Business Mortgage Finance 6 Plc v Roundstone Technologies Ltd

This is the trial of a Part 8 claim. It is a follow-on from a previous action in the Financial List, the short title of which is Business Mortgage Finance 6 Plc v

In that action, the claimant, which I will call “BMF6”, and which is the claimant in this action as well, sought declaratory and other relief against a number of defendants in relation to arrangements, the details of which I will have to come to, which had the ostensible effect of enabling the defendants to obtain control of a securitisation structure and Zacaroli J was persuaded to grant those declarations. Indeed, by the time it came to the hearing before him, counsel then appearing for the defendants accepted that the various steps which he deals with in this judgment were, in fact, invalid and did not oppose the relief that he granted in

The tenth declaration, however, was as to the validity of certain transactions. That would include a sale of certain charged assets ostensibly by a receiver appointed over BMF6's assets pursuant to a charge and the purchaser under that sale was Roundstone Technologies Limited, a BVI company, which was not

In those circumstances BMF6, having succeeded against the then defendants, brought this second action by way of Part 8 claim, the only defendant being Roundstone, in order to obtain corresponding relief against Roundstone. BMF6 has appeared by Mr Tom Smith QC, who has taken me through the documents

Roundstone appeared today by Mr Julius Nkafu. His original application to me first thing this morning was to adjourn the trial for 24 hours to enable other counsel who had been instructed, but who today has been engaged in the Court of Appeal, to appear tomorrow. For reasons that I gave in a very short judgment this morning, I allowed Mr Smith to deploy the evidence and arguments that he wished to rely on, indicating that as there was a full verbatim transcript of the proceedings I would give the defendant an election, if it so wished, when Mr Smith had finished addressing me, to have the remainder of the hearing adjourned to tomorrow so that counsel of the defendant's choice could appear, but only on the terms that the defendant should in any event pay the costs thrown

In the event, Mr Nkafu's instructions were not to seek an adjournment on those terms and he relied on a written skeleton argument, unsigned, but I was told prepared by Roundstone in-house but which had the approval of counsel, as encapsulating the points that Roundstone wished to make and, since all those points had been anticipated by Mr Smith in his opening submissions to me, I did

The background is quite complex but I will state it as shortly as I can. BMF6 is the Issuer of six classes of Notes under a securitisation structure originating in 2007. The underlying assets which have been securitised are a portfolio of

The documents which gave effect to the structure include a Trust Deed which was entered into between BMF6 and BNY Corporate Trustee Services Limited, that

The Deed of Charge contained at clause 11 power for the Trustee to appoint

There were various other provisions in the Deed of Charge which I will in due

The events with which this action is concerned are set out in detail in Zacaroli J's judgment, the neutral citation number of which is [2019] EWHC 2128 (Ch) and anyone who wishes to look at the detail can have regard to his judgment which, as I say, was a reserved judgment and sets things out in more detail and with more precision than I will be able to. But, as there appears, a company called Greencoat Investments Limited claimed to have acquired a large number of the Notes, at any rate to the extent of having a tender offer for the Notes accepted. The settlement date under its tender offer was originally in February but was

As Zacaroli J explains (see [9]):

There was an announcement under which Greencoat Investments Limited, which

At [13] of his judgment, Zacaroli J sets out the various steps which were taken by the defendants, who were GIL and various other parties to the transactions, and they started with the purported appointment by GIL of two other companies, Greencoat Holdings Limited, which I will call “GHL”, and Portfolio Logistics

Among the other steps are step iii) of 27 June 2019, when those two companies, GHL and PLL, purported to declare that the Security under the Deed of Charge was immediately enforceable; step iv) when they purported to appoint a Mr Fitzsimons as receiver over BMF6's portfolio of loans and associated security; and step v) when they purported to resolve that BNY be removed as Trustee. I do not think I need refer to the other steps which are there set out.

