CPL Ltd v CPLl Opco (Trinidad) Ltd & Anor

This is the application dated 25 September 2017 of the second defendant, Pettigo Commercio Internacional LDA (“D2”) seeking summary judgment against the claimant, CPL Limited (“C”).

C is a company incorporated in St Lucia and the originator of the Caribbean Premier League, an annual Twenty20 cricket league staged in the West Indies (“the League”). The first defendant, CPL Opco (Trinidad) Limited (“D1”) is a company incorporated in Trinidad and Tobago, which was set up for the specific purpose of “operating” a cricket team representing Trinidad and Tobago (“the team”).

D2 is a company incorporated in Madeira. It owns all the shares in CPL Holdco (Trinidad & Tobago) Limited (“the holding company”), which itself owns all the shares in D1. D2 bought the shares in the holding company from C pursuant to a share purchase agreement executed on 20 July 2013 (“the SPA”), which as will be seen, gives rise to the principal basis on which D2 now says that the claim against it has no real prospect of success.

The claim against D1 is based on an agreement dated 22 July 2013 between it and C described as a participation agreement (“the Agreement”). Under the Agreement

The Agreement also provided, at clause 22:

“22.

Guarantee

If [C] reasonably believes that at any time a parent company (or companies) is (or are) required to guarantee the obligations of [D1] under this Agreement, then as soon as practicable and in any event with ten days following a request from [C] [D1] shall ensure that a company or companies of financial standing which is (or are) acceptable to [C] (each a “Guarantor”) duly and properly executes as a deed of guarantee in the form set out at Schedule 4 and delivers such deed to [C] …“

C’s case against D1 is that it failed to comply with its obligations under the Agreement and, accordingly, is liable under it in debt, and in damages for its breach. The total sum claimed is US$1,155,886, which at current exchange rates is about £866,000, plus interest.

The claim against D2 is set out at paragraphs 25 to 32 of the Re-Amended Particulars of Claim dated 7 July 2016 (“the PoC”). Its commercial significance is that D1 is a shell company with no assets, so any victory against it will be pyrrhic.

Paragraphs 25 to 27 set out an oral warranty that C alleges was provided by Mr Malique of D2:

“25.

The Second Defendant expressly warranted to the Claimant that it would share primary liability for all and any debt incurred by the First Defendant pursuant to the Agreement.

26.

The said warranty comprised an oral promise made by Mr Mohammed Malique of Lycatel Services Limited, with the authority of the Second Defendant, to Kieran Foley of the Claimant, on 22 July 2013 in the boardroom of Lycamobile UK Limited (“Lycamobile”) in London. Mr Malique assured Mr Foley that, although the Claimant was entering into an Agreement with the First Defendant, the Second Defendant was the parent company of Lycamobile, that the Second Defendant sat behind both Lycamobile and the First Defendant, and that the Second Defendant would be responsible for all the sums due under the Trinidad and Tobago Franchise and the opex (i.e. operating expenses) incurred by the First Defendant.

27.

On a true construction of that warranty, alternatively as a matter of obvious implication, the Second Defendant’s warranty was an offer to so share primary liability in the event that, as the Second Defendant wished the Claimant to do, the Claimant entered into the Agreement.”

Paragraphs 28 to 29 set out that, in consequence, C and D2 entered into a collateral contract (consideration for which was provided by entering into the Agreement):

“28.

As a consequence thereof, a contract collateral to the Agreement was entered into between the Claimant and the Second Defendant upon the Claimant accepting that offer by entering into the Agreement (“the Collateral Contract”).

29.

In the premises, consideration for the Collateral Contract was provided by the Claimant entering into the Agreement.”

Paragraph 30 sets out an alternative basis pursuant to which consideration is said to have been given for the Collateral Contract:

“Further or alternatively, pursuant to clause 22 of the Agreement, the Claimant was entitled to require a ‘parent company’ to ‘guarantee the obligations of the Company under this Agreement’. The Claimant’s decision not to exercise its right under this clause was, as the Second Defendant would have well known and intended, influenced by, and therefore taken in consideration for, the oral promise referred to in paragraphs 25 and 26 above.”

