Swinton Reds 20 Ltd v McCrory & Anor

The issue in this case is, who is the ultimate owner of Swindon Town Football Club Ltd. (“the club”). The claimant (“Swinton Reds”), a company owned by Mr. Lee Power, seeks rectification of the register of the defendant company (“Seebeck”), which owns 98.5% of the shares of the club. Swinton Reds claims to have acquired 99% of the shares in Seebeck from the first-named defendant, Gerard (“Ged”) McCrory.

In effect, this is a claim to enforce a Share Subscription Agreement dated 11^thApril 2013 ("the SSA”), by which Mr. McCrory agreed to sell Swinton Reds 99% of the shares in Seebeck, so as to give him effective ownership of the club, subject to an option in favour of Mr. McCrory to buy back 39% of the shares in Seebeck (giving him 40% in all) at a nominal price.

The SSA was subject to certain conditions precedent which had to be satisfied within 14 days, i.e. by 25^th April 2013. It is common ground that they were not satisfied by that date, and the principal issues before me are (1) whether the period for the satisfaction of the conditions precedent in the SSA was extended and (2) if not, whether the parties entered into a new agreement on 1^st May 2013 on the same terms, but with an extended period. It is common ground that, if the answer to either (1) or (2) is yes, the conditions precedent have been satisfied in due time.

For the reasons set out below, I hold (1) that the period for the satisfaction of the conditions precedent was not extended by 25th April 2013, so that the SSA ceased to exist but (2) that the parties entered into a new agreement on the same terms, but with an extended period for the satisfaction of the conditions precedent, by an exchange of emails on 1^st May 2013. For that reason, the claimant succeeds in the action.

It is unnecessary to go into a great deal of the background. The club was in the 2012-13 season, and still is, in the First Division. At the end of the 2012-13 season, it participated in the play-offs for promotion, but was unsuccessful. Mr. McCrory, together I think with some associates, acquired the ultimate ownership of the club, through Seebeck, in February 2013. At some time within a month or so after that, he was introduced to Mr. Power and there were discussions with a view to Mr. Power becoming the director of football, supervising the transfer of players so as to reduce the wage bill and introducing a loan transfer scheme, by which a group of Tottenham Hotspur players would be lent to the club for a significant period.

However, before any agreement could be concluded, the financial position of the club caused the Football League to threaten to impose an embargo on signing new players, unless an amount of £1.2 million was added to the club’s funds, apparently only for a relatively short period. Mr, McCrory and his associates did not have the funds; Mr. Power did, and the following transactions took place between 26^th and 28^th March 2013.

First, loan agreements were entered into between Swinton Reds and Seebeck, and between Seebeck and the club; Swinton Reds agreed to lend Seebeck £1.2 million, with interest of 20% per annum which was to be the liability of Mr. McCrory; Seebeck agreed to lend the same sum to the club without interest. The money was actually lent on 28^th March 2013, and was repaid on 8^th April 2013; this apparently satisfied the Football League.

At or about the same time, Swinton Reds paid £300,000 to Seebeck to settle certain claims (the exact nature of which is not clear to me), by Mr. McCrory’s associates, and to clear the way for the remainder of the transaction.

On 27^th March 2013, there was a letter agreement between the parties, which provided for the loan to be made to Seebeck, and for an option to be exercised within 14 days to enter into an agreement to subscribe for 99% of the shares in Seebeck on terms to be negotiated, and on the basis that if the proposed transaction did not complete for any reason, the club would pay Swinton Reds the sum of £75,000.

On 11^th April 2013, the SSA was entered into between Swinton Reds, Seebeck and Mr. McCrory, for the acquisition by Swinton Reds of 99% of the share capital of Seebeck for a consideration of £99.

Clause 2 is in the following terms:-

“2.

Conditions precedent:

2.1

Completion of this agreement is conditional upon the investor satisfying any funding and other requirements imposed by the Football League Limited and the Football League Limited’s “Owners and Directors Test” and the Football League Limited giving its approval to the subscription for the Shares by the Investor.

2.2

The Investor will use its best endeavours to satisfy the Condition as soon as possible after the Execution Date and the company and the Warrantor will give the Investor such assistance, including all pertinent documentation and access, as the Investor may reasonably require to enable it to satisfy the Condition.

2.3

The Investor will immediately disclose in writing to the Company and the Warrantor anything which will or may prevent the Condition from being satisfied.