It later transpired, however, that in addition to that on 27 June 2019 GHL and

Clause 4 provides for the consideration, which consists of a Purchase Price of £237 million divided into £1, called "the Initial Consideration", and the balance,

The combined effect of clauses 4.2 and 4.3 is that the £1 Initial Consideration is payable on the Purchase Date, which is the date of the agreement, that is

June 2019, but the Deferred Consideration is not payable for 32 days and there

Clause 5 deals with completion. It says that the sale of the Receivables shall take effect on and with effect from the Purchase Date, and it obliges the Seller to deliver a Declaration of Trust and a Power of Attorney, simultaneously with the Purchaser paying the £1 Initial Consideration.

Clause 10 contains an unusual limited recourse provision in clause 10.2, headed

Annexed to the agreement at schedule 1 was a form of Declaration of Trust and this provides that the Seller should hold the Trust Receivables in trust absolutely for the Purchaser and its assignees. Schedule 2 attaches the form of the Seller Power of Attorney and, under that, the Seller appoints the Purchaser to be its true

Those documents were executed or at any rate purportedly executed on

June 2019, the Sale and Purchase Agreement itself being executed by Mr Oyekoya as receiver for BMF6 and a signature appears against the execution space for Roundstone, which provides that it was executed and delivered as a deed by Roundstone Technologies Limited acting by a director/its duly authorised attorney. The signature is not legible and no evidence has been put

The Declaration of Trust was also executed or purportedly executed on the same day, 28 June 2019, by, again, Mr Oyekoya on behalf of BMF6 as its receiver and by the unspecified signatory on behalf of Roundstone; and the Power of Attorney executed again on the same day, this being in the form of a deed poll, by Mr Oyekoya on behalf of BMF6.

There is evidence before me that the Initial Consideration of £1 was paid by

The essence of the case put forward by Mr Smith on behalf of BMF6 is a very simple one. It is that GHL and PLL were never in fact appointed trustees of the Trust Deed to act together with or in place of BNY. Therefore, they never in fact had any power to appoint Mr Oyekoya as a receiver and therefore Mr Oyekoya

As to the first step, indeed the first two steps in that argument, he referred me to the judgment of Zacaroli J. As I have already indicated, Roundstone was not a party to those proceedings and Mr Smith accepts that his judgment does not create a res judicata and is not binding on Roundstone; but he invites me to adopt the same view of the validity of the appointment of GHL and PLL as Trustees and the appointment of Mr Oyekoya as Receiver as Zacaroli J did or would have

I asked Mr Nkafu if he wished to contend that Zacaroli J was wrong in any of his analysis. Mr Nkafu, who indicated that he was relying on the points set out in the skeleton argument that I have been provided with on behalf of the defendant, which did not address any of these points, told me that he had no submissions to

I accept that I am bound to form my own view on the material in order to reach a conclusion and that the defendant has not conceded anything in relation to them before me, but in the circumstances the defendant has not advanced any positive

I can summarise my views by saying I have been taken very carefully through the relevant parts of his judgment and I see no reason at all to take any different view

In more detail, at [35] Zacaroli J set out the initial flaw, as it were, in the steps

He then sets out the detailed reasons why he came to the conclusion that that concession was rightly made. It is not necessary for me to repeat them. As I have said, I was taken carefully through them. I take exactly the same view as he did and I, too, have come to the view that the concession which was made in that case (but not made before me) was rightly made and that GIL, although in some sense having a beneficial interest in the Notes which it had contracted to buy, was not the holder of a sufficient interest to make it an Instrumentholder as defined. In essence that is because the purpose of that definition was intended only to address the situation where the Notes were held in global form, that where there was any issue over the entitlement of a person claiming an interest it was for the Trustee to determine that question, and that the evidence was that BNY as Trustee would require a current position statement taken from a recognised clearing system record-keeping system. In those circumstances, GIL was not

That by itself was sufficient for Zacaroli J to conclude that its attempt to appoint GHL and PLL as additional trustees was invalid and of no effect because GIL's purported ability to do so was dependent on it being a Noteholder and indeed being in a position to pass a written resolution which required it to be

He also gave two other reasons why the appointment of GHL and PLL was invalid. One was that although GIL might have claimed to have interests in over 75 per cent of the A1 Notes, that is the sterling A notes, he took the view, and I agree with him, that any Extraordinary Resolution for the purpose of directing the Trustee to appoint an additional trustee would need to be an extraordinary resolution of at the very least the class A Noteholders as a whole and GIL was on no view in a position to procure such a resolution (see [52] of his judgment); and, secondly, the ability of Noteholders, by passing Extraordinary Resolutions, to require the Trustee to take steps could not require the Trustee to appoint further trustees as that would require in the circumstances of the case the Trustee to reach a conclusion that such appointment was in the interests of the Instrumentholders. Zacaroli J took the view that the ability of Noteholders by Extraordinary Resolution to direct the Trustee to take action did not extend to directing it to conclude that the appointment of an additional trustee was in the interests of the Instrumentholders (see [51]).