Paragraph 31 contains the basis on which the Collateral Contract is alleged to be evidenced:

“Furthermore, the Collateral Contract is evidenced by the Second Defendant’s conduct in requesting the Claimant to send to it invoices in respect of the First Defendant and then paying those invoices pursuant to the Collateral Contract. …”

D2’s Defence dated 14 September 2016 sets out that no meeting occurred on 22 July 2013. It denies that any oral promise was given, and asserts that in any event Mr Malique had no authority to bind D2.

The Reply accepts that the relevant meeting occurred on 20 July 2013, the date when the SPA was executed.

There have been two contested interim applications. The first was C’s successful application to join D2 to the claim. The second was Ds’ unsuccessful attempt to obtain the trial of a preliminary issue of whether D2 was liable under the Collateral Contract.

The trial is listed to commence in a 5 day window from 8 May 2018. Disclosure and the exchange of witness statements for trial have taken place, and the parties agreed that this application should be heard after exchange of the trial witness statements.

The principles to be applied on applications for summary judgment are well established. They were summarised by Lewison J, as he then was, in Easyair Ltd v Opal Telecom Limited [2009] EWHC 339 (Ch), in a formulation approved in a number of subsequent cases at appellate level, including AC Ward & Sons v Catlin (Five) Limited [2009] EWCA Civ 1098 and Mellor v Partridge [2013] EWCA Civ 477. It is unnecessary to set them out here.

In Doncaster Pharmaceuticals Group Ltd and others v Bolton Pharmaceutical Co 100 Ltd [2006] EWCA Civ 661, Mummery LJ said at [5]:

“Although the test can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the “no real prospect of success” test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials.”

I turn now to D2’s counsel’s submissions that the test for summary judgment is met. In deciding whether D2 should be joined to the claim, I have already held that the claim against it has a real prospect of success. However, D2 submits that since its joinder the case against it has materially worsened and is now unsustainable. The three developments D2 relies upon are:

As noted, 20 July 2013 is the date on which C and D2 entered into the SPA. The SPA included the following terms:

The executed copy of the SPA does not in fact include a draft of the Agreement. There is no evidence before me as to how or why this came to be.

Mr Foley’s evidence (in his witness statement dated 25 October 2017) is that Mr Malique made the relevant assurances before the SPA was signed. In those circumstances, D2’s counsel submitted that the entire agreement clause prevents C from relying upon the Collateral Contract and renders its case legally unsustainable.

He submitted that the issue was one of contractual construction, namely whether on the proper construction of the entire agreement clause the Collateral Contract fell within it. Such a point was, he submitted, well-suited to summary judgment and the Court should “grasp the nettle” by dealing with it now: ICI Chemicals & Polymers Limited v TTE Training Limited [2007] EWCA Civ 725, [11]-[12] per Moore-Bick LJ. Moreover, grasping the nettle was, he submitted, consistent with the ‘whole purpose of an entire agreement clause’, viz. ‘to avoid the cost and time of the Court and the parties being expended on the investigation of claims to the investigation of collateral warranties’: Inntrepreneur Pub Co. (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 61, [21].

Turning to the construction of the clause, D2 relied upon the well-known passage in Inntrepreneur at [7]:

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contracts 28th ed. Vol 1 para 12–102: it is to denude what would otherwise constitute a collateral warranty of legal effect.”

D2’s counsel submitted that the draft Agreement was a “document referred to” in the SPA, and the fact that the draft Agreement provided for the provision of a parent company guarantee precluded C from relying on any other agreement with D2.

Thus, he submitted, the “subject matter” of the SPA was D2’s acquisition of the holding company on terms that D2 would procure D1 to enter into the Agreement. Referring to para 26 of the PoC, he submitted that the question of who was going to pay the operating expenses was squarely within the subject matter of the SPA; as was the question of how D1 was going to be good for the money and how C could have comfort that D1’s obligations would be satisfied. C was therefore, he submitted, precluded by the entire agreement clause from relying upon the Collateral Contract because it related to the same subject matter as the SPA.