2.4

If the Condition is not implemented on or before midnight on the date falling 14 days after the Execution Date (or such later date as the Company and the Warrantor may determine in their absolute discretion), this agreement will cease and no patty will have any obligation or liability to any other party except in respect of an antecedent breach and a breach of clause 11."

Clause 5 contains a series of restrictions on what Seebeck could do before completion without the prior written consent of Swinton Reds; at this stage the period contemplated was only 14 days.

Clause 8 contains various warranties by Mr. McCrory and Seebeck, with a limit on their liability of £300,000.

Clause 16 contains elaborate provisions for the giving of notices or other communications under the agreement, which must be in writing and served in certain precisely defined ways, not including email.

Clause 19 provides (inter alia):-

“19.4

No variations of this agreement are effective unless made in writing signed by the parties or their authorised agents.

19.5

Any waiver of any right under this agreement is only effective if it is in writing and it applies only to the circumstances for which it is given, and will not prevent the party who has given the waiver from subsequently relying on the provision it has waived.”

On the same day, an option agreement was entered into, whereby Swinton Reds granted Mr. McCrory an option to acquire 39% of the issued share capital of Seebeck for £39.

Again on the same day, and with a view to satisfying the conditions precedent, Mr. Power applied under the Owners’ & Directors’ Test (“OADT”) pursuant to Regulation 19 of the Football League, but the application was not granted in time for the conditions precedent to be satisfied by 25^th April 2013.

On 24^th April 2013 at 10.35 a.m., Mr. McCrory texted to Mr. Power as follows:- “On blower sorting this extension out mate ...”

On 1^st May 2013, at 10.35, Mr. Paul Fletcher of IPS Law LLP, Swinton Reds’ solicitors, sent an email to Mr. Ian Zant-Boer, who was Seebeck’s company secretary and a partner in its solicitors, EMW LLP. The email read as follows:-

“Hi Ian

I believe that Ged and Lee have spoken since you and I last spoke.

My understanding is that it has been agreed to leave the documents as drafted and to agree that the period within which completion must take place (including Swinton obtaining Football League approval and satisfying the condition in clause 2.1 of the agreement) will be extended for a period of 3 years.

In accordance with clause 2.4 of the subscription agreement, can you please confirm on behalf of Seebeck 87 Limited and Ged that an extension for a period of a further 3 years from today is agreed within which Swinton must satisfy any funding and other requirements imposed by the Football League Limited and the Football League Limited’s “Owners and Directors Test” and the Football League Limited giving its approval to the subscription for the shares by Swinton.”

This was sent on to Mr. McCrory and he replied, in an email to Mr. Fletcher, with copies to Mr. Zant-Boer, Mr. Power and another partner in IPS Law:-

“Subject: Re: SEEBECK Completion Extension

Hi All,

I can confirm a three year extension is fine.

Ian can you confirm also.

KR Ged.”

This was sent on by Mr. Zant-Boer to Mr. O’Donoghue of EMW, and he replied in an e-mail to Mr, Fletcher, with copies to all the others:-

“SUBJECT: FW: SEEBECK Completion Extension Hi Paul,

Further to Ged’s e-mail below, I hereby provide the confirmation requested in your e-mail at the bottom of the chain - the extension you set out in your e-mail for a period of a further 3 years from today is agreed.

Kind regards

Gary”

Mr. Power’s evidence is that the text of 24^th April followed an earlier conversation between himself and Mr. Power, to the effect that there would be an extension of the clause 2 period from 14 days to 3 years, and that this was what the text referred to. He thought it probable that the reference to “on the blower” meant that Mr. McCrory was trying to speak to his solicitors about the extension. Both parties would naturally refer what had been agreed to their respective solicitors, but he said that the agreement was not subject to approval by the solicitors; they were simply to implement what had been agreed. The increased period of 3 years had been “plucked from the air” and he could not remember which of them had suggested it. The emails simply confirmed what had already been agreed before 25^th April 2013.

Mr. McCrory’s evidence was quite different. He said that there were discussions between himself and Mr. Power, both before and after 25^th April 2013, to the effect that the agreement would cease or had ceased on 25^th April 2013, and there was no question of extending the period. The reference to the extension of 3 three years related to Mr. Power’s desire to remain as director of football for that period, so as to be able fully to implement his loan transfer scheme. It was his appointment as football director that was being extended. As to the exchange of emails, he said, he had been driving up the M5 and had stopped to answer Mr. Fletcher’s e-mail. His answer followed a conversation which he had recently had with Mr. Power about the extension of his position as director of football, and related to that; faced with the wording of the emails, he said that having just come off the motorway he had not read the first email in the chain before answering it.