That deals with the first plank in Mr Smith's case that the Trustees purportedly

The second plank is that having not been appointed Trustees they had no power to appoint Mr Oyekoya as a receiver. There was, in fact, at the time that Zacaroli J gave his judgment on 31 July, no evidence before him that Mr Oyekoya had even purportedly been appointed as a receiver, the only appointment in evidence before

There is now before me evidence in the shape of a purported appointment by GHL and PLL dated 27 June 2019, together with an acceptance by Mr Oyekoya

That is a reference back to his consideration of what was the fourth step before

By parity of reasoning, exactly the same would, in his view, have applied to Mr Oyekoya and in my view he was right about that. Since GHL and PLL were

I was shown Zacaroli J's Order dated 31 July 2019 in which he made a number of

As I have said, those declarations were not qualified but I accept Mr Smith's submission that that does not make any difference and that those declarations are not binding on Roundstone, Roundstone not being a party to those proceedings, but they were, in my judgment, for the reasons I have given, justified both by the evidence before Zacaroli J and by the evidence before me and I have reached the same view on those two points.

At paragraph 10 of his Order, Zacaroli J declared as follows:

That is expressly qualified so as to apply only as among the parties to those proceedings and the remaining matter that I have to decide is whether, notwithstanding my conclusions as to the invalidity of the appointment of GHL and PLL as Trustees and of Mr Oyekoya as Receiver, that declaration or a similar

Mr Smith put his case primarily on the lack of actual or ostensible authority enjoyed by Mr Oyekoya. In the light of the conclusions I have already come to, I accept, and it has not been suggested to the contrary, that Mr Oyekoya had no actual authority to act on behalf of the Issuer at any stage. The case, therefore, for the Sale and Purchase Agreement being binding on BMF6 must rest on ostensible

Mr Smith's position is that the suggested defence to this claim put forward on behalf of Roundstone, both in correspondence and in the skeleton argument that has been served on its behalf, that it is a bona fide purchaser for value of the legal estate without notice of any irregularity -- that is not the only way in which it puts its case but that is put at the forefront of its case – requires it, at the very least, to

That seems to me to be a correct analysis, subject to the other arguments put forward on behalf of Roundstone which depend on the protections for purchasers

I turn, then, to the question of whether Mr Oyekoya had ostensible authority. Mr Smith very properly showed me a statement in OBG Ltd v Allan [2007] UKHL 21 in the speech of Lord Hoffmann at [92], where he says this: "That does not mean that a contract made by a person dealing in good faith with someone purporting to be a receiver, as in this case, can be repudiated by the company. As Lord Simonds went on to point out in Morris v Kanssen [1946] AC 460, such a person can rely on the principle of ostensible authority which in company law goes under the name of the rule in Royal British

That undoubtedly suggests that a person dealing with someone purporting to be a receiver can rely on the principle of ostensible authority and the doctrine of Royal British Bank v Turquand, but Mr Smith said that that brief statement was obiter and irrelevant to the decision in OBG, and it is not an adequate account of how the doctrine of ostensible authority operates in the case of corporate entities; and for that he took me to the recent decision of the Privy Council in East Asia Company Limited v PT Satria Tirtatama Energindo [2019] UKPC 30 where Lord Kitchin, giving the judgment of the Board, dealt with the position at [62] to [65].