C’s counsel made the following submissions. First, he submitted that an entire agreement clause must be construed strictly. In this case it refers to “arrangements, understanding or previous agreement”. It did not, he submitted, refer to the offer C alleges was made in this case. C’s pleaded case is that that offer was not accepted by C until it entered into the Agreement on 22 July 2013, after the SPA, and is therefore not within the entire agreement clause.

C’s counsel’s second submission was that the reference in the clause to “any documents referred to in it” did not extend to the draft Agreement. The expression was, he said, only capable of referring to documents which were capable of constituting an agreement between the parties to the SPA; and the draft Agreement was not between those parties. It was included in the SPA for a different purpose, and the entire agreement clause could not properly be construed as expanded to include it. As to what the expression did refer to, he submitted that it referred to specific formal documents necessary to give effect to the SPA set out in Appendix 2 to it.

C’s counsel invited me not to decide the point of construction identified by D2. He submitted that the entire agreement clause could only be construed in the factual matrix in which the SPA was entered into, and that this was a matter for the trial judge. This, he said, would include evidence as to the relative roles and significance of the SPA and the Agreement. He particularly relied upon two emails of 17 July 2013 from Mr Foley to Bob Sangaran, of Lycamobile UK Limited, of which D2 is also the parent company, at 8.10:

“The Opex will be your management …”

and at 14.13

“I should point out that Year 1 is a bit of an anomaly i.e. [C] have actually incurred most of the OPEX in this first year already so we would simply suggest we continue to run it (with less than 2 weeks to go) and we obtain your approval on any further future costs, but essentially we pay and then cross charge you guys.” (emphasis added)

together with Mr Malique’s email of 19 July 2013 to Mr Foley:

“Since the main agreement is the Participation Agreement (pursuant to which the money in the deal will pass via) and the SPA is merely passing the shares at nominal value – there is perhaps no need for a long detailed SPA. Instead, please ask your Legal team to provide a short form SPA to pass legal title to the shares.

Tomorrow our commercial team will then be available to meet and run through dates for money to be transferred for OpEX as well as the Participation Agreement to ensure all sides are aligned.” (emphasis added)

These were, he said, not consistent with the parties to the SPA setting the terms of the Agreement in stone.

Finally, he submitted that the Collateral Contract was in any event supplemental to the SPA and to the Agreement. The Agreement provides for a guarantee by D2 of D1’s liability, he submitted, but not for D2 to assume primary liability concurrently with D1; and that agreement is properly described as supplemental.

He referred me to Ryanair Limited v SR Technics Ireland Limited [2007] EWHC 3089 (QB) at [137] to [143], in which Gray J held that the effect of the collateral contract in question was not to alter or amend the main contract, but to supplement it. As in Ryanair, C’s counsel submitted, both sides proceeded on the common assumption that the Collateral Contract would be honoured notwithstanding the provisions of the entire agreement clause: see Ryanair at [140]. This he said, also gave rise to an estoppel by convention.

In support of this he relied upon the emails of 17 and 19 July 2013 (set out at para 28 above). When these were sent, D1 was still owned by C and even after its ownership had been transferred it had no assets, so these emails must, he submitted, refer to D2 and its subsidiary Lycamobile.

C’s counsel also relied upon Vitol SA v Sterling Oil Trading [2102] EWHC 3108 (Comm) (to which I referred the parties) in which Inntrepreneur was distinguished by Cooke J in a summary judgment application, at [25] to [27]:

In considering whether C is prevented by the entire agreement clause from relying on the Collateral Contract, the first issue that arises is whether the draft Agreement in fact formed part of the SPA. As noted, the factual position is unclear. Although Mr Foley’s evidence is that the draft Agreement was discussed at the meeting, it is not clear whether a concluded agreement was reached as to its terms. D2’s counsel submitted that even if the draft Agreement was not physically attached to the SPA, the SPA must be construed as referring to the draft which the parties had at the meeting. However, in the absence of factual evidence as to what actually occurred, in my judgment, that conclusion cannot be drawn – it is a matter for the trial judge, and D2 has not satisfied me that C has no real prospect of showing that the parties had reached agreement as to the terms of the draft agreement as at 20 July 2013.