. I do not believe Mr. McCrory’s evidence about this. There was no limit to Mr. Power’s position within the club that needed to be formally extended, and I find it wholly incredible that he would have sent his e-mail without reading the prior email from Mr. Fletcher, quite apart from the fact that the subject is clearly stated to be “Seebeck Completion Extension”. I find that he, in common with everybody else who was involved, knew perfectly well that what was being extended was the period for compliance with clause 2.4.

.The first issue is whether, on these facts, there was a binding extension pursuant to clause 2.4, which took effect before 25^th April 2013 and therefore prevented the SSA from ceasing to exist on that day. The claimant’s case is that such an extension is within the absolute discretion of Seebeck and Mr. McCrory, and that they exercised their discretion to extend by the oral agreement which preceded the text. Such an extension was not a variation and did not even require to be communicated (although it was), and was unaffected by any of the provisions in clauses 16 and 19.

In my view, the issue which I have to decide in relation to this is whether, accepting Mr. Power’s evidence as I do, when the parties agreed to refer what they had decided to their respective solicitors, this was implicitly on the basis that the agreement was subject to their approval. I do not think that the basis of the reference to the parties’ respective solicitors was spelled out in the conversation, and the question is, as always, what is the reasonable objective inference to be drawn from the circumstances. Applying that test, I hold that the agreement was subject to the approval of the parties’ solicitors. This related to a complex agreement which had been drawn up by the solicitors, and on any sensible view (as indeed the argument before me has demonstrated) either party’s solicitors might well have had reservations about the effect of extending the period for so long on other obligations, most obviously the restrictions imposed by clause 5 (Conduct of the Business) on what the company could do without the written consent of Mr. Power, not just for 14 days but now for 3 years. I do not think that the parties can be taken to have agreed that, if either of their solicitors suggested that the length of the extension should be subject to modifications of other terms, the other party could simply refuse to countenance any further changes.

For that reason, I hold that the SSA ceased to exist on 25^th April 2013.

Mr. Douthwaite also argued that, if I were against him on the previous point, there could be no effective determination, because what was contended for fell foul of each of clauses 16, 19.4 and 19.5. Having held that there was no effective determination, absent the approval of both parties’ solicitors which was not given until after the agreement had expired, it is unnecessary to deal with these points in detail, but put shortly:-

The next issue is whether the parties entered into a new agreement on 1^st May 2013 on the same terms, save for the increase in the period to 3 years. Mr. Douthwaite concedes that, if there was a binding agreement on 1^st May 2013, none of the subsequent events, which were gone into in considerable detail in cross-examination, affects the position. The agreement was not terminated or abandoned, and it is common ground that the conditions precedent have now been satisfied; although there is some issue as to whether this happened in July or in November, and as to whether Mr. McCrory misled Mr. Power as to the effect of what the Football League communicated in July, none of this matters. What does matter is whether the exchange of emails did amount to a binding new agreement on the basis that, as stated earlier, I do not accept Mr. McCrory’s evidence about what he thought he was signing; in any event this would probably have made no difference since the emails must be objectively construed, whatever Mr. McCrory may or may not have read.

Mr. Douthwaite’s argument is short and ingenious, but in my opinion clearly wrong. He submits that there was no new agreement because, as is clear if one reads the opening email in the chain (para. 19 above), what the parties thought they were doing was varying the SSA of 11^th April 2013, which they could not do because it had ceased to exist. The parties did not intend to enter into a new agreement, since they did not know that the old one had gone; what they intended, to do was to vary the old agreement, but that was impossible.