At [62] he referred to the indoor management rule, that is the Turquand rule, and

That I accept as a statement of the law. The doctrine of ostensible authority is based ultimately on estoppel. It requires the third party dealing with a putative agent to establish that the putative principal has held out in some way or other the putative agent as being able to act on its behalf. As Mr Smith put it, there must be

I have taken the opportunity of looking at the way in which the rule in Turquand's case is put in Bowstead and Reynolds on Agency (21st edition, 2018) at

That seems to me to be entirely in line with what the Privy Council said in the East Asia case and in line with Mr Smith's submissions. Translated to this case, what it means is that the third party, in this case Roundstone, could not rely on the ostensible authority of the Receiver, Mr Oyekoya, unless they could trace back some holding out or representation to the putative principal, in this case the Issuer, BMF6, or, given that a receiver could have been appointed by the Trustee, to some holding out by the Trustee, that is BNY, that Mr Oyekoya had been validly appointed. But there has been nothing (and no evidence has been adduced and no suggestion has been made that there was) emanating from BMF6, or indeed from BNY, holding out Mr Oyekoya as having authority to act as Receiver

It follows, in my judgment, that Mr Smith is right that this is not a case in which

In those circumstances the Sale and Purchase Agreement, subject to the specific points relied on for the protection of purchasers, is, on the face of it, not binding on BMF6 and for the reasons that I alluded to earlier Roundstone is not a purchaser so as to enable it to make good the plea of bona fide purchaser for value without notice of a legal estate, a plea which, as I understand it, is a single

Nevertheless, I will go on, briefly, to consider the other points which were urged by Mr Smith against the conclusion that this was a case where Roundstone could

The next was that Roundstone was on enquiry as to the circumstances of the transaction and, having failed to make enquiries, it could not rely on the doctrine.

At [78], Lord Kitchin referred to something else said by Lord Simonds in Morris v Kanssen in which he explained that the principle of ostensible authority

At [79] Lord Kitchin referred to a statement by Slade LJ in Rolled Steel Products (Holdings) Limited v British Steel Corporation [1986] Ch 246 at 284-5, where he said that the nature of a proposed transaction may put a third party on enquiry as

At [81], Lord Kitchin referred to something said by Lord Scott in Criterion Properties Plc v Stratford UK Properties LLC [2004] UKHL 28 where he said that if a person dealing with an agent knows or has reason to believe that the transaction is contrary to the commercial interests of the agent's principal, it is likely to be very difficult for that person to assert with any credibility that he believed that the agent had apparent authority, and lack of such a belief would be

The conclusion, after discussing some authority which appeared to go the other way, which Lord Kitchin expressed on behalf of the Board, was at [93]: "The Board therefore concludes that PT Satria could not rely upon the apparent authority of Mr Joenoes to enter into the HOA on behalf of EACL if it failed to make the inquiries that a reasonable person would have made in all the circumstances in order to verify

Mr Smith relied primarily on the very unusual terms of the transaction. As appears from the provisions of the Sale and Purchase Agreement which I referred to earlier, the terms were that, although a consideration of a total of £237 million was to be paid, the only Initial Consideration was £1. That triggered the obligation to complete on, indeed, the Purchase Date and on that date title was handed over to the Purchaser in the form of the assignment of the bank accounts, Mr Smith expressly accepting that the effect of the relevant clause was to effect a legal assignment of the chose in action which constitutes BMF6's bank accounts, together with title to what were called the Trust Receivables in that the Declaration of Trust was also executed on the same date, despite the fact that none of the consideration beyond the initial £1 was to be paid for another 32 days and despite the fact that that obligation was expressly said to be an unsecured obligation, thereby quite probably excluding the unpaid vendor's lien which would otherwise arise, combined with the fact that even the right to sue the Purchaser for the Deferred Consideration was subject to the very unusual limited recourse provision in clause 10.2, as a result of which it would have been entirely possible for Roundstone to sell or charge or otherwise dispose of the assets transferred under the Sale and Purchase Agreement without paying the Deferred Consideration and for the proceeds to disappear, at which point it would not even

That, Mr Smith said, was sufficiently egregious as a form of sale of assets of this type for any Purchaser to be put on enquiry as to whether Mr Oyekoya really did have the authority which he claimed to have. It would have been easy to make enquiries. The Purchaser, Roundstone, knew that GHL and PLL had been purportedly appointed as trustees and had appointed Mr Oyekoya or purported to appoint Mr Oyekoya as Receiver because they had seen the proof of