However, assuming I am wrong on this point, I turn then to D2’s counsel’s submissions as to the construction of the entire agreement clause. In my judgment, the point of construction which arises here is apt for determination on a summary basis, and none of the factors relevant to its construction depend upon the resolution of disputed facts.

I turn therefore to those factors. Firstly, Clause 5.7 of the SPA merely provides that D2 shall procure D1 to sign the draft Agreement. It does not oblige C to sign it (although there may be an argument for an implied term obliging it to do so).

Secondly, D2 is not a party to the Agreement and the Agreement does not impose any obligations on it. Indeed, D2 is not mentioned in the Agreement. Clause 22 (set out above) only refers to “a parent company (or companies)”.

Thirdly, clause 22 of the Agreement imposes an obligation on D1 to ensure the parent company/ies enters into the guarantee only if C

“reasonably believes that at any time a parent company (or companies) is (or are) required to guarantee the obligations of [D1] under this Agreement”.

(emphasis added)

This is a reference to an obligation on the parent company/ies arising outside the Agreement itself. Similarly, the draft guarantee at Schedule 4 of the Agreement includes as a recital:

“The Guarantor has agreed to guarantee to CPL the performance by the Company of its obligations under the Agreement.”

(emphasis added)

This again contemplates C and the guarantor independently (i.e. outside the Agreement) reaching agreement that it will provide a guarantee. D2’s counsel (rightly in my judgment) did not submit that the Agreement, when combined with the SPA, created an immediate specifically enforceable obligation on D2 to provide a guarantee. In my judgment they do not impose any obligations on D2.

In my judgment, therefore, the entire agreement clause is not properly construed as extending to the provisions of the draft Agreement. It does not preclude C and D2 reaching agreements as to the manner in which D2 is to provide comfort to C in respect of D1’s obligations under the Agreement, whether by guarantee as contemplated (but not required by) the Agreement or in some other way.

It follows that, in my judgment, the entire agreement clause does not preclude C from relying upon the Collateral Contract.

I turn to C’s counsel’s specific submissions. As to the date of the Collateral Contract, this is pleaded as 22 July 2013, when C accepted D2’s offer by entering into the Agreement. D2’s counsel submitted that nonetheless C and D2 had reached an “arrangement or understanding” within the meaning of the entire agreement clause. I agree that what transpired between C and D2 is properly to be characterised as an agreement or understanding, though for the reasons given above, not one that falls within the entire agreement clause.

However, for the reasons given above, I accept C’s counsel’s submission that the reference in the clause to “any documents in it” is not to be construed as extending to the draft Agreement, but is only capable of referring to documents capable of constituting an agreement between C and D2.

As for C’s counsel’s arguments that the Collateral Contract was supplemental to the SPA and the Agreement, and/or was subject to an estoppel by convention between the parties, in view of my analysis set out above, this issue does not arise.

D2’s counsel referred me to the witness statements for trial of Mr Foley and Mr Loffhagen on behalf of C, and the passages in which they set out C’s factual case as to D2’s oral promise on 20 July 2013.

Mr Foley’s evidence is at [23]:

Mr Loffhagen’s evidence is at [19]:

D2’s counsel submitted that these were vaguely expressed alleged assurances which it was fanciful to characterise as anything more than non-binding statements made in the course of negotiation. He referred me to Heilbut, Symons & Co v Buckleton [1913] AC 30, and in particular, Lord Moulton at p47 for the proposition that collateral contracts:

“‘must be proved strictly. Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties to them must be clearly shewn.’”

He also relied upon Assuranceforeningen Gard Gjensidig v International Oil Pollution Compensation Fund [2014] EWHC 3369 (Comm), [2014] 2 CLC 699, [102] per Hamblen J, in support of the submission that in this case the burden of proof to show intention to create legal relations was on C; and that its evidence, even if accepted by the court, was not capable of satisfying that burden. He submitted that there was nothing in the documentary or witness evidence that established, on an objective analysis, an intention to create legal relations.