The answer to this is in my view obvious. The parties reached a clear agreement to revive (to use a neutral word) the SSA with a new period for completion. The terms governing the right and obligations of the parties were clear and certain. All that they had wrong was the legal designation of what was agreed. Agreement as to its legal designation is not a necessary ingredient of a contract; the contents of the contract must be certain, but the parties can call it what they want. Mr. Jory was right to refer to the well-known passage in Lord Templeman’s speech in Street v. Mountford [1985] A.C. 809 at 819D-F:-

“In the present case, the agreement dated 7 March 1983 professed an intention by both parties to create a licence and their belief that they had in fact created a licence. It was submitted on behalf of Mr. Street that the court cannot in these circumstances decide that the agreement created a tenancy without interfering with the freedom of contract enjoyed by both parties. Mr Lords, Mr. Street enjoyed freedom to offer Mrs. Mountford the right to occupy the rooms comprised in the agreement on such lawful terms as Mr. Street pleased. Mrs. Mountford enjoyed freedom to negotiate with Mr. Street to obtain different terms. Both parties enjoyed freedom to contract or not to contract and both parties exercised that freedom by contracting on the terms set forth in the written agreement and on no other terms. But the consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

Mr. Douthwaite’s argument, if correct, would defeat the plain intention of the parties as to their respective rights and obligations and would have a troubling effect in many cases. Whether an agreement is a new contract or a variation is often a difficult question: see per Briggs J. in Langston Group Corporation v. Cardiff City F.C. Ltd [2008] EWHC 535 (Ch) at [43-8]. Indeed, it was not a straightforward question in this case, as the earlier part of this judgment shows; there was a reasonable argument that the SSA remained in existence, in which case the 1^st May emails would have been a variation, because of the change in the starting date for the 3 year period. It would be absurd if the existence of a contract depended on whether the parties were able to categorise correctly the agreement they had made.

Mr. Douthwaite submitted that Swinton Reds’ reliance on the exchange of emails as a new contract evaded inconvenient provisions of the SSA. However, this is inconsistent with the defendants’ case. If, as they submit and I have held, the SSA terminated on 25^th April 2013, then there were no terms, inconvenient or otherwise, until it was revived by a new agreement. Anyhow, if it had been a variation, the only relevant provision would have been clause 19.4, the emails were electronically signed, and that would have sufficed: see Golden Ocean Group Ltd. v. Saldgooecar Mining IndustriesPVT Ltd. [2012] EWCA Civ 265.

Mr. Douthwaite also submitted that it was “inconceivable” that Seebeck and Mr. McCrory would have agreed to a 3-year extension, given the consequences flowing from the Conduct of Business provisions; it would have been mad to do so. This argument leads nowhere. If there is doubt what a contract means, then of course the commercial sense of the rival meanings are highly relevant to the interpretation. But here there is no doubt: 3 years means 3 years. In any event, it may have made sense, as a period “plucked out of the air” in circumstances in which the parties were getting on well, and nobody wanted to have to worry about another extension. From Seebeck’s point of view, they wanted to keep Mr, Power on board as director of football and as a potential provider of more finance if needed, and they did not want the club to have to pay him £75,000.

Mr. Douthwaite also submitted that the evidence of events from September 2013 onwards demonstrated that Mr. Power did not believe that the SSA was in existence, or that he had any outstanding rights under it. The evidence consisted of a number of minutes of board meetings, taken by Mrs. Sangita Shah, a business associate of Mr. McCrory and a director. These minutes are not always accurate or intelligible, through no fault at all of Mrs. Shah’s; she was noting detailed discussions about matters which, at the time, had not been properly explained to her. Nevertheless, they show reasonably clearly, as Mr. Power says, that what was happening was that the parties were discussing possible new structures, involving a third person, which might be necessary if the club’s need for finance was greater than Mr. Power’s ability to provide it; Mr. McCrory had no funds available. None of this happened, but there were discussions about a 30/35/35 sharing and some limited preparations were made to that end. None of this implied any change in the contractual position, unless and until there was a further agreement, which there never was.

There is no evidence at all that Mr. Power no longer thought himself entitled to his rights under the SSA, and indeed one of the minutes refers to a 60% interest, which I find to be a reference to the existing 60% interest of Swinton Reds after taking into account the anticipated exercise by Mr. McCrory of his option to acquire 39%. Mr. McCrory’s evidence was that this was a reference to a different, and more recent, discussion about a new structure involving a 60% interest, but I did not believe his evidence on this point. In any event, even if it had been the case that Mr. Power for some reason did not believe he had a continuing interest, that would be irrelevant; the issue is whether he did or did not have such an interest.

What I have said so far is sufficient to decide the case in Swinton Reds’ favour, and it is unnecessary to deal with its alternative case of estoppel in any detail. However, if I had decided that, for some reason, the agreement of 1^st May 2013 was ineffective, put shortly:-

For all these reasons, I hold that Swinton Reds is entitled to the relief it claims and I will hear counsel on the form of the order.