’s submission on the point to be speculative. Nor was it apparent why a valuation of PVL’s assets and undertaking should be approached on a forced-sale basis rather than as a going concern. That seemed to me to be a further matter which could not satisfactorily be resolved on a summary judgment application.

What then of Mr Ford’s good faith?

In his skeleton argument, Mr Jarvis identified eight matters in support of the contention that there is a real prospect that Mr Ford did not act in good faith in relation to the signing of the Facility Letter, the Ford Debenture and the Option Agreement. They were as follows. (1) According to a witness statement of Mr Eliasch, Mr Ford stated in the course of a meeting which he and Mr Eber had with Mr Eliasch on 8 January 2009 that he, Mr Ford, had been working with Mr Eber for months on “an elaborate plan to take over PVL for nothing”. (2) In January 2009 Mr Ford entered into negotiations with Mr Elias concerning, amongst other things, further funding for PVL and security to be provided by PVL, with Mr Ford’s proposals set out in detail in his letter to Mr Elias of 22 January 2009 and with GMR setting out their comments on the letter in their e-mail of 2 February 2009 (as summarised above) with the result that Mr Ford must have appreciated that Mr Elias and GMR would have believed that Mr Ford was continuing his negotiations with them on these matters. (3) Mr Ford knew that there was a dispute between Mr Eber on the one hand and Mr Elias on the other as to who were the directors of PVL, what had been agreed on 7 January 2009 and whether Mr Eber had been properly authorised to sign the Facility Letter. (4) Mr Ford knew that the Facility Letter, Ford Debenture and Option Agreement were extremely onerous for PVL and that Mr Eber and Mr McGoldrick were not represented by GMR in relation to the Facility Letter and the Ford Debenture and must have appreciated that no separate advice had been taken in relation to the Option Agreement. (5) Mr Ford knew that the terms of the Facility Letter were unacceptable to TCSA and must have appreciated that Mr Elias and the Special Directors other than Mr Eber would not or were unlikely to agree to grant the Ford Debenture and the Option Agreement to Mr Ford. (6) Mr Ford knew that he was pursuing negotiations with Mr Elias concerning, amongst other matters, further funding to PVL and security by PVL at the same time as he was procuring the Ford Debenture and the Option Agreement from a minority of PVL’s board, yet chose not to disclose to Mr Elias that he was proceeding to deal only with Mr Eber and Mr McGoldrick concerning the Ford Debenture and the Option Agreement. (7) Mr Ford must have known that the meetings on 29 January and 3 February were convened by Mr Eber and Mr McGoldrick without notice being given to the other Special Directors. (8) Mr Ford must have realised that Mr Eber and Mr McGoldrick were exercising their powers as directors of PVL so as to exclude Mr Elias and the other Special Directors from considering whether PVL should grant to him the Ford Debenture (whether pursuant to the Facility Letter or otherwise) and the Option Agreement.

Leaving side for the moment the first of those matters, I am of the view that the others, even assuming that Mr Ford had the knowledge that they attribute to him, do not demonstrate a real prospect of establishing an absence of good faith. Having advanced very substantial monies to PVL on an understanding that he would be granted security for those advances, I see nothing in them that points to Mr Ford’s lack of good faith when he entered into the very security that he understood he would be receiving. The fact that he was aware of board differences as to whether he should be granted the security and over who were the directors and knew that those others were not aware of the meting on 29 January and that, through Withers, he was negotiating with Mr Elias on other, wider matters and that Mr Eber and Mr McGoldrick had not taken separate legal or other professional advice does not seem to me to point to bad faith on his part. A most important factor in this regard is that Mr Ford was acting on the advice of Mr Duthie of Withers. Subject only to the first of those eight matters, the knowledge which Mr Ford is alleged to have had - and which I shall assume that he had - was also possessed by Withers. Unless it is to be said that Mr Duthie too was acting in bad faith, it is difficult to see how the same charge can lie against Mr Ford. The fact that, with Mr Duthie’s advice and assistance, Mr Ford was driving a hard bargain in return for the monies he was willing to advance to PVL to keep it from collapsing into insolvency, and that his ultimate aim was to take control of PVL or of its assets, does not point to anything dishonest or underhand in the way that he dealt with PVL.