In response, C’s counsel submitted that the circumstances in which the offer was made meant that the burden of proof was (or at least arguably was) on D2 in respect of intention to create legal relations. The position is conveniently summarised in the Gard case at [101]:

“In relation to the intention to create legal relations, Gard relied on Chitty para. 2-162 where it is stated that ‘in the case of ordinary commercial transactions it is not normally necessary to prove that the parties to an express agreement in fact intended to create legal relations’. It also relied on Edwards v Skyways [1964] 1 WLR 349 at 355 in which it was stated that in that context the onus of proving that there was no such intention ‘is on the party who asserts that no legal effect was intended and the onus is a heavy one’.

C’s counsel relied upon the following factors as establishing that this was an ordinary commercial transaction in which an express offer was made, so that the burden of proof was on D2 to show that the parties had no intention to create legal relations. Firstly, he relied upon the fact that the meeting was a business meeting of some importance, that Mr Foley and Mr Loffhagen flew in to attend (in fact, the evidence is that only Mr Foley flew in) from Jamaica. Secondly, he submitted that the emails (set out in paragraph 28 above) show that the topic of D1’s parent company’s responsibility for the operating expenses was intended to be included in the subject matter of discussion. Thirdly, he referred to and relied upon a “Memorandum of Understanding” dated 21 July 2013 (though unsigned) in respect of a related transaction between D2 and a third party (EMG). This includes the following (at para 1(e)):

“[D2] agrees to cover 100% of all financial expenses related to formation and ongoing operation associated with Lyca T&T [a holding company] and TTRS [an operating company] in accordance with the long form agreement of the CPL.”

This, he submitted, showed that D2 was willing to make the type of promise C alleges it made and to record it in writing.

C’s counsel distinguished the Gard case on the basis that as set out in the headnote, in that case there was, unlike in this case, no expressly stated offer to contract in the terms alleged – the offer in Gard being said to arise out of “an accumulation of what was said in meetings and in writing between March and June 2007.”

Whether parties had on a particular occasion an intention to create legal relations is in my judgment inherently unsuitable for determination on a summary judgment application. It is an issue the trial judge will be best placed to decide, having heard the evidence tested, received more developed submissions, and had more time in which to digest and reflect upon the materials: see the passage from Doncaster set out in paragraph 5 above.

I also accept C’s counsel’s submission that C has at least a real prospect of success in showing that in the particular factual circumstances the burden of proof would be on D2 to show that the parties did not have an intention to create legal relations, since the offer C relies upon is an express offer.

D2’s argument has two elements. First, it is said that there are no documents which support the existence of the oral warranty. Secondly, D2 relies upon an email chain dated 22 July 2013 and 1 August 2013 between Mr Foley and John Loffhagen, C’s solicitor at the relevant time:

“Mr Loffhagen: Do we know much about the financial strength of this company.

Perhaps we should ask for accounts and then go with a parent company guarantee in due course?

Mr Foley: Yes that would be helpful please

But regardless we want a parent company guarantee in the first instance (as per participation agreement)

Mr Loffhagen: Do you want me to raise this, Kieran?

Mr Foley: Not yet”

This email chain is addressed in Mr Foley’s witness evidence at §§33-35:

“33.

After the Agreement was signed, Mr Loffhagen emailed me asking whether we should request copies of Hastings[‘] accounts and whether CPL wanted to put in place a PCG [Parent Company Guarantee]. I agreed we should request copies of the accounts but said that regardless we should get a PCG “as per participation agreement” …. By this, I meant that I was aware that the Agreement anticipated that the parties would enter into a PCG and therefore getting a PCG was part of the normal process following the signing of the Agreement.

34.

Mr Loffhagen emailed me again on 1 August 2013 querying whether I wanted him to raise the issue of the PCG, as at this point we had not got round to requesting it. I responded “Not yet”, as it was the middle of the inaugural season and given how busy everyone was, trying to agree the PCG felt like an unnecessary distraction at the time. I also recall that CPL’s relationship with Lycamobile seemed to be pretty strained throughout the season. All in all, it was not a good time to be requesting a PCG.