Having seen that BNY was the original Trustee, having seen that Mr Oyekoya was not appointed by the original Trustee but by two other entities purporting to act as trustees, Mr Smith submitted that they were on notice that there was a gap in the chain of succession because they had seen nothing to indicate how the new

He also referred to the fact that Roundstone's own evidence indicates that they were sufficiently concerned about the position at the time for the Roundstone board, in the words of Mr Osman's evidence, to have expressly relied on the third party protections in the documentation, which I will come to, and to have made it a condition that the Sale and Purchase Agreement be expressly affirmed and supported by the two trustees. Mr Smith submitted that all of that indicated that Roundstone had sufficient reasons to be concerned about the effectiveness and validity of the transaction to seek protection.

I accept, in particular, that the unusual terms of the transaction were sufficient to put Roundstone on enquiry. Enquiry would not have been difficult. All that Roundstone needed to do was to contact BMF6 and BNY and ask them to confirm whether there was any question over the validity of Mr Oyekoya's appointment. Had they made such enquiries, it is as plain as could be that they would have received a response, similar to that which BMF6 gave to GIL at an earlier stage,

Those conclusions make it unnecessary to deal with a third point urged by Mr Smith, which was that the onus was on Roundstone to show that it had no connection with two individuals, one being Mr Oyekoya and one being

It is a striking fact that in this case Roundstone is relying on the validity of acts of Mr Oyekoya in circumstances where, when BMF6's solicitors first attempted to correspond with Roundstone, the email forwarding the letter which had been served on Roundstone's agent in Tortola was forwarded to a Mr Cathersides, who has given evidence by witness statement before me, he acting on behalf of a corporate services provider called Mann Made Corporate Services (UK)

The evidence filed on behalf of Roundstone by Mr Osman attempts to suggest that there was no connection with those individuals, but the onus is on the defendant to show that it was without notice and, had it any connection with Mr Oyekoya, Mr Hussain or Mr Kalia, it does seem to me that Mr Smith is right that it could not rely on ostensible authority because it would be on notice of the

I do not think I need to reach a final conclusion on this aspect, in the light of my previous conclusion, so I will simply say that I think it very doubtful on the evidence before me -- which Mr Smith accepted had to be taken at face value, this being a Part 8 claim and there being no suggestion that I can resolve issues of disputed fact -- whether it has really been shown by Roundstone that there is no sufficient connection with any of the individuals on, as it were, the other side of

Nonetheless, as I say, it is not necessary for me to reach any final conclusion on that point. The effect of the conclusions I have already come to is that, subject to the specific provisions relied on by Roundstone, I am satisfied not only that GHL and PLL were never validly appointed as Trustees and Mr Oyekoya was never validly appointed as Receiver but also that the Sale and Purchase Agreement was not binding on BMF6 because it has not been established that Mr Oyekoya had either actual or ostensible authority to act on behalf of BMF6 and sell its assets; and in the absence of that it is not possible for Roundstone to establish that it is

I will simply add, as Mr Smith said, that in any event the plea of bona fide purchaser for value only applies to those who manage to acquire the legal estate

I turn to the other way in which Roundstone puts its case, which is to rely on specific protections for purchasers in the Deed of Charge. The first of these is found in clause 12.2. Clause 12 is headed "Protection of third parties" and

In the skeleton argument served on behalf of Roundstone, the emphasis is given to the words "purported" which appear twice in that clause and the submission is made that that clause is clearly designed to protect and does provide ample protection to Roundstone in the current circumstances. I agree with Mr Smith that that is to read too much into the clause. It does not provide, as it might have done, protection for those dealing with purported trustees or purported receivers, but only protection to those dealing with the Trustee and/or the Receiver. In the light of my previous conclusions, the only person who satisfied the description of the Trustee was BNY and there was no person who satisfied the description of the Receiver because no Receiver had been validly appointed: see clause 11.1, which I read earlier, as to what the definition of Receiver is, namely a receiver appointed by the Trustee to be receiver of the Charged Property. Since BNY is the only Trustee, and BNY did not appoint anybody, there is no and was no Receiver. If a person deals with a Trustee or Receiver, clause 12.2 in certain circumstances does give them protection in relation to the purported exercise of powers even if events have not in fact occurred to make those powers exercisable. That is not

I accept the submission of Mr Smith that somebody such as Mr Oyekoya, who was not validly appointed as receiver, is not a "Receiver" and that clause 12.2 is not cast in terms of a person purportedly appointed receiver. It proceeds on the premise that there is a proper appointment of a Receiver and is dealing with purported exercises of such a person's powers.