That leaves the first of the eight matters. The implication of it is that Mr Ford, with Mr Eber’s knowledge and assistance, was secretly working to rob PVL of its assets. If there were a real prospect of establishing that, then that would indeed point to a lack of good faith in Mr Ford’s dealing with Mr Eber and Mr McGoldrick in relation to the entering into of the Facility Letter, Ford Debenture and Option Agreement with the result that the other matters relied upon against Mr Ford (and also the matters relied upon against Mr Eber and Mr McGoldrick) could be seen as supporting this conclusion. The fact that, in relation to those other matters, Mr Ford had the benefit of Mr Duthie’s advice and assistance would be nothing to the point if Mr Duthie himself was not privy to this conspiracy to rob PVL of its assets.

The remark which Mr Ford is said to have made to Mr Eliasch on 8 January, and which forms the foundation for this attack, turns on the contents of Mr Eliasch’s witness statement provided by him to those within PVL who have opposed Mr Ford’s application for summary relief. They are to be found in paragraphs 9 and 10 of that statement. Mr Eliasch, it is worth recalling, was in dispute with Mr Elias over monies owed by BWT (one of Mr Elias’s companies) to Mr Eliasch or companies controlled by Mr Eliasch.

For my part, I see nothing sinister or improper in Mr Ford’s wish to “take over” PVL. As to the suggestion that Mr Ford and Mr Eber had some elaborate plan to enable Mr Ford to “take over” PVL for nothing, there is no evidence, apart from Mr Eliasch’s statement, to suggest that Mr Ford was attempting in any way to acquire PVL for no consideration. It is not mentioned in Mr Eliasch’s lengthy letter to Mr Ford of 13 February. The grant to him of the Ford Debenture and, later, the Option Agreement cannot by any stretch of the imagination be so characterised. For the rest, the conversation between Mr Eliasch and Mr Ford, as reported by Mr Eliasch in his witness statement, appears to be directed to what Mr Eliasch understood to be conflicting claims which he and Mr Ford had against Mr Elias and TCSA and which are, in my view, irrelevant to the question of Mr Ford’s good faith in his transactions with PVL. I am unable therefore to see that the first of these eight matters constitutes evidence, to which any credit can sensibly be given, of Mr Ford’s lack of good faith in his dealings with PVL.

How does that leave matters?

I am satisfied that PVL has no real prospect of defending Mr Ford’s claim to establish the validity of the Ford Debenture. As to the Option Agreement, notwithstanding PVL’s difficulty in demonstrating a want of good faith on Mr Ford’s part when entering into and accepting the benefit of that agreement, I am not persuaded that Mr Ford’s case for the validity of that transaction is one that can be dealt with summarily: I entertain sufficient doubt about the propriety of the transaction to consider that the issue whether that transaction is valid and binding on PVL can only properly be disposed of at a trial.

I would add, in case it is thought that I have overlooked the point, that I am not willing to conclude that, absent actual authority to enter into the Ford Debenture and Option Agreement and failing reliance on section 40, Mr Ford establishes a summary entitlement to reliance on the apparent authority of Mr Eber and Mr McGoldrick to commit PVL to those transactions. Apart from the fact that both were directors of PVL, it is difficult to see, in the light of the disputes disclosed in the correspondence before the two meetings, PVL can be said to have clothed those persons with ostensible authority to commit it to those transactions.

Mr Ford claimed not only a declaration that the Ford Debenture is valid and binding on PVL but also an order that the covenant for further assurance set out in clause 6 of the Debenture be performed and carried into effect by requiring PVL to execute and deliver a power of attorney in the form annexed to the draft of the order which he seeks and, if PVL should fail by a stipulated time to execute and deliver such a document, then an order requiring one of the Masters to do so instead.

The reason for this relief is that Mr Ford has received advice from Dutch lawyers (the advice is in evidence) that in order to achieve a speedy recognition in the Netherlands of the security conferred by the Ford Debenture, the security should be equivalent to a security that is readily recognised in that jurisdiction and that the quickest way of achieving this is to obtain what in Dutch law is called a bezitloos pandrecht which, I understand, is a form of pledge. The need for the security conferred by the Ford Debenture to be recognised and enforceable in the Netherlands is, I was told, because of PVL’s presence in that jurisdiction and the wish to ensure that the security conferred by the Debenture is effective there over, most notably, a number of intellectual property rights.