35.

I did not believe that obtaining a PCG from Hastings was strictly necessary, as Mr Malique had given me the assurances that Hastings would be responsible for all sums due under the Trinidad and Tobago Franchise and the Opex incurred by Opco. The Agreement provided for a PCG and after the Meeting I thought it would be sensible to obtain one at some convenient point but I believed I could rely on the assurances I had been given by Mr Malique.”

The email chain is also addressed by Mr Loffhagen’s witness evidence (at §24 [9/7]):

“I was aware that the Agreement provided for a parent company guarantee (PCG). Following the Meeting I queried with Mr Foley a couple of times whether he wanted me to follow up and request the PCG. I was aware of the assurances given by Mr Malique; however, as a lawyer it made sense to me to also have the PCG as a “belt and braces” approach. I do not know why Mr Foley ultimately decided not to obtain a PCG but I assume that he felt comfortable enough with the assurances given by Mr Malique not to need one.”

D2 relies upon the fact that the oral warranty is not mentioned in the email chain. He submitted that this shows that objectively C did not by entering into the Agreement have any intention of accepting the alleged oral promise to share primary liability. He submitted that the email chain rendered it objectively clear that C was relying on its ability under the Agreement to obtain a parent company guarantee.

C made the following submissions. As to the absence of documents, he relied upon the oral evidence of Mr Foley and Mr Loffhagen; and submitted that Mr Loffhagen’s evidence was likely to be given significant weight as an officer of the court and since he has never been an employee of C. He also relied upon the Memorandum of Understanding (referred to in para 49 above); and D2’s requests for invoices in respect of D1 to be sent to it and its payment of those invoices. Finally, he submitted that it was in the nature of an oral warranty that it is not recorded in writing.

As to the email chain, he submitted that discussions as to obtaining a parent company guarantee were not inconsistent with Mr Foley and Mr Loffhagen believing that the Collateral Contract was in place. A written guarantee would have advantages over an oral agreement, including certainty and ease of enforceability (as this claim demonstrates). He also relied upon Mr Foley’s evidence that the reason why he was not concerned about obtaining a written parent guarantee immediately was because he was relying upon the oral assurances given by Mr Malique: if C had felt exposed, it would have insisted on its contractual entitlement to a parent guarantee.

I agree that the absence of any reference in the contemporaneous documents to the Collateral Contract has an evidentially weakening effect on C’s case. However, it is far from conclusive, and this fact will need to be weighed in the round, together with the documents C relies upon and the evidence of C’s witnesses following their cross examination. I am not therefore satisfied that this absence means that C has no real prospect of success.

As for the email chain, again evaluating its significance will involve evaluating Mr Foley’s and Mr Loffhagen’s evidence, which is also a task for the trial judge. I am not satisfied that it entitles me to conclude that C has no real prospect of success.

Finally, D2’s counsel submitted that C’s evidence was incapable of establishing the pleaded ‘warranty to share primary liability’, as opposed to a guarantee. He referred me to section 4 of the Statute of Frauds 1677, which renders contracts of guarantee unenforceable unless they are in writing; and to Andrews and Millett, Law of Guarantees, 7^th ed., §3-006 for the distinction between original liability under contracts of indemnity and contingent liability under a contract of guarantee.

He submitted that there is no real prospect of C on its vague witness evidence for trial establishing a promise of original liability in contradistinction to a promise to guarantee D1’s obligations; indeed, the allegation that D2 was said to ‘sit behind’ D1 is less consistent with the former than with the latter.

I do not accept this submission. Both Mr Foley’s and Mr Loffhagen’s evidence clearly set out an assurance by D2 that it would be responsible for the operating expenses incurred by D1. I am not satisfied that C has no real prospect of showing that this amounted to an assumption of primary liability.

For the reasons set out above, therefore, I dismiss D2’s application.

I conclude this judgment by noting the time and expense that the parties have now incurred in 3 interim applications heavily contested by the defendants; and expressing the hope that the parties will now focus on bringing this claim to a final resolution, whether by agreement or trial.