The second and third provisions which are relied on are both found in clause 15 of the Deed of Charge, which is headed "Further assurances and power of attorney". Clause 15.2 reads:

Clause 15.4 provides:

As with clause 12.2, I accept the submission that clause 15.2 only applies to the Trustee, that is the actual and validly appointed trustee, in this case BNY, and any

In those circumstances, although the Issuer, that is BMF6, appoints the Trustee and every Receiver to be its attorney with wide powers and agrees to ratify and confirm whatever any such attorney shall do or purport to do, it cannot validate the acts, or require BMF6 to ratify the acts, of someone such as Mr Oyekoya who I have found not to be validly appointed as a Receiver, and I do not think it assists

The final provision on which reliance is placed in the Deed of Charge is clause 21.2. Clause 21 deals with Trustee provisions. Clause 21.1 confirms that certain provisions of the Trust Deed apply mutatis mutandis for the purposes of this deed including clause 22 "Appointment of trustees" (it says clause 22 whereas in fact the appointment of trustees is dealt with in clause 23) and clause 21.2 then

That gives rise to a short question of construction, which is what is meant by “any person … assuming the position of trustee”. Does it mean anybody who becomes

In those circumstances, I accept Mr Smith's submission that the better construction is that those “assuming the position of trustee” means those who become trustees other than by appointment. It is not easy to think of many examples of those who become trustees other than appointment, but he was able to point me to one example specifically dealt with in the Trust Deed. Clause 23.4,

He submitted, and I accept, that a person who became the successor trustee under that provision would be a person “assuming the position of trustee”, without there being anything which one could point to as being in the nature of an appointment.

In case I am wrong on that and clause 21.2 of the Deed of Charge was apt to confer powers on those not only validly appointed as trustees but those who were purportedly appointed as trustees and assumed to act as trustees, there is another point which emerged in the course of argument which is this: that the powers vested in the Trustee, in the singular, are those found in the Trust Deed, among other things; and, where there is more than one trustee, clause 23.1 of the Trust Deed makes express provision for trustees to act by a majority, it being of course

Clause 23.1, however, provides (in part) as follows:

If, therefore, it is to be assumed, contrary to the view I have expressed, that clause 21.2 has the effect that GHL and PLL were to be treated as trustees for the purposes of the Deed of Charge, they would constitute a majority of the Trustees, there being three trustees, but neither of them is a Trust Corporation; see the judgment of Zacaroli J at [65] and [71] where he dealt with precisely this point.

And at [71], he said that:

He was dealing there with the question of whether the purported removal of BNY as Trustee was effective, it being provided that where the removal is of the only trustee which is a Trust Corporation the removal shall not become effective until such time as BMF6 as Issuer had appointed a Trust Corporation as a replacement

In those circumstances, even if I were wrong on the question of construction, GHL and PLL would not have had power to act by a majority, neither being a Trust Corporation, and for that reason clause 21.2 would not provide a validity

A point was made, in both Mr Osman's third witness statement and the skeleton argument served on behalf of Roundstone, that the documentation, both in the Terms and Conditions of the Notes and in the Trust Deed, envisages a procedure whereby the Issuer may redeem the Notes by the Notes having been put up for auction to the highest bidder, and it was said that the Sale and Purchase

I agree with Mr Smith that whatever the precise circumstances in which such a sale might or might not take place and such a redemption might or might not happen, it cannot by itself bear on the question of whether Mr Oyekoya had authority to act on behalf of BMF6 or whether the Sale and Purchase Agreement is otherwise binding on BMF6. Those provisions in fact say nothing about the

In those circumstances, I find that the claimant has made out its claim as sought and I will hear from Mr Smith and Mr Nkafu as to the terms of any Order to give