The Dutch lawyers have considered whether either the pandrecht, once provided, or the earlier Facility Letter would be liable to be set aside in the Netherlands in the event of PVL entering into some form of insolvency procedure there in the near future. They considered whether it would fall foul of the Dutch equivalent of sections 239 and/or 423 of the Insolvency Act 1986. Their advice is that, on the facts as they understand them to be, this is unlikely.

The Dutch lawyers have also advised, and the order which Mr Ford seeks accordingly provides, that the pandrecht be obtained by requiring PVL to grant in favour of their partners (in a firm called Boekel de Nerée NV of Amsterdam) a power of attorney for the purpose of executing in PVL’s name the requisite pandrecht in Mr Ford’s favour. The draft pandrecht was in evidence. I was taken by Mr Zelin through its terms, which are in English. To a large extent its terms mirror those of the Ford Debenture. To some extent, however, they arguably go beyond those contained in that Debenture, for example a representation by PVL that each of the rights of pledge granted by the pandrecht “constitutes a first priority right of pledge of the Pledged Property [ie the whole of PVL’s assets and undertakings, present and future]” and that the “Pledged Property is not subject to any prior or pari passu limited rights …” or a clause whereby “to the extent possible under Dutch law the Pledgor [ie PVL] waives throughout the Security Period [ie until all secured obligations have been discharged]… all …rights and defences conferred upon it by Dutch law” including various rights and defences conferred upon it (presumably against Mr Ford) under the Dutch Civil Code. A further clause states that “the administration [sic] of the Pledgee to the Pledgor as to the amount due from the Pledgee in respect of the Secured Obligations or any part thereof shall (save for manifest error or fraud) be conclusive and binding on the Pledgor”. The instrument is expressed, not surprisingly, to be governed by Dutch law.

Mr Jarvis submitted that (without prejudice to the other submissions) it was altogether outwith the scope of clause 6 of the Ford Debenture that PVL should be obliged, whether directly or indirectly, to enter into the pandrecht in order to provide Mr Ford with a form of security which the Dutch court will readily recognise and, therefore, that I should not make the order sought.

Clause 6 is in the following terms:

The purpose of the Ford Debenture is to grant Mr Ford security over all of PVL’s assets (not confined to England and Wales) with the extent and nature of the intended security as set out in clause 3 of the Debenture. I see no reason in principle why clause 6 should not oblige PVL to execute and deliver a further instrument to perfect the stipulated security over assets in, say, the Netherlands or to enter into an instrument which will be recognised by the Dutch courts as conferring such security. That said, I feel a very distinct unease about ordering PVL to enter into the proposed pandrecht, the precise scope and effect of which, being matters of Dutch law, are not clear to me. The Dutch lawyers’ advice does not extend to the proposed pandrecht itself. As I have mentioned, the draft document appears in some respects to go beyond what is contained in the Ford Debenture. As it happens what is sought is simply that PVL execute a power of attorney in favour of the partners in Boekel de Neree empowering them, in PVL’s name, to grant the pandrecht: the court is not being asked to order PVL to enter into the document directly. In this respect, Mr Zelin told me that the power of attorney already conferred by clause 11 of the Ford Debenture (in favour of Mr Ford) was inadequate for the purpose. Clause 11.11 is in the following terms:

Not the least of my concerns is that the difficulty which apparently confronts Mr Ford is not that the Dutch courts will not recognise and give effect to the Ford Debenture but that it may take time for this to be achieved. The execution of the pandrecht is seen as a short cut. So also, apparently, is the wish that it be implemented by means of a power of attorney granted in favour of the partners in the Dutch legal firm.

At the end of the day I am left in sufficient doubt about the propriety of requiring PVL to enter into the proffered pandrecht or, which is in effect the same thing, ordering PVL to grant the partners of the Dutch firm power of attorney to enable them to enter into the pandrecht on PVL’s behalf, to feel that I should not accede to that head of the relief claimed on this application. I remind myself that the application is for summary judgment under Part 24.

The facts of this dispute and the issues to which they give rise are far from straightforward. I am, as I have indicated, willing to grant Mr Ford a declaration that the Ford Debenture is valid and binding on PVL: on this issue I am persuaded that PVL has no real prospect of successfully defending the claim. I do not feel able to reach the same conclusion on the other issues: the validity of the Option Agreement and the relief directed to execution of the pandrecht. If necessary those further matters must proceed to a trial.